bluuebunny/crossref_metadata_2025 huggingface dataset:
Similarity, Dependence and Correlation Considerations for Risk Adjusted Values in Hydrocarbon Exploration
Authors: Mackay J.A. , Bagirov E. , Lerche I.
Published: January 2017

This paper explores the influences of both stochastic and deterministic correlations on single and multiple hydrocarbon exploration opportunities within the framework of both unlimited and limited corporate risk tolerances. In addition, both similar and dissimilar opportunities are considered, as well as geologic similarities and fiscal dissimilarities to illustrate the influences of different combinations of factors on risk adjusted values for both single and multiple opportunities.

Numerical illustrations are provided to illuminate each of the influences and patterns of behaviour that are sketched, so that a pictorial representation is available of the topological structure of each of the individual points being addressed. The numerical examples include both the stochastic and deterministic effects of correlated and similar behaviours of opportunities in relation to variable success probabilities, corporate risk tolerance, and constraints due to a fixed corporate budget.
The Construction of Galilee as a Place for the Historical Jesus—Part I
Authors: Moxnes Halvor
Published: January 2017

How have scholars understood and constructed Galilee as a place for the historical Jesus? This study traces the development of the image of Galilee from the early nineteenth century until the Third Quest. The picture of Galilee in the nineteenth century was influenced by the major cultural ideas of Europe at the time: colonialism, and the emergence of nationality, ethnicity, and race as categories of identity. Central figures in this period were F. Schleiermacher, D. F. Strauss and E. Renan. Drawing on nineteenth century studies of ethnicity and race in Nazi Germany in the first part of the twentieth century, some scholars portrayed Galilee as a non-Jewish region and the home of a non-Jewish Jesus. This question of race was discredited after World War II, and in the Second Quest there was little interest in Galilee. Jesus was seen over against Judaism merely as a religious system.
Holy History in The hebrew Scriptures and the Ancient World: Beyond the Present Debate
Authors: Gnuse Robert Karl
Published: January 2017

The author evaluates the notion of “holy history” as a theological concept for understanding the Hebrew scriptures and for comparing these scriptures to ancient near eastern beliefs. He traces the history of the debate in the last generation from scholars who vividly contrasted Israel's beliefs with those of the ancient world to those who emphasized Israel's continuity with predecessor cultures. The author proposes an approach wherein Israel is perceived as developing out of the values of the ancient world, but “reconstructing” these values into a new ideational matrix.
Psychological and Psychoanalytical Approaches to Interpreting the Bible in Social-Scientific Context
Authors: Pilch John J.
Published: January 2017

This article explains the inadequacy of modern Western psychological and psychoanalytical approaches to interpreting people and their documents from any other culture modern or ancient. It then guides the reader through the basic literature of cross-cultural psychological approaches in the modern world which can be adapted to interpreting the ancient Middle Eastern world and the sacred writings it produced, particularly the Bible.
Earnings Management: The Effect of Ex Ante Earnings Expectations
Authors: Payne Jeff L. , Robb Sean W. G.
Published: January 2017

SEC Chairman Arthur Levitt has recently expressed concerns about the use of earnings management to meet Wall Street earnings expectations set by analysts' forecasts. We investigate whether managers aim to “meet or beat” analysts' forecasts and examine the influence of analysts' forecast dispersion on this aim. Our results are consistent with managers aligning earnings with market expectations established by analysts' forecasts. Additionally, our evidence is consistent with managers behaving as though they have greater incentives to increase income in settings where the dispersion in analysts' forecasts is low.
Determining the Optimal External Audit Interval for Private (and Family-Controlled) Companies
Authors: Carey Peter , Guest Ross
Published: January 2017

This paper suggests and applies a method of optimally varying the external audit interval in response to variations in agency costs. Flexibility in the audit interval can be seen as a way of meeting the growing call to adapt the traditional attest service to meet a wider range of needs of decision makers. The study applies the model of optimal internal audit scheduling in Boritz and Broca (1986) to determine the optimal timing of financial statement audits for a sample of 53 private (and family-controlled) companies. The optimal interval between audits is the result of a trade-off between the audit cost and the losses that are expected to accrue in the absence of auditing. The rate at which losses accrue in the absence of auditing defines the riskiness of the firm. This study extends prior research on optimal audit scheduling in several ways: the audit units are external audit units, the audit cost is a function of the audit interval and actual rather than hypothetical data are used.
The Effect of Tax Rates and Transaction Costs on the Tax Trading Option: Evidence from Stock Splits
Authors: Porter Susan L. , Tse Senyo , Yaansah Robert
Published: January 2017

Previous research suggests that investors' timing option on the realization of capital gains and losses is valuable when long-term and short-term capital gains tax rates differ. Prior studies simulate returns to a variety of tax strategies and find that the benefits of the tax trading option are sensitive to investors' assumed trading behavior as well as to tax rates, transaction costs, and stock price variances. However, the historical effects of changes in these conditions have not previously been estimated. In this study, we use the stock return variance changes that typically accompany stock splits to examine the effects of tax rates, transaction costs, and interest rates on the value of the tax trading option. Our results suggest an increase in the value of the tax option when trading costs declined after the 1975 elimination of fixed commissions. We also find evidence of a substantial reduction in the value of the tax option when the gap between short-and long-term capital gains tax rates was reduced in 1982.
Analysts' Interpretation of Transitory Earnings Components: Evidence from Forecast Revisions after Disclosure of the 1993 Deferred Tax Adjustment
Authors: Chen Kevin C. W. , Danielson Morris G. , Schoderbek Michael P.
Published: January 2017

This study examines analyst forecast revisions after the disclosure of firms' deferred tax adjustments following the U.S. Omnibus Budget Reconciliation Act of 1993 (OBRA), which raised the corporate income tax rate from 34 percent to 35 percent. This deferred tax adjustment was a one-time item, and should have had no effect on analyst estimates of future earnings. However, we find that forecast revisions issued after the disclosure of an income-decreasing deferred tax adjustment were positively related to the amount of the adjustment. The complexity of the deferred tax adjustment and the newness of SFAS 109 (which required the adjustment) may have contributed to the failure of analysts to properly interpret this one-time item when revising their earnings forecasts.
Corporate Disclosure Quality and Properties of Analysts' Information Environment
Authors: Byard Donal , Shaw Kenneth W.
Published: January 2017

This study examines how the quality of corporate disclosures impacts the precision of information that financial analysts incorporate into their forecasts of annual earnings. Our empirical measures distinguish between individual analysts' common and idiosyncratic (uniquely private) information precision, and between the quality of firms' public disclosures and the quality of their private communications with analysts. We find that higher quality disclosures increase the precision of analysts' commonand idiosyncratic information. Further, we find that the increased precision of analysts' idiosyncratic information is primarily due to higher quality annual and quarterly accounting-related disclosures, publicly available to all investors. These results suggest that higher-quality public information better enables analysts to generate idiosyncratic insights. We find no evidence to suggest that the quality of analysts' private communications with management impacts analysts' information precision after controlling for the quality of publicly available accounting information. In sum, the results suggest that when forming their annual earnings forecasts, analysts rely more heavily on publicly available financial data rather than privileged communications with management.
Comparative Value Relevance Among German, U.S., and International Accounting Standards: A German Stock Market Perspective
Authors: Bartov Eli , Goldberg Stephen R. , Kim Myungsun
Published: January 2017

In recent years, German companies have reported consolidated financial statements under German GAAP, U.S. GAAP, or International Accounting Standards (IAS). Market observers, researchers, and regulators have argued that financial statements prepared under the shareholder (or investor) model, such as U.S. GAAP or IAS, provide better information than financial statements prepared under the stakeholder model (German GAAP). They further have argued that U.S. GAAP is more rigorously defined and, therefore, provides information superior to that under IAS. We investigate comparative value relevance, measured as the slope coefficient of the returns/earnings regression. Within our sample of German companies traded on German stock exchanges, the value relevance of U.S. GAAP- and IAS-based earnings is higher than that of German GAAP-based earnings. Our result holds only for profit observations, suggesting that reporting regime does not have an influence on the quality of earnings in the case of loss firms. However, we do not find a significant difference in value relevance between U.S. GAAP and IAS after controlling for self- selection. A major contribution of this research is that, unlike prior research, we measure stock returns for all sample firms in the German stock market only, and therefore are not reliant on the perhaps strong assumption underlying prior studies of similarity of pricing across markets domiciled in different countries.
How Does the Market Interpret Analysts' Long-Term Growth Forecasts?
Authors: Sharpe Steven A.
Published: January 2017

The long-term growth forecasts of equity analysts do not have well-defined horizons, an ambiguity of substantial import for many applications. I propose an empirical valuation model, derived from the Campbell-Shiller dividend-price ratio model, in which the forecast horizon used by the “market” can be deduced from linear regressions. Specifically, in this model, the horizon can be inferred from the elasticity of the price-earnings ratio with respect to the long-term growth forecast. The model is estimated on industry- and sector-level portfolios of S&P 500 firms over 1983-2001. The estimated coefficients on consensus long-term growth forecasts suggest that the market applies these forecasts to an average horizon somewhere in the range of 5 to 10 years.
The Value-Relevance of Changes in Financial Leverage Beyond Growth in Assets and GAAP Earnings
Authors: Dimitrov Valentin , Jain Prem C.
Published: January 2017

The economic performance of a firm is not directly observable. Prior research has shown that accounting earnings and cash flows measure the otherwise unobservable economic performance. However, these measures of performance are noisy and other variables can help us learn about economic performance. We argue that changes in financial leverage provide information about performance beyond what is available from earnings and cash flows. This concept is different from the traditional view in which financial leverage is a measure of risk. We show that changes in financial leverage are value-relevant beyond accounting earnings. As part of this analysis, we also provide evidence on the value-relevance of growth in assets. For both changes in financial leverage and growth in assets, we document that the information in these variables is incremental to the information in earnings, operating cash flows, and accruals. Although our focus is on contemporaneous returns, we also find that the market does not impound available information in changes in financial leverage in a timely fashion.
Will Harmonizing Accounting Standards Really Harmonize Accounting? Evidence from Non-U.S. Firms Adopting U.S. GAAP
Authors: Bradshaw Mark T. , Miller Gregory S.
Published: January 2017

International harmonization of accounting standards appears to be inevitable. However, little evidence exists regarding whether harmonizing accounting standards will result in actual harmonization of accounting practices. Using a sample of non-U.S. firms that adopt U.S. Generally Accepted Accounting Principles (GAAP) to provide evidence on this issue, we find that most firms that adopt U.S. GAAP adjust their accounting methods to those required by U.S. GAAP. Properties of the firms' accounting numbers also change significantly after adopting U.S. GAAP, but they do not fully converge toward that of U.S. firms. In the cross-section, regulatory oversight is associated with more successful implementation of U.S. GAAP; firm-specific capital market incentives are not. These results suggest that harmonizing accounting standards may result in more comparable accounting methods and numbers, but that effective regulatory oversight will be important in reaching this outcome.
Cash Flow and Accrual Surprises: Persistence and Return Implications
Authors: Melendrez Kevin D. , Schwartz William C. , Trombley Mark A.
Published: January 2017

This paper investigates the return implications of the cash flows and accruals components of unexpected earnings. We find that unexpected cash flows have greater persistence than unexpected accruals and that this difference is driven primarily by loss firms. We also find that markets appear to react more (less) strongly to the unexpected cash flow (accrual) component of total unexpected earnings, but that only firms that beat both earnings expectations and cash flow expectations are rewarded with higher returns. These results are consistent with at least some fixation on the total earnings number, to the exclusion of more economically important cash flow surprises.
Changes in Discretionary Financial Reporting Behavior following the Sarbanes-Oxley Act
Authors: Lobo Gerald J. , Zhou Jian
Published: January 2017

We examine the effect of the Sarbanes-Oxley Act (SOX) on the extent of aggressive versus conservative reporting behavior of public companies. SOX imposes considerably greater potential penalties on chief executive officers (CEOs) and chief financial officers (CFOs) who engage in financial wrongdoing. Therefore, risk-averse managers are likely to report lower earnings by reducing discretionary accruals following SOX. Our results, based on a matched sample of dual-listed Canadian firms and their domestically listed counterparts, indicate that (1) firms subject to SOX are more conservative in financial reporting in the post-SOX period as evidenced by lower signed discretionary accruals, the Ball and Shivakumar (2005) conditional conservatism measure, and the Penman and Zhang (2002) unconditional conservatism measure; and (2) the impact of SOX on firms' conservative reporting through discretionary accruals in the post-SOX period is not homogeneous—that is, it is more pronounced for firms that were aggressive in the pre-SOX period.
An Additional Source of Financial Analysts' Earnings Forecast Errors: Imperfect Adjustments for Cost Behavior
Authors: Kim Myungsun , Prather-Kinsey Jenice
Published: January 2017

We test a hypothesis that financial analysts use a simple algorithm of an equal growth rate for expenses as is for sales when they forecast corporate earnings by examining the errors in analysts' earnings forecasts. If expenses change at a lower rate than sales in absolute terms due to the fixed portion of expenses, then analysts' forecasted expenses will be higher (lower) than actual when they forecast an increase (decrease) in sales, resulting in lower (higher) forecasted than actual earnings assuming that analysts have perfect sales forecasts. Using 3,220 individual financial analysts' sales and earnings forecasts during the period of 1996–2005 for which sales forecast errors are close to zero, we find that the errors in analysts' earnings forecasts are positively related to their expected sales growth rate. This result is consistent with the hypothesis that analysts' imperfect adjustments of cost behavior result in systematic errors in their earnings forecasts.
The Value-Relevance of Advertising: Evidence from Pharmaceutical Industry
Authors: Gu Feng , Li John Q.
Published: January 2017

This study examines whether advertising by pharmaceutical firms is value relevant. The large amount of pharmaceutical advertising spending and its rapid growth in recent years raise important questions about the contribution of advertising to pharmaceutical firm value. Our evidence indicates that stock investors view advertising by pharmaceutical firms as a source of future economic benefits, consistent with the value-enhancing role of pharmaceutical advertising. Advertising expenditures of pharmaceutical firms have a greater association with the firm's stock prices and returns than those of nonpharmaceutical firms. We also find that advertising expenditures of pharmaceutical firms, similar to capitalized intangible assets but unlike fully expensed research and development (R&D) expenditures, are not significantly related to future earnings variability and uncertainty. This evidence suggests high reliability of future benefits associated with advertising in pharmaceutical industry. The high value relevance and reliability of pharmaceutical advertising have implications for the accounting treatment of this intangible expenditure (i.e., expensing vs. capitalization).
A Variance Decomposition Primer for Accounting Research
Authors: Callen Jeffrey L. , Segal Dan
Published: January 2017

This pedagogical note introduces the accounting-based variance decomposition methodology of Vuolteenaho (2002) in a relatively simple format for the edification of accounting scholars and doctoral students who wish to use variance decomposition in their research. In addition to presenting an example that explicates the variance decomposition approach, we provide well-documented SAS and STATA programs for estimating variance decompositions from cross-sectional time-series data.
Discretionary Accruals and the Emergence of Profitability
Authors: Mosebach Michael , Simko Paul
Published: January 2017

This study examines discretionary accruals associated with firms' reaching profitability after a series of quarterly losses. As firms approach profitability, we posit they will be characterized with less income increasing discretion given the reversing nature of accruals. We find results consistent with this expectation. The discretionary accrual behavior for firms that remain profitable contrasts to that of a control sample that does not remain profitable. In the quarters preceding a reported profit, firms that sustain profitability use significantly lower income increasing discretionary accruals. For these firms, we also find that past discretion relates inversely to future profitability. We interpret our results as evidence that discretionary accruals for persistent loss firms can serve as a leading indicator of the ability to sustain future profits.
Two Tax Policies toward Tax Havens: Effects on Production and Capital Location Decisions
Authors: Halperin Robert , Srinidhi Bin
Published: January 2017

This paper examines the production and capital location effects of two approaches to taxing the incomes of subsidiaries of multinational enterprises (MNEs) in tax haven countries. The United States and the United Kingdom immediately tax “Foreign Base Company Sales Income” (FBCSI) of foreign subsidiaries reselling inventory outside the subsidiary's host country except when it is manufactured in the host country. The second approach used by Canada does not tax any active income earned in the tax haven country. We show that FBCSI induces U.S. MNEs manufacturing their product in the United States to reduce sales arid increase prices in United States. Alternately, they manufacture in the tax haven country, resulting in lower U.S. tax collections, lower quantities, and higher prices. These effects are absent for Canadian MNEs.
Frequency of Corporate Announcements via Stock Exchange Web Sites and Market Efficiency
Authors: Rahman Asheq , Debreceny Roger
Published: January 2017

Continuous corporate reporting is gaining prominence in the current real-time reporting environment. This has added a new dimension to corporate reporting, the frequency with which firms report their material information. The purpose of this study is to assess the impact of frequency of online material information disclosures on market efficiency. Our measure of frequency of online material information disclosures is the monthly frequency of corporate announcements via stock exchange Web sites. Our measures of market efficiency are monthly market adjusted absolute returns, monthly trading volume, and monthly average of daily bid-ask spread. We find that the frequency of announcements is positively associated with returns and volume metrics and negatively associated with bid-ask spread. We infer from the results that the frequency of material online disclosures has a beneficial impact on market efficiency.
Security Price Reactions to Changes in Foreign Currency Translation Standards
Authors: Brown Betty C. , Brandi Jay T.
Published: January 2017

This paper examines security price reactions to the early adoption of FASB Statement of Financial Accounting Standards (SFAS) No. 52. Abnormal returns of a group of multinational enterprises that adopted the standard as of December 31, 1981, were compared with the abnormal returns of a control group of multinationals that postponed adoption. Differences between the two groups began two weeks prior to year-end and continued for five months. This raises questions about both market efficiency and investors' abilities to distinguish between economic changes and accounting changes.
Why is Financial Reporting so Inefficient?
Authors: Hakansson Nils H.
Published: January 2017

Those who know do not tell; those who tell do not know. Lao Tse

In earlier papers (Hakansson, 1977, 1981), the equilibrium properties of two financial disclosure scenarios, “laissez-faire” and “timely public disclosure” were compared. The analysis showed that, measured in welfare space, the incentives of only two groups, less well-to-do subscribing investors and nonsubscribing investors (who tend to be “small” in terms of their resources) prefer the second scenario even though it results in greater aggregate output across states. The incentives of management, information searchers, and more well-to-do investors favor a “wide window” between significant events affecting the firm and their public disclosure, at least in the short run. The “cost” of this scenario is that it draws a sizable group of talented people from the productive sector into “scooping” information before its eventual disclosure. It is noteworthy that a regulatory solution is likely to further reduce, not improve, the productive efficiency of the economy.

This paper examines the financial disclosure question further and argues that its resolution is directly linked to the principal-agent “contract” between the shareholders and management. These contracts do exhibit some peculiar properties, especially in the area of management compensation and with respect to MBOs, in which management apparently manages to be both the buyer and the “agent” for the seller.
The Flight Paths of Migratory Corporations
Authors: Hines James R.
Published: January 2017

American corporations earn a large and growing share of their profits from their foreign operations. U.S. law taxes American corporations on their worldwide income, and in so doing may discourage new firms from making the United States their primary residence while encouraging American corporations to leave the country for offshore tax havens. This paper evaluates the incentives American firms face in considering whether to relocate their site of legal residence abroad. The case of McDermott Inc., an American multinational that reorganized as a Panamanian corporation in 1982, is considered in detail. Aggregate data suggest that firms' incentives to follow McDermott in relocating offshore rose steadily through the 1980s until passage of the Tax Reform Act of 1986, which substantially reduced the payoff from relocating.
Incentive Effects and Managerial Compensation Contracts: A Study of Performance Plan Adoptions
Authors: Gaver Jennifer J.
Published: January 2017

This study examines the relation between manager-shareholder agency costs and the decision to adopt a long-term performance plan. It is argued that firms with mature investment opportunity sets adopt performance plans to equate manager-shareholder planning horizons. It is also argued that firms undergoing strategic change adopt plans to reduce managerial exposure to risk. Logit analysis on a sample of 81 performance plan adoptions and a random sample of 78 nonadoptions indicates that firms with stagnant investment opportunity sets and firms undergoing strategic change tend to be performance plan adopters. There is also evidence that performance plan adopters have a higher incidence of lapsed stock option plans than nonadopters. Overall, the results indicate that there are systematic differences between performance plan adopters and non-adopters which appear to be related to the manager-shareholder agency problems faced by the firm.
Abnormal Returns to Stockholders of Firms Acquired in Business Combinations and Leveraged Buyouts
Authors: Torabzadeh Khalil M. , Bertin William J.
Published: January 2017

This study analyzes the returns to target stockholders under business combinations and leveraged buyouts surrounding the acquisition announcements. After controlling for the effects of transaction-related factors and firm-specific financial characteristics, target firms in business combinations are found to capture significantly greater abnormal returns compared to their counterparts engaged in leveraged buyouts. The findings imply that the potential risk-adjusted economic gains of a business combination significantly exceed the potential risk-adjusted productive gains associated with restructuring a public firm into a private concern through a leveraged buyout.
Term Vs. Whole Life Insurance—A Note
Authors: Berkovitch Elazar , Venezia Itzhak
Published: January 2017

This paper attempts to explain why individuals may purchase whole life insurance even when term (short period) insurance seems to be less expensive. Under a whole life insurance contract (referred to also as straight life insurance) the insured pays the same rates over his or her lifetime although his or her future health may change. Individuals whose health has deteriorated (relative to their age) over time are more likely to hold on to their contracts than individuals whose health has improved (relative to their age) and who may find it profitable to break their contract and purchase a new one. The insurer, recognizing this adverse selection problem, must set its price for the initial period (and thus for the entire life of the insured) so that it compensates for the above-mentioned adverse selection. The insurer will hence set the price (rate) of whole life insurance higher than the rate of term insurance, since the latter form of insurance is not susceptible to future adverse selection.

Assuming the competition between insurers drives their profits to zero (i.e., assuming they provide fair premiums), it is shown that the equilibrium price of whole life insurance is higher than for term insurance. The insured, however, will purchase only whole life insurance, since the additional insurance which the whole life contract provides on the stochastic future insurance rates is priced fairly, and a rational risk-averse insured will always prefer purchasing such insurance.
Bankruptcy Prediction Using Quarterly Financial Statement Data
Authors: Baldwin Jane , Glezen G. William
Published: January 2017

The purposes of this study were to assess the usefulness of quarterly data for predicting bankruptcy and to determine if the earlier prediction by quarterly bankruptcy models can be obtained without the sacrifice of accuracy achieved by annual bankruptcy models. A sample of 40 public firms entering bankruptcy from 1977 to 1983 was matched on the basis of fiscal year, industry, and asset size with 40 nonbankrupt firms. Quarterly financial data were obtained from the firms' 10-Q reports filed with the Securities and Exchange Commission (SEC), whereas annual data were obtained from the 10-K reports.

Multiple discriminant analysis was used to derive quarterly bankruptcy prediction models for each of the three quarters before and after the last annual period preceding bankruptcy and for the last annual period preceding bankruptcy. Twenty-four financial ratios that were identified in previous studies as being useful for bankruptcy prediction were selected as the independent variables in the stepwise discriminant process.

The classification accuracy, using alternative assumptions regarding prior probability of bankruptcy and cost of misclassification and the statistical significance of the quarterly models for each of the six quarters tested, indicated that quarterly data are useful for predicting bankruptcy. There was no statistical evidence to suggest that the classification accuracy of the annual model was superior to that of the quarterly model. This finding suggests that more timely bankruptcy predictions can be provided to investors, creditors, and auditors by quarterly models without the loss of accuracy provided by annual models.
Financial Characteristics of Neglected and Institutionally Held Stocks
Authors: Hessel Christopher A. , Norman Morton
Published: January 2017

Institutional investors are important both because of the magnitude of their holdings and trading activity and because their decisions to buy or sell can signal a good takeover candidate as well as in some instances facilitate the takeover. However, little is known as to why institutions prefer one stock to another. Through discriminant analysis seven variables (six accounting ratios and size) are identified that reveal the differences in financial characteristics between neglected and strongly held firms. Regression analysis is then used to show that four variables from the set of seven discriminant variables are consistent predictors of the actual fraction of outstanding shares held by financial institutions. The analysis provides some support for the claims of corporate chief financial officers that institutions focus only on short-term performance. However long-term performance is also shown to be important.
Margin Requirements and Hedging Effectiveness: An Analysis in a Risk-Return Framework
Authors: Shanker Latha
Published: January 2017

The wave of innovation that swept the field of finance in the last fifteen years has resulted in the creation of different instruments that could serve effectively as substitutes in performing different functions. One important function, that of hedging risk, may be performed by futures and options. The regulations of the markets in which these instruments trade are important determinants of the competitiveness of the different substitutes. One such important regulation is that of the margin requirement of futures and options markets. This paper studies the effect of an increase in the margin requirement on the hedging effectiveness of the hedging instrument and its demand by the hedger. Empirically, the paper compares the hedging effectiveness of currency options and futures with and without margin inclusion. The results indicate that margin regulations for these two instruments are such that the instruments are competitive in terms of what they offer the hedger.
The After-Tax Yield to Maturity of a Premium Bond: Bias from a Simple Approximation
Authors: Heuson Andrea J. , Rodriguez Ricardo J.
Published: January 2017

When finding the after-tax yield to maturity of a bond, it is customary to use the approximate relationship: after-tax yield = (1 - tax rate) × (before-tax yield). This paper provides a theoretical justification for this simplified formula by showing that, for premium bonds, it can be obtained from the complex implicit function defining the exact after-tax yield by using a first-order Taylor series approximation. Such simple approximations normally result in potentially large errors, and this is indeed what our simulation results show. Nevertheless, the approximation formula's error possesses the desirable properties that it is consistent in sign and bounded. Hence, the approximate formula, although easy to apply, should be used with caution.
A Note on the Relationship between Firm Size and Return in the Electric Utility Industry
Authors: Davidson Wallace , Ferris Kenneth , Reichenstein William
Published: January 2017

Prior research has argued that given the well-documented inverse relationship between firm size and market returns, smaller utilities should be allowed to earn higher accounting rates of return than larger utilities. To test the validity of this argument, this study investigated the relationship between firm size and market returns in the electric utility industry for the period 1962 through 1985 and found no evidence of either a positive or negative size effect. Moreover, although market returns on utility stocks were found to be higher in January than in non-January months, this January effect was found to be unrelated to firm size. In short, this study found no evidence that allowable accounting rates of return should be adjusted by regulatory authorities to reflect a firm's size.
Accounting Methods and Differential Stock Market Response to the Announcement of Earnings
Authors: Pincus Morton
Published: January 2017

The objective of this study is to assess the extent to which previously documented cross-sectional differences in stock market responses to earnings announcements are associated with firms' in-place voluntary accounting method choices. The possibility that managers may manage reported earnings via the choice of accounting policies provides a motivation for the study. Some conjectures about differences in “noise” in earnings signals generated under alternative accounting methods are developed and tested by estimating firm-specific earnings response coefficients. Both individual method choices (e.g., LIFO versus FIFO) and accounting method portfolios (conservative versus liberal sets of depreciation, inventory, and investment tax credit accounting alternatives) are examined. Overall there is little empirical support for the proposition that voluntary accounting method choices have a pervasive first-order effect on stock market reactions to earnings announcements.
An Empirical Investigation of the Extent of Corporate Financial Disclosure in the Oil and Gas Industry
Authors: Malone David , Fries Clarence , Jones Thomas
Published: January 2017

The principal research question addressed by the study was: Are there identifiable and measurable factors that are associated with the extent to which firms in the oil and gas industry disclose financial information?

Extent of financial disclosure was measured by using a weighted index of disclosure items. The 10-K and annual reports of 125 oil and gas firms were examined in order to identify various financial disclosures provided by each firm. This set of disclosures was weighted by oil and gas financial analysts according to the importance of each disclosure in an investment decision. The items of information provided by an individual firm were then applied to the index. The dependent variable, extent of financial disclosure, was the ratio of a firm's total disclosure score to the firm's total possible disclosure.

A stepwise regression model was used to determine which variables were “best” in explaining extent of financial disclosure. Of the ten independent variables entered, four were retained in the final model at the .20 level of significance: exchange listing status, audit firm size, ratio of debt to total equity, and number of shareholders. The final model was examined for the significance of parameter estimates. Three variables—listing status, ratio of debt to total equity, and number of shareholders—were determined to be statistically significant.
Capital Market Response to SFAS Nos. 8 and 52
Authors: Rezaee Zabihollah , Malone R. Phil , Briner Russell F.
Published: January 2017

This study investigates the capital market response to Financial Accounting Standards Board (FASB) policy deliberations on foreign currency translations (FCT) by concentrating on five specific events associated with such deliberations. Examining the possible effects of these events, we argue that a market response to FASB policy deliberations on FCT could result from the effects of new information or from the effects of expected changes in managerial decisions. The tests utilized in this paper are designed to detect effects of both types. Generally, no apparent significant market reaction to three of the five events was observed. We found an apparent weak but significant reaction to one event and inconclusive results for a fifth.
The Impact of Announcement Timing on the Informativeness of Earnings and Dividends
Authors: Brown Lawrence D. , Choi Dosoung P. , Kim Kwon-Jung
Published: January 2017

We relate the informativeness of earnings and dividend announcements to their timing relative to the fiscal quarter end to which the earnings pertain. Evidence is provided that the information content of earnings decreases as the timing of its announcement relative to the fiscal quarter end increases, and that such information erosion is more pronounced for smaller firms. Evidence is also provided that the information content of dividend announcements increases as its timing relative to the fiscal quarter end increases, and that such information enhancement is relatively more pronounced for larger firms. The results suggest that preannouncement information precision and announced information precision have offsetting effects on the informativeness of financial information, and that the nature of the offset depends on the type of information and firm size. More specifically, the predisclosure information effect is more pronounced for earnings and small firms, whereas the announced (new) information effect is more pronounced for dividends and large firms.
A Test of the Abandonment Hypothesis Using Voluntarily Liquidating Firms and Unprofitable Surviving Firms
Authors: Schnusenberg Oliver , Skantz Terrance R.
Published: January 2017

This study tests the abandonment hypothesis utilizing a sample of poorly performing companies that do not liquidate, and a sample of strongly performing companies that liquidate voluntarily. This research design, where the liquidation (or nonliquidation) event disagrees with firms' earnings histories, eliminates certain confounding effects and tests the abandonment option hypothesis in contexts not previously studied.

For the poorly performing surviving concerns, we find that book value increases and earnings decreases in valuation significance as the number of consecutive losses increases. As predicted by the abandonment hypothesis, a sufficiently weak earnings history increases the reliance on book value even though bankruptcy or liquidation is not imminent.

For the voluntarily liquidating group, book value increases and earnings decreases in valuation significance in the years immediately preceding liquidation. This suggests that, even in the absence of financial distress, the reliance on book value increases as abandonment becomes imminent.
The Impact of Legal Liability Regimes and Differential Client Risk on Client Acceptance, Audit Pricing, and Audit Effort Decisions
Authors: Gramling Audrey A. , Schatzberg Jeffrey W. , Bailey Andrew D. , Zhang Hao
Published: January 2017

This study uses experimental methods to examine client acceptance, auditor pricing and effort decisions for clients of varying risk under two legal rules, joint and several liability, and proportionate liability. We predict greater availability of audit services for high-risk clients, lower audit prices, and lower audit effort under proportionate liability relative to joint and several liability. Our experimental evidence does not strongly support predicted prices due to underpricing behavior, but prices do reflect risk differences across client groups for both liability regimes. The results also exhibit some support for the predictions that auditors select low effort for the lowest-risk clients, and a lower effort level under proportionate liability relative to joint and several liability for moderate-risk clients. As predicted for the highest-risk clients, high effort is selected under proportionate liability, and there is some evidence of a substantial reduction in contracting under joint and several liability.
Using Nonfinancial Information to Predict Financial Performance: The Case of the U.S. Airline Industry
Authors: Behn Bruce K. , Riley Richard A.
Published: January 2017

To enhance traditional financial reporting, academics and policymakers have suggested that financial statement users be provided with nonfinancial performance information that may enhance users' ability to evaluate and predict financial performance. This study tests this proposition by examining whether timely nonfinancial performance information is a useful predictor of financial performance in the airline industry. From analysts' written pronouncements and financial press articles we identify a number of fundamental metrics, including customer satisfaction, purportedly used by analysts and investors to assess airline performance. We empirically examine these metrics and find that on-time performance, mishandled baggage, ticket oversales, and in-flight service are significantly associated with our proxy for customer satisfaction. Using an instrumental variable for customer satisfaction, we find that customer satisfaction, load factor, market share, and available ton miles are contemporaneously associated with operating income and revenues and that customer satisfaction and available ton miles are contemporaneously associated with expenses. Finally, using one and two months of nonfinancial data, we find that nonfinancial performance information appears to be useful in predicting quarterly revenues, expenses, and operating income.
A Simultaneous Equations Analysis of Forecast Accuracy, Analyst Following, and Trading Volume
Authors: Alford Andrew W. , Berger Philip G.
Published: January 2017

We use a simultaneous equations model to study forecast accuracy, analyst following, and trading volume. Forecast accuracy and analyst following are determined simultaneously, with greater accuracy associated with higher following. This result supports the idea that an analyst's private information complements, rather than substitutes for, factors that increase certainty about the firm's prospects. Stocks generating more trading volume (and thus greater brokerage commissions) have higher analyst following. Given the simultaneity we document between accuracy and following, stocks that generate greater brokerage commissions not only directly induce higher analyst following but also indirectly enhance the accuracy of earnings forecasts about their firms. Finally, special items and a broad accounting-based signal of change impair analysts' ability to predict future earnings. The negative effect of special items on accuracy is consistent with concerns raised by standard setters that unusual events impair investors' ability to interpret future earnings.
Discussion: “A Simultaneous Equations Analysis of Forecast Accuracy, Analyst Following, and Trading Volume”
Authors: O'Brien Patricia C.
Published: January 2017

The paper by Alford and Berger (AB) examines some of the complexities of the “information environment” of traded firms. The concept of the information environment defies precise definition but nevertheless is believed to play an important role in price formation and market efficiency. The market generally impounds information most quickly and efficiently for large, successful, newsworthy, high-volume, closely followed firms. All these characteristics are associated with the information environment, but which of them cause greater efficiency and which are caused by it is an open question.
Recurring Infection and “Shunt Nephritis” in Home Hyperalimentation
Authors: Hallowell Edward , Bistrian Bruce R. , Blackburn George L. , Maini Baltej S.
Published: January 2017

A patient on home hyperalimentation after a series of infections, developed a “shunt nephritis” not unlike the nephritis reported in patients with hydrocephalus undergoing ventriculoatriostomy. Permanent eradication of infection and reversal of kidney damage required removal of indwelling catheter.
Clinical Research Tyrosine Turnover and Protein Synthesis During Parenteral Nutrition
Authors: Wells Frank E. , Smits Bernard J.
Published: January 2017

Three patients receiving total parenteral nutrition and one healthy subject receiving 5% glucose were infused for 10 hours with L‐(U14 C)tyrosine (1.5μCi/hr). Two alternative assumptions were made regarding the fate of labeled carbon. Total and oxidative fluxes of tyrosine were calculated and these were used to determine rates of protein synthesis arid breakdown. Patients showed positive net protein synthesis and oxidation of infused phenylalanine via tyrosine was shown not to be excessive.
Plasma Amino Acid Relationships During Parenteral Nutrition
Authors: Wells Frank E. , Smits Bernard J.
Published: January 2017

The plasma amino acids of 17 patients were studied before and during total parenteral nutrition (TPN). The amino acid (AA) pattern changed similarly for all patients. The AA concentration changes relative to preinfusion (PAER) were the most informative index of change. Two groups of AA were defined, the “branched chain” group (five amino acids) and the “hepatic” group (four amino acids) based on the correlation of PAER values. Comparison of PAER values with the ratio of AA intake to requirement indicated that the requirements of the sick patients were more similar to those of children than those of healthy adults.
Safflower Oil Emulsion: Single and Multiple Infusions With or Without Added Heparin in Normal Human Volunteers
Authors: Somani Pitambar , Leathem William D. , BARLOW ANNE L.
Published: January 2017

Intravenous hyperalimentation in chronically ill patients has become increasingly common in hospitalized patients. Total parenteral nutrition includes supply of carbohydrates, amino acids, and lipids. The safety of a new emulsion of safflower oil (Liposyn 10%) infused by peripheral vein was evaluated in 15 normal male volunteers. All subjects tolerated Liposyn infusion, with a low incidence of side effects, when given either as a single infusion or multiple daily infusions to provide 4% of daily caloric requirements in the form of linoleic acid for 5 consecutive days. In large doses, the lipid infusion was accompanied by a decrease in Lee‐White clotting time in most subjects, and 1.5 to 2 U/ml of heparin added to the emulsion reversed this effect. Such mini doses of heparin also accelerated the breakdown and disappearance of triglycerides, with a resultant increase in serum free fatty acids and cholesterol. These data suggest that safflower oil emulsion can be used as a source of essential fatty acids for intravenous alimentation. It is also suggested that patients receiving lipid infusion should receive heparin to minimize risks associated with hypercoagulability of blood.