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This study uses experimental data to compare the information generated by professional and nonprofessional investors when both groups receive access to the same financial disclosures. We also manipulate the disclosure level for both subject groups. Using the method developed by Barron, Kim, Lim and Stevens (1998), we then analyze the information contained in stock price forecasts that were made by the experimental subjects. Professionals on average inferred more information than nonprofessionals. The higher level of disclosure did not affect the information possessed by the professional investors. However, we find that a higher level of disclosure is associated with more private information being produced (or inferred) by nonprofessional investors. As a result, these subjects realized a significant improvement in the accuracy of their mean forecasts relative to their individual forecasts. This finding suggests that the enhanced capacity of firms to widely disclose information to all market participants via the Internet, together with the SEC's new “Fair Disclosure (FD)” regulation, has the potential to produce a significant increase in privately inferred information for on‐line nonprofessionals, potentially resulting in the aggregation of more diverse information into share prices.

Financial analysts are frequently viewed as information intermediaries who process and interpret firms' financial reports for other market participants. Much recent research, however, has cast doubts on analysts' ability to fully utilize the information in firms' financial reports. Using an alternative approach, this study aims to provide evidence on how sophisticated analysts are at using information in firms' financial reports.

The paper estimates different measures of firms' operational efficiency, all of which are derived from financial statement data, and compares the strength of the association between these measures and analysts' absolute forecast errors. It then compares a sophisticated frontier‐based measure of firms' operational efficiency that evaluates firms' performance relative to their competitors with three more traditional efficiency measures; specifically the return on asset (ROA) ratio, industry‐adjusted ROA, and the return on equity ratio.

The results indicate that the more sophisticated frontier‐based measure is more strongly negatively associated with analysts' absolute forecast errors than the other three measures. The results thus suggest that analysts are capable of undertaking a sophisticated analysis of the information in firms' financial reports, at least as it pertains to operational efficiency.

To the extent that analysts serve as a key group of users of financial information, these results are likely to be of interest to accounting policy makers.

In the wake of substantial losses suffered by derivatives dealers and end users in recent years, questions are being raised about the type of regulatory structure needed to monitor and control the use of derivatives. Financial institutions believe that the issue can be resolved by tighter internal controls, whereas regulators believe there is a need for more direct oversight. The conventional view is that derivatives are highly useful instruments which simply need to be handled with care. In this paper, it is argued that this belief is misplaced and, although useful for hedging, derivatives are a high risk technology which pose inherent difficulties for regulation and control. As suggested by Perrow, where the environment of such technologies is both complex and tightly coupled, such that any significant failure cannot be contained, the potential for catastrophe is significant. The foregoing analysis shows that derivatives operate in a complex and tightly coupled environment, posing a significant threat to the financial system. Regulatory reform would require much greater cooperation between regulators and a proactive approach to regulation rather than a reactive one.

This paper aims to provide evidence that will inform the convergence debate regarding accounting standards. The authors assess the ability of impairment reversals allowed under International Accounting Standard 36 but disallowed by the Financial Accounting Standards Board to provide useful information about a company.

The authors use a sample of 182 Malaysian firms that reversed impairment charges and a matched sample of firms which chose not to reverse their impairments. Further analysis examines if reversing an impairment charge is associated with motivations for and evidence of earnings management.

The authors find no evidence that the reversal of an impairment charge marks a company out as managing contemporaneous earnings. However, they document evidence that firms with high levels of abnormal accruals and weak corporate governance avoid earnings decline by reversing previously recognized impairments. In addition, companies that have engaged in big baths as evidenced by high accumulated impairment balances and prior changes in top management, use impairment reversals to avoid earnings declines.

The results of this study support both the informative and opportunistic hypotheses of impairment reversal reporting using Financial Reporting Standard 136.

The results also demonstrate how companies that use impairment reversals opportunistically can be identified.

The results support IASB’s approach to the reversal of impairments. They also provide novel evidence as to how companies exploit a cookie-jar reserve created by a prior big bath opportunistically.