Search results

The purpose of this paper is to investigate whether financial analyst coverage affects the dissemination of disclosed operating lease information into cash flow predictions and stock prices.

The difference in lease expense between capital/finance lease and operating lease reporting is estimated based on the approach in Hsieh and Su (2015). This difference is referred to as the earnings impact from operating lease capitalization and is only available from footnotes. The authors then include the level of financial analyst following in a cash flow model to study its impact on the cash flow predictive value of the earnings impact. Similarly, the level of financial analyst following is inserted in an earnings-return model to assess the effect of analyst coverage on the association between contemporaneous stock returns and earnings impact.

The authors find that the cash flow predictive value of the earnings impact shifts to the interaction between analyst coverage and the earnings impact, suggesting that the decision-usefulness of the earnings impact is conditioned on the level of analyst following. Nevertheless, the authors find that the earnings impact continues to have explanatory value for the contemporaneous stock returns, while the interaction between analyst coverage and the earnings impact does not. This finding suggests that the earnings impact is already fully reflected in stock prices regardless of analyst following.

Since the estimation of the earnings impact from reporting operating leases as capital leases is based on the method developed by Imhoff et al. (1991), the results and inferences are thus constrained by the validity of the method.

The authors find that financial analyst activities accelerate the incorporation of the earnings impact from operating lease capitalization in cash flow predictions, but it does not promote the impounding of the earnings impact into stock prices. This finding suggests that financial analysts' influence on the dissemination of the earnings impact hinges on the type of economic activity, and failing to consider the financial analyst following in studying the cash flow predictive value of the earnings impact would obscure the findings.

The authors extend the findings of prior research that financial analysts' activities promote the incorporation of firm-specific information into stock prices by investigating the impact of financial analysts on the dissemination of disclosed operating lease information.

Managers of defined-benefit (DB) firms have considerable discretion in deriving pension costs and flexibility in cash contributions to pension plans. Pension accruals occur when cash contributions differ from pension costs. The manipulable nature of pension costs and cash contributions allows managers of DB firms to manipulate pension accruals to achieve their desired earnings. We study whether DB firms with earnings management attributes (referred to as suspect DB firms) used more discretionary pension accruals (DPA) than non-suspect DB firms, especially after the passage of Sarbanes-Oxley (SOX).

The authors develop an aggregate measure of DPA to capture overall earnings management in pension accounting. They then employ a multivariate regression model to study whether the suspect DB firms engage in more DPA than non-suspect firms and to assess the impact of SOX on DPA for all DB firms and for suspect DB firms.

The authors find evidence that suspect firms inflate DPA to achieve their earnings goals and also that all DB firms and the suspect firms use more DPA in the post-SOX era compared to the pre-SOX period. In contrast, they observe no significant difference in real activities earnings management (REM) between suspect and non-suspect firms. In addition, neither the entire sample of DB firms nor the suspect firms display a significant change in REM after SOX.

The samples in the study are limited to firms with defined pension plans; thus, the findings cannot be generalized to all firms. In addition, as in other empirical studies relying on models to estimate earnings management proxies, this study inherits estimation errors from Jones and Roychowdhury's models. Consequently, the impact of these estimation errors cannot be ruled out.

The empirical findings of the study appear that instead of deterring DB firms from engaging in pension accruals earnings management, enacting the stringent anti-fraud SOX prompts these firms to rely more on accrual-based discretionary pension rather than switch to real activities manipulation to manage earnings.

While many prior studies focus on the impact of managing individual pension assumptions on earnings, the authors study overall earnings management in pension accounting by developing a model to derive an aggregate measure of pension earnings management.

The purpose of this paper is to examine whether the choice of accounting treatment of transition obligation under SFAS 106 affects the value of firms, and also whether the quality of earnings is improved after the implementation of SFAS 106.

Different regression models were employed on a sample of 50 immediate recognition firms and 50 matched prospective recognition firms. Chow test is also used to investigate the quality of earnings before and after the implementation of SFAS 106.

In spite of the significant difference in impact on earnings from the choice of treatment of transition obligation, the accounting choice has no significant impact on the total value relevance of earnings and book value. When immediate recognition method is applied, investors ignore the one‐time charge of transition obligation, and rely more on book value in the valuation of a firm. However, when prospective recognition method is applied, both earnings and book value are value‐relevant in the adoption year and also in the subsequent year. In addition, the paper finds that the implementation of SFAS 106 improves the value relevance of earnings.

Results are limited by the accuracy of the models used to measure value relevance of earnings and book value of equity.

Results may have implications for managers' choice of accounting treatment, and the evidence seems to support accrual basis over cash basis on earnings measurement.

The paper uses the value relevance approach to analyze the impact of SFAS 106 on the quality of earnings and book value of equity.

This study investigates the economic content of the two firm‐specific characteristics, size and book‐to‐market equity. Size is found to be significantly related to a combination of betas on all of the macro variables proposed in this research. Its significance persists through out the entire sample period. This provides further evidence that size is a proxy for pervasive risk factors in the stock market. The support for book‐to‐market equity’s role as a risk proxy is also evidenced, however to a lesser extent. Securities are then sorted into size and book‐to‐market equity portfolios and their effects on investment decisions are examined in the context of macro variables. Important investment implications are drawn based on the findings.

This study attempts to determine whether the level and volatility of interest rates affect the equity returns of commercial banks. Short‐term, intermediate‐term, and long‐term interest rates are used. Volatility is defined as the conditional variance of respective interest rates and is generated by using the ARCH estimation procedure. Two sets of models are estimated. The basic models attempt to determine the effect of contemporaneous and lagged interest rate volatility on bank equity returns, while the extended models incorporate additional contemporaneous macroeconomic variables. Contemporaneous interest rate volatility has little explanatory power, while lagged volatilities do possess some explanatory power, with the lag length varying depending on the interest rate series used and the time period examined. The results from the extended model suggest that the long‐term interest rate affects bank equity returns more adversely than the short‐term or the intermediate‐term interest rates. The findings establish the relevance of incorporating macroeconomic variables and their volatilities in models determining bank equity returns.