This study finds that greater asymmetric timeliness of earnings in reflecting good and bad news is associated with slower resolution of investor disagreement and uncertainty at earnings announcements. These findings indicate that a potential cost of asymmetric timeliness is added complexity from requiring investors to disaggregate earnings into good and bad news components to assess the implications of the earnings announcement for their investment decisions.
This study examines whether key characteristics of analysts’ forecasts—timeliness, accuracy, and informativeness—change when investor demand for information is likely to be especially high, i.e., during periods of high uncertainty. Findings reveal that when uncertainty is high, analysts’ forecasts are more timely but less accurate. However, analysts’ forecasts are also more informative to the market, which is consistent with investors’ demand for timely information, even if it is less accurate.
This study examines the effects of mandatory IFRS adoption on accounting-based prediction models for CDS spreads for a sample of 357 firms in 16 IFRS-adopting countries. We do this by estimating accounting-based prediction models for CDS spreads separately for financial and non-financial firms before and after mandatory IFRS adoption. We find that mean and median absolute percentage prediction errors are larger for both financial and non-financial firms after mandatory IFRS adoption. We also estimate accounting-based prediction models for CDS spreads separately for financial and non-financial US firms before and after mandatory IFRS adoption to obtain prediction errors serve that as a benchmark.
This study investigates the determinants of goodwill impairment decisions by firms applying IFRS based on a comprehensive sample of stock-listed firms from 21 countries. Multivariate logistical regression findings indicate that goodwill impairment incidence is negatively associated with economic performance, but also related to proxies for managerial and firm-level incentives.
This study analyzes whether fair value estimates of fund net asset values (NAVs) produced by private equity managers are accurate and unbiased predictors of future discounted cash flows (DCF). We exploit the fact that private equity funds have finite lives to compare reported NAVs to DCFs based on realized cash flows for 384 venture capital (VC) funds and 195 buyout funds spanning 1988-2016.
We directly test the reliability and relevance of investee fair values reported by listed private equity funds (LPEs). In our setting, disaggregated fair value measurements are observable for funds’ investees; and investee accounting fundamentals are also publicly disclosed. We find that LPE fair value measurements reflect equity book value and net income in a manner consistent with stock market pricing of listed companies.
Whether fair value accounting should be used in financial reporting has been the subject of debate for many years. A key dimension to this debate is whether fair value earnings can provide information to financial statement users that is helpful in making their economic decisions.
This study addresses whether voluntary IFRS adoption is associated with increased comparability of accounting amounts and capital market benefits. We find that after firms voluntarily adopt IFRS (“adopting” firms), their accounting amounts are more comparable to those of firms that previously adopted IFRS (“adopted” firms) and less comparable to those of firms that apply domestic standards (“non-adopting” firms). Adopting firms exhibit increased liquidity, share turnover, and firm-specific information relative to adopted and non-adopting firms. Neither adopted nor non-adopting firms suffer capital market consequences. Adopting firms with higher comparability with adopted firms have greater capital market benefits after adopting IFRS than adopting firms with lower comparability, and capital market benefits for adopting firms in countries with a relatively high percentage of firms that apply IFRS enjoy greater capital market benefits.
Amendment of IAS 39 by the IASB in 2008 provided an option to reclassify investments from fair value to historical cost. We predict that too-important-to-fail (TITF) banks took less advantage of this option because the political protection they enjoyed insulated them from regulatory pressure. Banks that did not enjoy this protection had greater reason to make use of this option since doing so would protect their Tier 1 capital.
We comment on the Securities and Exchange Commission’s proposed Reporting Threshold for Institutional Investment Managers (“Proposal”). We estimate the cost savings from the Proposal are economically small, and amount to 0.004% (0.008%) of assets under management for the average (median) affected filer, and 0.02% of assets for the smallest filer. This small cost savings needs to be weighed against the potentially large costs to investors and others created by eliminating a public disclosure that they heavily use.
The collapse of the securitization market during the 2007-2008 Financial Crisis resulted from investors’ concern with the value of securitized assets and securities issued by special purpose entities (SPEs). Research has shown that prior to the Crisis, investors valued equity of sponsor-originator banks (S-Os) as if there were an implicit guarantee extended to SPE creditors that would be fully honored. We predict that the Crisis caused investors to value S-O equity as if such guarantees would not be honored.