Leases, Capitalized leases, Disclosures, SEC Rule 3-16

Prior studies on the firm size effect either do not adequately control for earnings or ignore the potential implication of earnings news for the firm size effect. Thus, they implicitly assume that the firm size effect is identical across all firms irrespective of earnings news. This study provides additional empirical evidence on the firm size effect by taking earnings news into account. The results indicate that the firm size effect persists even when earnings news, measured by the sign and magnitude of unexpected earnings, is controlled. The firm size effect, however, is pronounced only for firms with “good” earnings news, but not for firms with “bad” earnings news. Possible implications of these findings are explored. Résumé. Les études qui ont été réalisées jusqu'à maintenant sur l'incidence de la taille de l'entreprise ne contrôlent pas adéquatement la variable bénéfices ou ignorent les conséquences potentielles de l'information relative aux bénéfices sur l'incidence de la taille de l'entreprise. Elles supposent donc implicitement que l'incidence de la taille de l'entreprise est la même pour toutes les entreprises, peu importe l'information relative aux bénéfices. La présente étude ajoute aux preuves empiriques concernant l'incidence de la taille de l'entreprise, en tenant compte de l'inforrmation relative aux bénéfices. Les résultats de cette étude révèlent que l'incidence de la taille de l'entreprise persiste, même lorsque l'information relative aux bénéfices, mesurée en fonction de l'indication de bénéfices imprévus et de leur ampleur, est contrôlée. L'incidence de la taille de l'entreprise est toutefois marquée seulement dans le cas des entreprises pour lesquelles l'information relative aux bénéfices est « positive », et non dans le cas des entreprises pour lesquelles l'information relative aux bénéfices est « négative ». L'auteur explore les conséquences possibles des résultats de l'étude.

Previous work by Atiase (1985) indicates that the information content of quarterly earnings releases is inversely related to firm size. This study explores the firm‐size related differential information content of earnings releases by focusing on annual earnings, assuming that the role of firm size as a proxy for the availability of predisclosure information may differ between annual versus quarterly earnings. In addition, it also investigates how abnormal return reactions to annual earnings releases as a function of firm size change around the date of annual earnings releases. The results show that the firm‐size related differential information content of earnings releases exists with annual earnings. Specifically, the extent of common stock return reactions on (around) the annual earnings release date is inversely related to firm size, while market reaction to some early predisclosure dates is positively associated with firm size. The inverse relationship begins to show up a week prior to the earnings release date, and the positive relationship exists for days prior to that week. This latter finding is different from that reported by Atiase in that he did not detect similar evidence with quarterly earnings. No appreciable pattern of association between return reactions and firm size is detected during the week following the release date. Résumé. Les travaux précédents d'Atiase (1985) révèlent que le contenu informatif des renseignements trimestriels publiés relatifs aux bénéfices est inversement proportionnel à la taille de l'entreprise. L'auteur analyse le contenu marginal en information des renseignements relatifs aux bénéfices par rapport à la taille de l'entreprise, et plus particulièrement les bénéfices annuels, en supposant que le rôle de la taille de l'entreprise à titre d'agent d'information trimestrielle peut varier selon qu'il s'agit de bénéfices annuels ou trimestriels. L'auteur analyse en outre comment les réactions anormales du rendement à la publication des bénéfices annuels en fonction de la taille de l'entreprise changent à proximité de la date de publication des bénéfices annuels. Les résultats révèlent que le contenu marginal en information des bénéfices publiés est lié à la taille de l'entreprise dans le cas des bénéfices annuels. En particulier, l'étendue de la réaction du rendement des actions ordinaires à la date (ou près de la date) de publication des bénéfices annuels est en relation inverse avec la taille de l'entreprise, alors que la réaction du rendement à une publication trimestrielle est en relation positive avec la taille de l'entreprise. La relation inverse commence à se manifester une semaine avant la date de publication des bénéfices, alors qu'elle est positive pendant les jours qui précèdent cette semaine. Ce résultat diffère de celui rapporté par Atiase, qui n'a rien décelé qui permette d'en venir à la même conclusion dans le cas des bénéfices trimestriels. Aucune relation mesurable entre la réaction à la publication et la taille de l'entreprise ne se manifeste au cours de la semaine qui suit la date de la publication.

ABSTRACT: This study reports an empirical investigation of whether the SEC-mandated replacement cost disclosures, as set forth in ASR 190, had any effect on weekly transaction volumes of common stock shares. Using the standard t testing procedure, no evidence of the volume effect being investigated was found. This result appears to imply that the replacement cost accounting data made public under ASR 190 did not contain information important to investors as asserted by the SEC, if the revision of common stock portfolio holdings is a criterion.

The article presents a reply by Byung T. Ro to a comment on his paper "The Effect of the Disclosure of Replacement Cost Accounting Data on Transaction Volumes," which was published in one of the previous issues of the periodical "The Accounting Review." Ro says that specifically, the comment pointed about two problems regarding his paper. Firstly, the invalidity of pairing treatment and control firms with different size, and secondly, the lack of a control for noise in the volume data. Ro admitted the existence of size difference between paired firms as a potential problem. Because of the $100-million materiality standard, the size difference' problem would necessarily arise if one used firms not complying with ASR 190 as a control group in investigating the impact of ASR 190. He reveals that this fact is also recognized in the papers of accountants like J. Boatsman and K. Gheyara. He says that despite the potential problem of size difference, a matched- pair design similar to that in his study is used by, for example in the papers of Gheyara and Boatsman. Ro stated that in general, the hypothesized size difference problem could exist in cases where accounting disclosure requirements are conditional upon a materiality standard based on firm size.

Investigates the degree to which the superiority of analysts' corporate earnings forecasts is associated with firm characteristics. Analyst advantage over a time-series model to past earnings variability; Relationship between analyst advantage and the amount of coverage in the `Wall Street Journal' newspaper.

Research has shown that managers display self-serving behavior in a variety of discretionary information production decisions. We test whether such behavior is also manifest in discretionary information disclosure decisions — in particular, in the common stock return performance comparisons now required in corporate proxy statements. We find evidence that the industry and peer-company stock return benchmarks, and broader market indices, chosen by management for those comparisons are downward biased, thereby overstating relative reporting-firm performance. Cross-sectionally, the extent of the bias varies with key reporting-firm attributes, including firm performance and the character of firm ownership structure.

[This research investigates the degree to which the superiority of analysts' earnings forecasts (relative to a univariate time-series model) is associated with certain firm characteristics. The analysts' information advantage is characterized as being related to private information-gathering incentives, and to the amount of information disseminated about the firm. The objective is to determine whether analyst forecast superiority is related to firm characteristics not examined in previous research. Specifically, the investigation relates the analyst advantage over a time-series model to past earnings variability and the extent of coverage in The Wall Street Journal. Statistical controls were employed for the market value of the firm's common stock, the firm's number of lines of business, and the time lapse between the end of the previous fiscal quarter and the release of the earnings forecast. The methods of data analysis consist of estimating OLS regressions, heteroscedasticity-consistent estimators, and bootstrapping techniques. The results indicate, first, that the analyst advantage in forecast accuracy over a time-series model is materially related to the historical variability in the earnings time series. Second, no positive relation is evident in our data between the analyst advantage and firm size, a result that is at variance with some previous research. Third, the analyst advantage is positively related to the amount of coverage in The Wall Street Journal Index, which is consistent with the intuitive notion of prior research that analysts' forecasts improve as more information becomes available. Finally, an attempt was made to ensure that the results were not caused by violations of classical regression assumptions. This was accomplished by explicitly correcting for a nonconstant variance, and by allowing for cross-correlation using bootstrapping. The asymptotic results are very similar to the bootstrapping results, but neither adjustment has altered the primary findings using OLS.]

In this study we explore implications of extant trading volume theories for empirical information content studies. Using a simple general equilibrium model, we analyze and illustrate how trading volume reacts to information conveyed by an event. We show that a trading volume reaction to the release of an informational event is an increasing function of dispersion in belief changes among investors caused by information in the event, rather than belief changes per se. We also show that because of a possibility of no significant price change, a price effect study alone is not sufficient to accurately assess the information content of an event and a simultaneous volume effect study is necessary. Résumé. Les auteurs étudient les conséquences des théories existantes relatives au volume de titres négociés sur les études à contenu informationnel empirique. À l'aide d'un simple modèle d'équilibre général, ils analysent et illustrent comment le volume de titres négociés réagit à l'information transmise par un événement. Leur étude révèle que le volume de titres négociés par suite de la publication d'un événement informationnel croît en fonction de la dispersion dans les changements d'attitude chez les investisseurs attribuables à l'information que livre l'événement, plutôt qu'en fonction des changements d'attitude eux‐mêmes. Elle démontre également qu'en raison de la possibilité qu'il n'y ait aucun changement de prix important, l'étude du comportement des prix risque de ne pas suffire à elle seule à évaluer avec précision le contenu informationnel d'un événement, et qu'une étude simultanée du comportement du volume de titres négociés s'impose.