Knowledge that Transforms

This paper empirically investigates the relation between investor wealth and the value of annual and quarterly earnings announcements as implied by (1) the behavior of mean stock trade transaction sizes at announcement dates, and (2) transaction size-stratified trading activity in postannouncement time periods. Announcement-period mean transaction sizes are found to exceed expected mean transactions sizes estimated from trading activity occurring in nonannouncement periods. This result is attributed to a greater relative trading response to earnings announcements by wealthier investors, consistent with Ohlson's [1975] proposition that information value increases with investor wealth in a security market setting. Further evidence of a positive relation between value and wealth is found when postearnings announcement stock transactions are stratified by share size into three strata, where the first stratum (small stratum) is transactions of 100 and 200 shares, the second stratum (large stratum) is transactions of 300 to 900 shares, and the third stratum (institutional

Inventory accounting method, LIFO, FIFO, Tax savings

In this study, we investigate whether the security market reaction to the announcement of lower than expected earnings (bad news earnings) is dependent on the fiscal quarter of the announcement (earlier quarters versus fourth quarter). Such dependence could arise from the provisions of generally accepted accounting principles which allow extensive use of managers' fiscal-year expectations when formulating interim cost estimates. These provisions provide managers with a potential means of delaying bad news earnings until the fourth-quarter earnings announcement. Support for the view that managers delay the release of bad news is provided by recent research on the timing of information releases (e.g., the release of bad earnings news, bad dividend news, and bad nonearnings news).' Since managers have the means (through generally accepted accounting principles for interim reporting) and the tendency (as suggested by the empirical evidence on the timing of information releases) to delay bad news, it seems plausible to hypothesize a larger security

Earnings management, Stewardship value of accounting earnings, Overlapping Generations model

John A. Elliott, Wayne H. Shaw, Write-Offs As Accounting Procedures to Manage Perceptions, Journal of Accounting Research, Vol. 26, Studies on Management's Ability and Incentives to Affect the Timing and Magnitude of Accounting Accruals (1988), pp. 91-119

Safe harbor lease law, Taxation, Asset restructuring, Stock prices

Robert W. Holthausen, Robert E. Verrecchia, The Effect of Sequential Information Releases on the Variance of Price Changes in an Intertemporal Multi-Asset Market, Journal of Accounting Research, Vol. 26, No. 1 (Spring, 1988), pp. 82-106

Income measurement, Historical cost earnings, ASR No. 190, SFAS No. 33

Private information, Information asymmetry, Information signal, Disclosures

Abstract The article focuses on the practice of cost allocation by the managers and their decisions related to performance measurements. According to the author a major survey indicated that 40 percent of 594 companies calculated income for internal decision and control purposes consistent with the way it is calculated for external reporting. Practically all cost accounting textbooks recommend that a manager's evaluation should be confined to those aspects of performance that he can directly influence in the time period under consideration, this concept is called responsibility accounting. Here the author attempts to provide several possible explanations for why managers are evaluated on the basis of costs over which they exercise no direct control. His focus is on the controllability of costs and responsibility accounting rather than the issue of fixed versus variable costs. He examines rationales for basing the revenue department agent's compensation on those non-controllable service costs which are uncertain at the time of the contract.