[SFAS 94 (1987) requires consolidation of all majority-owned subsidiaries (unless control is temporary or does not rest with the majority owners), including those of nonhomogeneous operations, large minority interests, or foreign locations. An effect of implementing the standard is that financial statements components other than net income and stockholders' equity will differ from those that would have been reported as if the standard did not apply. In this study, I use a sample of 72 companies to examine the security market reaction to the issuance of SFAS 94 that required consolidation of finance subsidiaries. The results indicate that the issuance of SFAS 94 was associated with significant negative excess stock returns. Of the hypotheses tested, this evidence is consistent with the prediction generated by the cash-flow effects hypothesis; but is inconsistent with the redistribution-effects hypothesis. In addition, no significant positive excess returns were obtained for nonconvertible debt securities of firms that did not consolidate prior to SFAS 94, which provides weak evidence of the dominance of the cash-flow effects of SFAS 94 over the redistribution effects.]

[This study investigates the impact of the Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" (FASB 1990, hereinafter, SFAS 106) for a sample of rate-regulated public utility firms. The results of a recent study by Espahbodi et al. (1991) of the market reaction to the issuance of the exposure draft for SFAS 106 suggest that, for a sample including both regulated and non-regulated firms, investors perceived the required disclosures as value-decreasing due to higher contracting costs. However, the unique institutional setting for rate-regulated firms implies that while a similar negative market reaction may result for some regulated firms, there is also a theoretical basis for predicting either no market reaction or a positive reaction to the proposed accounting standard. The no reaction hypothesis is motivated by the nature of the relationship between regulatory rate-setting process and special external financial reporting procedures; as a result, some regulated firms may be sheltered from the indirect costs attributed to SFAS 106. A prediction of a positive market reaction arises from the notion that accounting rules can have an effect on the way regulators set rates, resulting in a direct (positive) cash flow effect for some of the sample firms. Our results suggest that investors in public utilities did not, on average, view the proposed standard as a value-decreasing event. This result is in sharp contrast to the Espahbodi et al. (1991) finding of a large negative average reaction for firms affected by SFAS 106. We also find evidence that the market reaction at the exposure draft announcement varies cross-sectionally based on the market's exante expectation of regulators' actions and the resulting changes in revenues from the adoption (or non-adoption) of the accounting rule for ratemaking purposes. The results thus add to a growing body of literature which demonstrates differences in the market's assessment of accounting information across regulated and non-regulated industries. More importantly, the results point to the role of regulatory response in the market's assessment of impending accounting changes in regulated industries.]

The article reports on the result of a study which examined the security market reaction to the issuance of SFAS No. 94 that required consolidation of finance subsidiaries in the United States. SFAS 94 (1987) requires consolidation of all majority-owned subsidiaries, including those of nonhomogeneous operations, large minority interests, or foreign locations. An effect of implementing the standard is that financial statements components other than net income and stockholders' equity will differ those that would have been reported as if the standard did not apply. The results indicate that the issuance of SFAS 94 was associated with significant negative excess stock returns. Of the hypotheses tested, this evidence is consistent with the prediction generated by the cash-flow effects hypothesis; but is inconsistent with the redistribution-effects hypothesis. In addition, no significant positive excess returns were obtained for nonconvertible debt securities of firms that did not consolidate prior to SEAS 94, which provides weak evidence of the dominance of the cash-flow effects of SEAS 94 over the redistribution effects.

[Economic and political events have led to utility regulation decisions which, in turn, provide an impetus for significant changes in industry accounting and reporting practices. The prospect of continuing change in the operating environment for utilities suggests that some deferred assets created by regulatory actions are subject to uncertain recovery. Accounting regulators have responded by imposing additional constraints on the firm's ability to record these so-called "regulatory assets." Our results indicate that investors' valuation of regulatory assets depends on the regulatory environment in which the utility is operating. That is, there are cross-sectional valuation differences arising from the market's assessment of the probability that regulators will ultimately allow for the full recovery of the deferred costs.]

Prior research suggests that Big 4 auditors provide higher quality audits in the U.S. in order to protect the firm's brand name reputation and to avoid costly litigation. In this study, we examine whether the perceived higher quality of a Big 4 audit is related to auditor litigation exposure or to reputation concerns. Specifically, we utilize an estimable proxy for financial reporting credibility—the ex ante cost of equity capital—to examine whether Big 4 auditors are perceived as providing higher quality audits (relative to non-Big 4 auditors) in the U.S., and in the less litigious (but economically similar) environments in other Anglo-American countries during the 1990–99 period. We find that a Big 4 audit is associated with a lower ex ante cost of equity capital for auditees in the U.S. but not in Australia, Canada, or the U.K. Our findings suggest that it is litigation exposure rather than brand name reputation protection that drives perceived audit quality.

Examines the market valuation of regulatory assets in public utilities. Description of the rate regulation process; Effects of the process on reported values of assets; Evolution of regulatory accounting.

Investigates the impact of the Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 106, `Employers' Accounting for Postretirement Benefits Other Than Pensions' for a sample of rate-regulated public utility firms. Economic consequences of SFAS 106 for non-regulated firms; Expected impact of SFAS 106 on utility accounting and ratemaking.

This paper examines shareholder wealth effects in U.S. and home-country markets relating to the Securities and Exchange Commission's (SEC) decision to eliminate the Form 20-F reconciliation. During the period of examined events, we find positive cumulative abnormal returns for the treatment sample of U.S. cross-listed firms that prepare financial statements under International Financial Reporting Standards (IFRS), but no such effects for our control sample comprising cross-listed non-IFRS, U.S. domestic, or home-country firms. We find the stock market impact for our treatment sample to be positively related to our proxy for cost savings and negatively related to the pre-adoption reconciliation magnitude from IFRS to U.S. GAAP. This suggests shareholders place some value on reconciliation information, but the costs of preparing and auditing reconciliations generally outweigh concern about information loss. Moreover, we find that information loss is less pronounced for firms having used IFRS for a longer period, suggesting the learning effect mitigates information loss. Data Availability: Data are publicly available from sources identified in the article.

Prior research predicts that firms reliant on external financing are more likely to undertake a higher level of disclosure, and a higher disclosure level should, in turn, lead to a lower cost of external financing. This paper tests these predictions outside the United States where alternative legal and financial systems could mitigate the effectiveness of such disclosures and, comprehensively, examines both disclosure incentives and disclosure consequences on cost of capital for a common set of firms. Using a sample from 34 countries, we find that firms in industries with greater external financing needs have higher voluntary disclosure levels, and that an expanded disclosure policy for these firms leads to a lower cost of both debt and equity capital. Crosscountry differences in legal and financial systems affect observed disclosure levels in predicted ways. However, a surprising result in the study is that voluntary disclosure incentives appear to operate independently of country-level factors, which suggests the effectiveness of voluntary disclosure in gaining access to lower cost external financing around the world.

We examine whether the December 2007 PCAOB disciplinary order against Deloitte affected Deloitte's switching risk, audit fees, and audit quality relative to the other Big 4 firms over a three-year period following the censure. Our findings suggest that the PCAOB censure was associated with a decrease in Deloitte's ability to retain clients and attract new clients, and a decrease in Deloitte's audit fee growth rates. However, methodologies used in extant archival studies yield little or no evidence to suggest that Deloitte's audit quality was different from that of the other Big 4 firms during a three-year window either before or after the censure. Overall, our results suggest that the PCAOB censure imposed actual costs on Deloitte. Data Availability: All data are publicly available.