Prior research reveals that write-offs of long-lived assets are both large in magnitude and frequent in occurrence. Responding to calls for enhanced reporting of these items, the FASB issued SFAS No. 121, Accounting for the Impairment of Long-Lived Assets. However, its effect on the characteristics of reported write-offs remains unclear, as implementation requires inherently subjective estimates. Further, critics (including dissenting FASB board members and the SEC) question the standard's guidance. Motivated in part by this debate, this paper contrasts the characteristics of write-offs reported prior versus subsequent to the issuance of SFAS No. 121. Empirical results reveal that economic factors have a weaker association with write-offs reported after SFAS No. 121. This is consistent across macro, industry, and firm-specific variables. Results also indicate a higher association between write-offs and “big bath” reporting behavior after the standard's implementation, and that this “big bath” behavior more likely reflects opportunistic reporting by managers rather than the provision of their private information. These inferences are robust to a number of alternative specifications and variable definitions. Overall, the results suggest the reporting of write-offs under SFAS No. 121 has decreased in quality, consistent with criticisms of the standard.

Finance theory proposes that firms’ cost of capital increases when market makers set wider spreads due to perceived higher information asymmetry across traders. Using a sample of UK investment property firms and controlling for firms’ non‐random selection of external monitors, we find evidence that market makers perceive information asymmetry across traders to be lower for firms employing external appraisers versus those employing internal appraisers. This evidence is consistent with liquidity‐motivated traders being unable to overcome such reliability differences using asset value information from sources other than accounting. We fail to find a similar difference for firms employing Big 6 versus non‐Big 6 auditors. Our findings contribute to the debate over the recognition of fair value estimates for long‐lived tangible assets by documenting that reliability differences attributable to differential monitoring by appraisers can affect information asymmetry, and therefore firms’ cost of capital.

Les auteurs se demandent si le fait pour les directions d’entreprises de présenter des éléments exceptionnels dans les états financiers reflète la performance économique ou révèle l’opportunisme. Ils comparent plus précisément les éléments exceptionnels présentés sous la forme d’un poste distinct de l’état des résultats (présentation en résultats) à ceux qui sont intégrés à un autre poste et présentés uniquement dans les notes complémentaires (présentation par voie de notes). L’étude est motivée par l’intérêt des normalisateurs pour l’information relative à la performance et la présentation des états financiers, ainsi que par les études antérieures relatives aux choix du mode de présentation par les directions d’entreprises, dans d’autres contextes. Les résultats empiriques révèlent que les éléments exceptionnels qui sont présentés en résultats sont moins persistants que ceux qui sont présentés par voie de notes. Ces observations demeurent les mêmes, peu importe les différentes spécifications adoptées. Dans l’ensemble, les constatations des auteurs confirment que les directions d’entreprises qui préfèrent la présentation en résultats à la présentation par voie de notes ont pour but d’aider les utilisateurs à repérer les éléments exceptionnels les plus susceptibles d’être différents des autres éléments des résultats, c’est‐à‐dire que leurs motifs sont plus informationnels qu’opportunistes.

This paper investigates whether managers’ presentation of special items within the financial statements reflects economic performance or opportunism. Specifically, we assess special items presented as a separate line item on the income statement (income statement presentation) to those aggregated within another line item with disclosure only in the footnotes (footnote presentation). Our study is motivated by standard‐setting interest in performance reporting and financial statement presentation, as well as prior research investigating managers’ presentation choices in other contexts. Empirical results reveal that special items receiving income statement presentation are less persistent relative to those receiving footnote presentation. These results are consistent across numerous alternative specifications. Overall, the findings are consistent with managers using the income statement versus footnote presentation to assist users in identifying those special items most likely to differ from other components of earnings — that is, for informational, as opposed to opportunistic, motivations.

This paper investigates whether presentation of special items within the financial statements reflects the firm's underlying economic performance or opportunism. We examine the presentation of recognized special items either as a separate line item on the income statement or aggregated within another line item with disclosure only in the footnotes. Our study is motivated by standard-setting interest in performance reporting and financial statement presentation, as well as prior research investigating managers' presentation choices in other contexts. Using different constructs of persistence to capture the economics of reported special items, we find evidence consistent across a range of specifications that special items highlighted on the income statement are more transitory than those revealed only in the footnotes. For most special items, these results are consistent with this presentation decision reflecting underlying firm performance. For a subset observations -namely, those likely to reflect "big bath" reporting incentives -we provide limited evidence suggestive of opportunism in this presentation decision.

Using a sample of U.S. financial institutions, we exploit recent mandatory disclosures of financial instruments designated as fair value level 1, 2, and 3 to test whether greater information risk in financial instrument fair values leads to higher cost of capital. We derive an empirical model allowing asset-specific estimates of implied betas, and find evidence that firms with greater exposure to level 3 financial assets exhibit higher betas relative to those designated as level 1 or level 2. We further find that this difference in implied betas across fair value designations is more pronounced for firms with ex ante lower-quality information environments: firms with lower analyst following, lower market capitalization, higher analyst forecast errors, or higher analyst forecast dispersion. Overall, the results are consistent with a higher cost of capital for more opaque financial assets, but also suggest that differences in firms' information environments can mitigate information risk across the fair value designations.

This study examines the effect of regulatory approval on a firm's voluntary product‐level disclosures. We focus on the US biotechnology industry, a setting that allows direct observation of whether firms disclose more information as products proceed through well‐defined—though successively more complex and costly—regulatory hurdles. Consistent with predictions motivated by biotech firms' need to repeatedly raise capital, we find that firms disclose more as their products move to later stages in the development process, both when the products receive regulatory approvals as well as when they receive regulatory denials. In addition, these findings are consistent across phases of development as well as product disclosure categories and are accentuated for firms without internal sources of capital (i.e., lacking product revenue). Collectively, these findings reveal that biotechnology firms respond to the considerable incentives to provide enhanced product disclosure and thus facilitate their ongoing need for capital to proceed through subsequent stages of product development.