Cost Accounting Standards Board, Cost accounting, Defense Contracting, Operating cashflows

[This paper examines the stock price effects of alternative types of management earnings forecasts. Beyond deciding whether to disclose forecasts, managers must decide whether to issue a point projection or a more qualitative estimate (e.g., a bounded range), and whether to project interim or annual earnings or both. Our empirical tests assess differences in the information content of management earnings forecasts that differ by form and horizon. Our tests provide a comprehensive investigation of the price effects of these alternative forecast disclosure types. While an extensive literature exists on the relation between management forecasts and stock prices, most previous studies examine only point and range forecasts of annual earnings (e.g., Penman 1980; Ajinkya and Gift 1984; Waymire 1984; McNichols 1989; Pownall and Waymire 1989). Exceptions include Lev and Penman (1990), Patell (1976), and Baginski et al. (1993). Lev and Penman (1990) include lower and upper bound forecasts for part of their sample period, but do not examine these disclosure forms separately. Patell (1976) provides evidence on mean price changes associated with a pooled sample of annual minimum and maximum forecasts. Baginski et al. (1993) examine alternative forecast forms. Prior analyses of managers' disclosure incentives speculate that investors may condition their assessment of forecast information on disclosure form and horizon. For instance, King et al. (1990) suggest that forecast disclosures emerge as voluntary managerial actions to reduce costly information asymmetry in capital markets. Under the "expectations adjustment" hypothesis, managers have incentives to acquire and maintain a reputation for credible disclosure. Rational investors recognize that disclosure quality varies systematically by disclosure form and will discount qualitative projections or those issued with longer horizons. Policy debates on mandatory disclosure of qualitative information, such as the recent SEC debates over the content of "Management Discussion and Analysis" disclosures, and deliberations on forecast disclosure in the 1970s (see King et al. 1990), also suggest a need for evidence on the information content of qualitative prospective disclosures and alternative forms of forecasts.1 Our primary tests are based on a sample of 1,252 forecasts disclosed by 91 firms between July 1, 1979 and December 31, 1987. Several conclusions emerge from these tests. First, forecast disclosures remain highly informative even when including other disclosure types not analyzed in prior studies. Second, forecasts are less informative than earnings announcements for our full sample, a finding that is inconsistent with earlier results in Pownall and Waymire (1989). Third, differences across forecast forms are not significant at conventional levels. Fourth, interim forecasts are significantly more informative than annual projections. This result is driven largely by maximum forecasts, which are highly informative and more frequent in the interim forecast subsample. We document several additional regularities that may be of interest to researchers. First, point and range annual forecasts comprise less than 20 percent of our sample. This suggests that the incidence of voluntary management forecast disclosure is possibly far greater than suggested by previous studies. Second, range forecasts tend to be quite inaccurate expost. Actual earnings per share (EPS) fell outside the forecasted bounds in more than 50 percent of our range forecasts. Third, forecasts that are more qualitative tend to be issued over longer horizons. Minimum forecasts are issued over the longest horizons for our sample, and interim point projections have the shortest horizons. Finally, extensions to our primary tests provide some evidence that maximum forecasts have significant negative price effects, and that for point forecasts, forecast revisions are highly informative.]

In this paper, we evaluate the common assumption that European Union (EU) firms began using international financial reporting standards (IFRS) in 2005 when the EU formally adopted IFRS. Although the incidence of firms using local (or some other) GAAP declined between 2005 and 2012, it is still non‐trivial. By 2012 the incidence of non‐IFRS financial statements was still in excess of 17 percent (87 percent of which were fully consolidated). We estimate a model of the non‐adoption of IFRS as a function of implementation features of the IFRS regulation, country‐specific enforcement, and firm‐specific reporting incentives. As expected, being specifically required by EU‐wide and country‐specific rules to adopt IFRS is positively associated with IFRS adoption but does not constitute a complete explanation. Proxies for enforcement are significantly associated with non‐adoption, but the marginal effects of the enforcement variables are weak. We find that larger firms, firms with foreign operations and more analyst following, and firms that issue new debt and equity were more likely to adopt IFRS, both when the regulation was initially imposed and in subsequent years. We conclude that many EU firms do not use IFRS; that some firms exploited definitions, exemptions, and deferrals to avoid adopting IFRS while some firms simply failed to comply with the regulation; and that firms responded to their incentives in deciding whether to adopt IFRS.

Voluntary Disclosure, Credibility, Stock market reaction, Information content

Voluntary Disclosure, Earning information transfer, Decision to disclose, Management forecast

Gregory Waymire, Grace Pownall, Some Evidence on Potential Effects of Contemporaneous Earnings Disclosures in Tests of Capital Market Effects Associated with FASB Exposure Draft No. 19, Journal of Accounting Research, Vol. 21, No. 2 (Autumn, 1983), pp. 629-643

Recent research has found that the value‐relevance of accounting variables depends not only on whether a country's accounting rules are code‐law oriented or common‐law oriented, but also on the reporting incentives created by the legal and business environment in which a firm operates. Therefore, for example, the earnings of firms in some countries with common‐law oriented rules but with code‐law incentives have more code‐law‐type characteristics. We further this research by examining whether this is true for firms facing the same accounting regime and institutional environment but different stakeholder‐related incentives. We find significant stakeholder‐related incentives across 23 Japanese firms listed in the United States and 23 Japanese firms not listed in the United States that are matched by industry and size. Although these firms face the same institutional environment and the same accounting regime, consistent with the differences in stakeholder‐related incentives, the earnings and book values of the firms listed in the more shareholder‐oriented U.S. markets have significantly more explanatory power for market value than those for firms not cross‐listed in the United States. These findings are unaffected by whether the reports are based on consolidated or parent‐only accounting or whether they are based on U.S. or Japanese GAAP, emphasizing the potential influence of reporting incentives at all levels on the effect of standardization, conversion, or harmonization of accounting methods globally.

In this study, we measure and compare the stock price response to annual and interim earnings disclosures released in United States and United Kingdom capital markets. Our sample consists of 110 firms from the United States, the United Kingdom, and 12 other countries that were listed in both the United States and the United Kingdom (cross‐listed) during January 1988 to December 1990. We find that the stock price response to earnings disclosures is significantly greater in the United States than in the United Kingdom We also examine the effect of market microstructure factors that vary across firms and between jurisdictions. Our results are consistent with the expectation that liquidity is positively correlated with the stock price response to earnings disclosures and that liquidity is greater in the United States than in the United Kingdom. Résumé. Les auteurs mesurent et comparent la réaction du cours des actions à la publication annuelle et intermédiaire des bénéfices sur les marchés financiers des États‐Uni. et du Royaume‐Uni. L'échantillon utilisé par les auteurs se compose de 110 sociétés des États‐Unis, du Royaume‐Uni et de 12 autres pays, cotées à la fois aux États‐Unis et au Royaume‐Uni (inscription croisée), au cours de la période s'écheionnant de janvier 1988 à décembre 1990. L'analyse révèle que la réaction du cours de l'action à la publication des bénéfices est significativement plus marquée aux États‐Unis qu'au Royaume‐Uni. Les auteurs examinent également l'incidence des facteurs microstructurels du marché, qui varient selon les entreprises et les juridictions. Les résultats observés sont conformes aux résultats prévus: la liquidité est en corrélation positive avec la réaction du cours des actions à la publication des bénéfices, et cette liquidité est plus élevée aux États‐Unis qu'au Royaume‐Uni.

Disclosures, Voluntary disclosures, Mandatory disclosures, International study

This paper examines the properties of corporate disclosure and price discovery associated with NYSE temporary trading halts. We address the hypothesis that managers release highly informative disclosures outside of trading hours or seek a trading halt to allow investors greater opportunity to assess the implications of new information. We investigate whether: (a) disclosures associated with trading halts are highly price informative, and (b) the process of price discovery as reflected in specialist indications is more protracted and difficult for extreme and bad news halts. We find that halts arise from non‐routine highly informative disclosures for which price discovery is more uncertain and protracted. First, most disclosures associated with our sample of trading halts are ones whose arrival investors cannot predict but which have large valuation effects (e.g., corporate takeovers and leveraged buyouts). Second, halts associated with large price changes exhibit more uncertain and protracted price discovery during the halt. Specialist indications for extreme news halts have (1) bigger differences between high and low prices, (2) poorer predictive accuracy with respect to opening price, and (3) greater frequency. Finally, similar comparisons for bad and good news only weakly support the conjecture that bad news is associated with more certain and protracted price discovery. Résumé. Les auteurs examinent les propriétés des renseignements fournis par les sociétés et de la supputation des cours en période d'arrêt temporaire des opérations de la Bourse de New York. Ils se penchent sur l'hypothèse selon laquelle les gestionnaires publient des renseignements très informatifs en dehors des heures d'activite ou en période d'arrêt des opérations, de façon à donner aux investisseurs tout le loisir d'évaluer les conséquences de ces renseignements. Les auteurs se demandent 1) si l'information publiée en période d'arrêt des opérations est très éclairante sur les cours et b) si le processus de supputation du cours tel que l'illustrent les indications des spécialistes est plus long et plus difficile lorsque les arrêts sont associés à des renseignements qui entraînent des variations du cours d'une grande amplitude ou des variations du cours négatives. Selon les auteurs, il y a arrêt des opérations lorsque les renseignements publiés sortent de l'ordinaire et que leur contenu en information est élevé, si bien que le processus de supputation du cours est plus incertain et plus long. Premièrement, la plupart des déclarations associées à notre échantillon d'arrêts des opérations sont de nature telle qu'il était impossible pour les investisseurs d'en prédire l'occurrence, mais ont des conséquences majeures sur l'évaluation de l'entreprise (par exemple, les prises de contrôle et les prises de contrôle adossées). Deuxièmement, les arrêts des opérations correspondant à d'importantes variations du cours sont caractérisés par un processus de supputation du prix plus incertain et plus long. Les indications des spécialistes en ce qui a trait aux arrêts des opérations associés à des renseignements qui entraînent des variations du cours d'une grande amplitude présentent 1) un écart plus grand entre cours élevé et cours faible, 2) moins de précision dans les prédictions relatives au cours d'ouverture et 3) une fréquence supérieure. Enfin, des comparaisons analogues en ce qui a trait aux renseignements positifs et aux renseignements négatifs corroborent seulement faiblement l'hypothèse selon laquelle les renseignements négatifs rendent la processus de supputation du cours plus certain et plus long.