This paper examines bond-for-bond refundings and their effects on stock returns. Refundings can affect the reported income, cash flows (including taxes), dividend constraints and financial ratios of firms. For a sample of 36 NYSE and ASE firms that performed refundings between 1971 and 1980, stock returns were significantly higher than predicted (only) around the release of the quarterly earnings announcement that included the refunding's effects. While the refundings were found to have many characteristics that were hypothesized to benefit shareholders, only the change in earnings per share was found to be associated with the prediction errors. Further, there appears to be no refunding-related information released in the quarterly earnings announcement, except for the refunding gain. These results imply that a portfolio of refunding firms can be created in advance of the quarterly earnings announcement that will generate abnormal returns around the earnings announcement. Because trading rules are inconsistent with the concept of an efficient capital market, these results constitute an anomaly.

Chris Olsen, J. Richard Dietrich, Vertical Information Transfers: The Association between Retailers' Sales Announcements and Suppliers' Security Returns, Journal of Accounting Research, Vol. 23, Studies on Accounting Earnings and Security Valuation: Current Research Issues (1985), pp. 144-166

Reviews the book `Financial Reporting in the 1990's and Beyond,' by Peter H. Knutson.

[A bond exchange is a transaction in which a corporation with an outstanding bond issue offers the current bondholders a new bond in exchange for the outstanding bonds. Bond exchanges affect firms by: (1) altering the cash payments to bondholders, (2) increasing reported earnings, (3) improving financial ratios such as debt/equity, and (4) affecting tax obligations. Although bond exchanges are fairly common, especially in the airline industry, these transactions may be difficult to analyze. This paper reviews the sequence of public disclosures involving an exchange offer, illustrates a present value method for evaluating bond exchanges, and compares the reported results with the "economic" results obtained from this method. Eastern Airlines' 1980 bond exchange is used for illustrative purposes.]

Robert B. Thompson II, Chris Olsen, J. Richard Dietrich, Attributes of News about Firms: An Analysis of Firm-Specific News Reported in the Wall Street Journal Index, Journal of Accounting Research, Vol. 25, No. 2 (Autumn, 1987), pp. 245-274

Capital market research, Research design, Control groups

[In many accounting and finance research studies it is hypothesized that the news release under study has valuation implications. Results often indicate that the distribution of risk adjusted residual common stock returns, conditional on the occurrence of a wide variety of specific news event types, differs in one or more moments from the distribution of returns when such events are absent. This paper demonstrates that the distribution of Wall Street Journal news-conditional residual returns differs from the distribution of returns when such news is absent. A "news-conditional" model of the process generating security returns is proposed as an alternative to models typically used in previous event studies. Standardized prediction errors and squared standardized prediction errors from the news-conditional model are compared with those generated by conventional procedures.]

In many accounting and finance research studies it is hypothesized that the news release under study has valuation implications. Results often indicate that the distribution of risk adjusted residual common stock returns, conditional on the occurrence of a wide variety of specific news event types, differs in one or more moments from the distribution of returns when such events are absent. This paper demonstrates that the distribution of Wall Street Journal news-conditional residual returns differs from the distribution of returns when such news is absent. A "news-conditional" model of the process generating security returns is proposed as an alternative to models typically used in previous event studies. Standardized prediction errors and squared standardized prediction errors from the news-conditional model are compared with those generated by conventional procedures.

A bond exchange is a transaction in which a corporation with an outstanding bond issue offers the current bondholders a new bond in exchange for the outstanding bonds. Bond exchanges affect firms by: (1) altering the cash payments to bondholders, (2) increasing reported earnings, (3) improving financial ratios such as debt/equity, and (4) affecting tax obligations. Although bond exchanges are fairly common, especially in the airline industry, these transactions may be difficult to analyze. This paper reviews the sequence of public disclosures involving an exchange offer, illustrates a present value method for evaluating bond exchanges, and compares the reported results with the "economic" results obtained from this method. Eastern Airlines' 1980 bond exchange is used for illustrative purposes.

We investigate the reliability of mandatory annual fair value estimates for UK investment property. We find that appraisal estimates understate actual selling prices and are considerably less biased and more accurate measures of selling price than respective historical costs. Investigations of managerial discretion over fair value reporting reveal that managers select among permissible accounting methods to report higher earnings, time asset sales to smooth reported earnings changes, smooth reported net asset changes and boost fair values prior to raising new debt. Finally, we find that the reliability of appraisal estimates increases when monitored by external appraisers and Big 6 auditors.