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Accounting Workshops

Submitted by yayoi.moriguchi on Fri, 05/01/2015 - 11:17am

Upcoming Workshops

Lion over Elephant: The Power of Structured Volume Disclosure in Explaining the
Capitalization of Firm-Specific Information

Dr. Agnes Cheng
Head and Chair Professor
Accounting
The Hong Kong Polytechnic University

Date: Friday, June 24
Time: 10:00 - 11:30 a.m.
Location:  Royal Bank Room, Scurfield Hall 310

Research has shown that a high volume of disclosures (e.g., the number of words and the file size of financial reports) obscures critical information and reduces the informativeness of disclosures in financial reports. This study proposes a structured disclosure volume measure based on the number of financial items disclosed (NFID) as a simple measure of firm-specific information provided by a firm. We utilize stock price asynchronicity to measure the capitalization of firm-specific information, and find that asynchronicity is positively related to NFID. We also investigate the components of this volume measure, and find that the NFID related to income statements (NFID_IS) drives the capitalization of firm-specific information. This finding is consistent with conventional thinking regarding income statements providing the most value-relevant information. We control for many competing measures of disclosure volume/quality, and our results maintain their strength. Furthermore, our findings are robust to various endogeneity checks, alternative measures, and alternative model specifications.

RSVP by June 22, 2016. There is no cost to attend research seminars at the Haskayne School of Business. For hard copies of this seminar paper please contact Sylvia Fuchek or 403.220.3812

Past Workshops

Accounting Data, Market Values, and the Cross Section of Expected Returns Worldwide

Matthew Lyle, Northwestern University

Date: July 6, 2015
Under fairly general assumptions, expected stock returns are a linear combination of two firm fundamentals ― book-to-market ratio and return on equity. This parsimonious relation is pervasive, producing expected return proxies (ERP) that predict the cross section of out-of-sample returns in 26 of 29 international equity markets. The average slope coefficient on the ERP is a highly significant 1.05. In contrast, factor-model-based proxies fail to exhibit predictive power worldwide. Integrating the model with a dynamic information structure, we show analytically, and verify empirically, that the importance of return on equity in forecasting future stock returns depends on the quality of the accounting information. This extension also reconciles our model with alternative characteristic-based forecasters. These findings suggest that a tractable accounting-based valuation model provides a unifying framework for obtaining reliable proxies of expected returns worldwide.

Public Information Granularity and Coordination Failure: An Experiment

Sanjay Banerjee, Assistant Professor, University Alberta

Date: Friday, March 20, 2015
Time: 9:30 - 11:00 a.m.
Location:  Royal Bank Room-SH 310
More precise public information reduces uncertainty about economic fundamentals, but it can increase uncertainty about other agents' actions, leading to coordination failure. We conducted a laboratory experiment to study the effects of public information granularity (i.e., level of detail) and strategic complementarity on coordination failure. We found that: (i) granular public disclosure, which is disaggregated and precise, increases the likelihood of coordination failure, when the public information is pessimistic; (ii) higher strategic complementarity also leads to more coordination failures, especially when public disclosure is granular; and (iii) higher levels of information granularity and strategic complementarity decrease coordination efficiency. Our findings have implications for the Federal Reserve's decision to publicly
disclose detailed stress test results for distressed banks, and the debate on whether PCAOB should publicly release reports on firm-specific quality-control deficiencies of audit firms.

Pricing Firms' Responsiveness to Shareholder Tax Incentives

Paul Hribar, Leonard A. Hadley, Research Professor of Accounting, The University of Iowa

Date: February 28, 2014

An important condition of Baker and Wurgler’s (2004) catering theory is that the market reward firms for responding to investors’ time varying demand for dividends. We use the expiration of the Bush tax cuts at the end of 2012 to test whether investors value firms’ responsiveness to the demand for dividends. This setting provides a shock to the demand for dividends where the signalling implications of dividend announcements are substantially mitigated or absent. We examine the announcement of special dividends and dividend accelerations in November and December of 2012, and find evidence that the price reaction is significantly larger than can be explained by tax savings alone. Our evidence is consistent with investors placing a premium on firms that respond to shareholder demands for a return of capital, consistent with the notion that firms rationally cater to the demand for dividends.

Participative Budgeting, Psychological Contracts, and Honesty of Reporting

Ranjani Krishnan, Michigan State University

Date: June 3, 2013

We study three popular budgeting practices, each with different levels of participation. We show that when superiors implicitly communicate that budgeting will be participative, it establishes psychological contracts whereby subordinates expect their superiors to fulfill the promise of participative budgeting. When subordinates perceive that these promises are not fulfilled, their psychological contracts are breached, which leads to feelings of violation, even when the terms of their economic contracts are fulfilled. We investigate whether subordinates whose psychological contracts of participative budgeting are breached seek redress with less honest budgetary reporting than subordinates whose psychological contracts are fulfilled. Experimental results indicate the following (a) some types of budgeting lead to perceptions of breach of the psychological contract of participation, (b) psychological contract breach is associated with lower levels of honesty, and (c) the effects of previous psychological contract breach on honesty persist in the future, even when breach no longer occurs.

Factors Associated with Bank Deregistration Following the 2012 JOBS Act

Richard Frankel, Washington University

Date: April 30, 2013

The 2012 JOBS Act increases the deregistration threshold only for banks with between 300 and 1200 shareholders of record. Our purpose is to understand whether this change can alter the relative importance of economic forces that determine the costs and benefits of deregistration. More specifically, we investigate whether the banks' deregistration decisions reflect an effort by slow growing banks to reduce excess compliance costs and/or whether the decisions are associated with an attempt by corporate insiders to gain private benefits. The Act permits a set of banks to deregister with minimal transition costs and can thereby encourage deregistrations in the pursuit of limited private benefits. We find, unlike prior deregistrations, banks that deregister after the JOBS Act do not display a significant reduction in shareholders immediately prior to deregistration, confirming the exogenous effect of the JOBS Act on bank deregistration decision. Moreover, banks deregistering after the Act have significantly lower institutional ownership, more insider trading and insider loans, and do not display significantly lower asset growth. In contrast to positive returns during pre-JOBS Act deregistration announcements, announcement returns for post-JOBS Act deregistrations are insignificant. Post-deregistration analyses provide corroborating evidence that pre-Act (but not post-Act) deregistering banks improved accounting performance after deregistration. By reducing the costs of deregistration, our results suggest the Act allowed banks to capture private benefits while increasing the attractiveness of deregistration for higher growth banks. Therefore, regulatory oversight does not fully substitute for the expanded disclosures required by the SEC.

The Effects of Trust and Budget-Based Controls on Budget Gaming and Budget Value

Theresa Libby, University of Waterloo

Date: April 11, 2013

Proponents of “beyond budgeting” suggest the major control problem in organizations today is the use of budgets for both planning and performance evaluation (Hope and Fraser 2003). Rigidly evaluating and rewarding managers relative to budget targets set at the beginning of the year motivates managers to play budgetary games which taints the budgeting and forecasting process. Contrary to this view, a recent survey of North American budgeting practices by Libby and Lindsay (2010) indicates a large proportion of the organizations sampled continue to use budgets for performance evaluation and control purposes and also offer budget-based bonuses to their managers as an incentive to perform. In addition, a large proportion of these firms appeared to be finding ways to get good value out of the budgeting process even though results indicated a negative correlation between budget value and managers’ perceptions of the degree to which budget gaming occurs in their organizations. The objective of the current study is to provide some insight into what drives higher versus lower budget value from the point of view of the business unit managers. Based on a review of the academic and practitioner literatures, we develop and test a theoretical model of the antecedents of budget gaming and budget value using additional data collected in the Libby and Lindsay (2010) survey. Results indicate good prior period performance is associated with less budget gaming, high budget emphasis is associated with higher budget gaming and increased interpersonal trust between lower and higher levels of management is negatively associated with budget gaming. By splitting the sample into high and low trust groups, we are able to show that lower level manager’s trust in higher level managers is key to explaining perceptions of budget

FIN around the world: the contribution of financing activity to profitability

Russell Lundholm, University of British Columbia

Date: March 15, 2013

We study how the availability of domestic credit influences the contribution that financing activities make to a firm's return on equity (ROE). Using a sample of 51,866 firms from 69 countries, we find that financing activities contribute more to a firm's ROE in countries with higher domestic credit. The higher contribution of financing activities is not driven by firms taking greater leverage in these countries, but by firms realizing a higher spread (i.e., a greater difference in operating performance and borrowing cost) when more domestic credit is available. Also, we find that firms partially substitute trade credit for financial credit, with large firms exhibiting the greatest rate of substitution. For small firms, the rate of substitution improves with the country's available domestic credit, while large firms are insensitive to this friction. The findings suggest that both country and firm-level factors have a significant impact on how financing activities contribute to corporate performance.

Does Verification of Disclosures Matter? Further Evidence from Peer-to-Peer Lending

Michael S. Maier, University of Alberta

Date: March 7, 2013

Using data provided by a peer-to-peer lending website, this paper provides evidence that the market values voluntary verification of information even in the absence of audit regulations and standards. In this study, the market is more likely to fund a loan and provides lower rates to borrowers who join groups providing verification services. Borrowers who have their information verified are also less likely to default on their loan. Borrowers who join a group that does not have a verification requirement are also able to obtain loans easier than individuals who are not group members; however, they do not receive better interest rates or default at a lower rate.

Reaching for the Stars and Stripes: How Canadian CEO Compensation is Approaching U.S. Levels

Amin Mawani, York University

Date: February 15, 2013

CEO compensation in Canada is significantly lower than that in the U.S. In this paper we examine the impact on Canadian CEO Compensation of using U.S. firms in their compensation peer groups, as well as cross-listing on U.S. exchanges. We find that Canadian firms with U.S. peers have higher levels of CEO compensation. In contrast we do not find a significant impact of cross-listing on the level of compensation. We do find that both having U.S. peers and cross-listing on U.S. exchanges increase the proportion of equity in the compensation package.

All 2013 accounting workshops are held at the Haskayne School of Business in Scurfield Hall and are sponsored by the Chartered Accountants Education Foundation of Alberta.