The Effect of Tax Authority Enforcement on Earnings Informativeness

2021 ◽  
pp. 1-20
Author(s):  
Le Zhao
Keyword(s):  
Earnings Informativeness

Earnings Informativeness and Strategic Disclosure: An Empirical Examination of “Pro Forma” Earnings

2004 ◽  
Vol 79 (3) ◽  
pp. 769-795 ◽  
Author(s):  
Barbara A. Lougee ◽  
Carol A. Marquardt
Keyword(s):  
Market Efficiency ◽  
Predictive Ability ◽  
Press Releases ◽  
Empirical Examination ◽  
Strategic Disclosure ◽  
Earnings Information ◽  
Pro Forma Earnings ◽  
Earnings Informativeness ◽  
Earnings Surprises ◽  
Pro Forma

This paper provides evidence on the characteristics of firms that include “pro forma” earnings information in their press releases, whether the usefulness of pro forma earnings to investors varies systematically with these characteristics, and whether the investor response to pro forma earnings is consistent with market efficiency or mispricing. Using a sample of 249 press releases from 1997–99, we find that firms with low GAAP earnings informativeness are more likely to disclose pro forma earnings than other firms. We also find that strategic considerations, measured using the direction of GAAP earnings surprises, are an important determinant of pro forma reporting. In addition, our examination of the relative and incremental information content of pro forma earnings shows that investors find pro forma earnings to be more useful when GAAP earnings informativeness is low or when strategic considerations are absent. Tests of the predictive ability of pro forma earnings for future profitability and returns are mixed, and we therefore cannot conclusively determine whether the investor reaction to pro forma earnings at the time of the press release is consistent with market efficiency or mispricing. The paper contributes to the growing literature on pro forma earnings and more generally to the literature on voluntary and strategic disclosure.

The impact of the Sarbanes–Oxley Section 404(b) exemption on earnings informativeness

2019 ◽  
Vol 24 (1) ◽  
pp. 3-23
Author(s):  
Alexey Lyubimov ◽  
Larry Davis ◽  
Greg Trompeter
Keyword(s):  
Section 404 ◽  
Earnings Informativeness ◽  
Sarbanes Oxley ◽  
The Impact

scholarly journals Hedge Accounting in the Brazilian Stock Market: Effects on the Quality of Accounting Information, Disclosure, and Information Asymmetry

2016 ◽  
Vol 27 (71) ◽  
pp. 202-216 ◽  
Author(s):  
Silas Adolfo Potin ◽  
Patrícia Maria Bortolon ◽  
Alfredo Sarlo Neto
Keyword(s):  
Stock Market ◽  
Information Asymmetry ◽  
Value Relevance ◽  
Accounting Information ◽  
Econometric Models ◽  
Hedge Accounting ◽  
Earnings Informativeness ◽  
Information Relevance ◽  
Quality Of Accounting Information

ABSTRACT This paper investigates, in the Brazilian stock market, the effect of hedge accounting on the quality of financial information, on the disclosure of derivative financial instruments, and on the information asymmetry. To measure the quality of accounting information, relevance metrics of accounting information and book earnings informativeness were used. For executing this research, a general sample was obtained through Brazilian companies, non-financial, listed on the Brazilian Securities, Commodities, and Futures Exchange (BM&FBOVESPA), comprising the 150 companies with highest market value on 01/01/2014. Through the general sample, samples were compiled for applying the econometric models of value relevance, informativeness, disclosure, and information asymmetry. The sample for relevance had 758 companies-years observations within the period from 2008 to 2013; the sample for informativeness had 701 companies-years observations with the period from 2008 to 2013; the sample for disclosure had 100 companies-years observations, within the period from 2011 to 2012; the sample for information asymmetry had 100 companies-years observations, also related to the period from 2011 to 2012. In addition to the econometric models, the propensity score matching method was applied to the analyses of the hedge accounting effect on disclosure and information asymmetry. The evidence found for the influence of hedge accounting indicates a relation: (i) positive and significant concerning accounting information relevance and disclosure of derivatives; (ii) negative and significant for book earnings informativeness. Regarding information asymmetry, although the coefficients showed up as expected, they were not statistically significant.

Auditor Attestation under SOX Section 404 and Earnings Informativeness

2012 ◽  
Vol 32 (1) ◽  
pp. 61-84 ◽  
Author(s):  
Lucy Huajing Chen ◽  
Jayanthi Krishnan ◽  
Heibatollah Sami ◽  
Haiyan Zhou
Keyword(s):  
Financial Reporting ◽  
Internal Control ◽  
Control Sample ◽  
Audit Fees ◽  
Test Sample ◽  
Section 404 ◽  
Earnings Informativeness ◽  
Sarbanes Oxley ◽  
Audit Reports ◽  
Section 302

SUMMARY Section 404 of the Sarbanes-Oxley Act requires managers to assess, and their auditors to express an opinion on, the effectiveness of internal controls over financial reporting (ICFR). Policymakers expect the ICFR audits to enhance the credibility of firms' financial statements. Prior research argues that audit characteristics that enhance the credibility of financial reporting are associated with stronger earnings-return associations. We examine whether earnings accompanied by the first-time Section 404 ICFR reports were associated with higher informativeness compared with earnings in the prior year when only financial statement audit reports were available. We conduct our analysis for a test sample of accelerated filers with clean ICFR reports and clean previous Section 302 disclosures. Using a difference-in-differences approach, we compare the change in earnings informativeness for the test sample with that for a control sample of non-accelerated filers. We find that earnings informativeness for companies with clean internal control reports was greater in the Section 404 adoption year than in the previous year, while there was no change in earnings informativeness for the non-accelerated filers. Also, there is no difference in the increase in earnings informativeness across firms with small and large compliance costs (measured by change in audit fees), suggesting that both groups benefited from the Section 404 ICFR audits.

What values more? Agency costs or accrual quality

2017 ◽  
Vol 15 (1) ◽  
pp. 22-38 ◽  
Author(s):  
Jagjit S. Saini ◽  
Onur Arugaslan ◽  
James DeMello
Keyword(s):  
Ownership Structure ◽  
Agency Costs ◽  
Single Class ◽  
Accrual Quality ◽  
Content Type ◽  
Earnings Response Coefficients ◽  
Earnings Informativeness ◽  
Earnings Response ◽  
Dual Class

Purpose The purpose of this paper is to examine what is weighted more by the investors when valuing a dual-class firm’s stock – greater agency costs or better accrual quality of the dual-class firm in contrast to the single-class firm. Design/methodology/approach Using the financial data of firms issuing multiple classes of stock (hereafter dual-class firms) and firms issuing single class of stock (hereafter single-class firms), the authors measure the effect of firm’s ownership structure (dual class versus single class) on the earnings response coefficients (ERCs) of prior, current and future period earnings. Findings The authors find that investors care more about agency costs than the quality of accruals in evaluating the earnings of dual-class firms. Specifically, the authors find that current annual returns of the firm are negatively associated with dual-class ownership structure and that earnings informativeness and predictability are decreasing in dual-class ownership of the firm as reflected in decreasing ERCs. Originality/value This study adds to prior literature on dual-class ownership which reports greater agency costs and better accrual quality at dual-class firms in contrast to single-class firms. This study contributes to the literature on earnings informativeness and predictability by evaluating the effect of ownership structure on the ERCs of the firm. Investors should be careful when valuing a dual-class firm and should consider agency costs in addition to accrual quality of reported earnings at such firms.

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