The Disclosure of Non-GAAP Earnings Following Regulation G: An Analysis of Transitory Gains

2013 ◽  
Vol 28 (1) ◽  
pp. 77-92 ◽  
Author(s):  
Michael Baumker ◽  
Philip Biggs ◽  
Sarah E. McVay ◽  
Jeremy Pierce
Keyword(s):  
Unintended Consequence ◽  
Data Availability ◽  
Press Releases ◽  
Earnings Announcement ◽  
Earnings Per Share ◽  
Regulation G

SYNOPSIS We investigate how managers report one-time gains resulting from legal settlements and insurance recoveries in press releases following Regulation G. Regulation G may have had the unintended consequence of allowing managers to omit mention of these transitory gains, resulting in higher reported performance absent non-GAAP disclosure. We find that while managers generally provide some information about transitory gains in the earnings announcement, there is a large amount of variation in the granularity of the detail. For example, the vast majority of managers (88.5 percent) mention the gain in the earnings announcement, but few (34 percent) report non-GAAP earnings per share summary figures explicitly excluding transitory gains. This percentage is significantly lower than pre-Regulation G, where approximately 62 percent of firms reported non-GAAP earnings per share excluding the transitory gain. Interestingly, we find that gains are less likely to be carved out of earnings when there are no concurrent transitory losses, providing some evidence that there continues to be an opportunistic component of non-GAAP reporting following Regulation G. Data Availability: Data are available from sources identified in the text.

An Examination of Partner Perceptions of Partner Rotation: Direct and Indirect Consequences to Audit Quality

2012 ◽  
Vol 31 (1) ◽  
pp. 97-114 ◽  
Author(s):  
Brian E. Daugherty ◽  
Denise Dickins ◽  
Richard C. Hatfield ◽  
Julia L. Higgs
Keyword(s):  
Quality Of Life ◽  
Audit Quality ◽  
Negative Impact ◽  
Survey Instrument ◽  
Unintended Consequence ◽  
Data Availability ◽  
Structured Interviews ◽  
Partner Perceptions ◽  
New Industry

SUMMARY Using structured interviews and surveys of practicing audit partners, this study examines their perceptions with regard to mandatory partner rotation and cooling-off periods, and how recently enacted, more stringent rules, may negatively impact auditors' quality of life to the detriment of audit quality. Results suggest rotation, in general, increases partners' workloads and the likelihood of relocation. Additionally, results suggest that in response to accelerated rotation (and an extended cooling-off period), partners would rather learn a new industry than relocate. Importantly, partners perceive audit quality suffers from retraining, but not from relocating. Thus these results suggest an indirect, negative impact, and unintended consequence, of accelerated rotation/extended cooling-off periods on audit quality. Data Availability: The survey instrument is available upon request. Individual audit partner responses are confidential.

CEO Narcissism and Accounting: A Picture of Profits

2013 ◽  
Vol 26 (2) ◽  
pp. 243-267 ◽  
Author(s):  
Kari Joseph Olsen ◽  
Kelsey Kay Dworkis ◽  
S. Mark Young
Keyword(s):  
Financial Performance ◽  
Performance Measures ◽  
Data Availability ◽  
Personality Characteristics ◽  
Share Price ◽  
Earnings Per Share ◽  
Narcissistic Personality ◽  
Financial Performance Measures ◽  
Operational Activities ◽  
Ceo Narcissism

ABSTRACT This study investigates the relationship between narcissistic personality characteristics in CEOs of Fortune 500 companies and financial performance measures of earnings-per-share (EPS) and stock valuation. Using panel data from 1992 through 2009, we show that firms with narcissistic CEOs have higher earnings-per-share and share price than those with non-narcissistic CEOs. We examine the mechanism driving the observed results and find that narcissistic CEOs are more likely to increase reported EPS through real and operational activities rather than accrual-based manipulations. The findings suggest that narcissistic personality characteristics of top executives affect financial performance measures through the executive's decisions and influence over the firm's operational activities rather than through accrual and accounting decisions. Data Availability: Data available upon request.

scholarly journals Information Externalities and Voluntary Disclosure: Evidence from a Major Customer's Earnings Announcement

2020 ◽  
Vol 95 (6) ◽  
pp. 73-96
Author(s):  
Young Jun Cho ◽  
Yongtae Kim ◽  
Yoonseok Zang
Keyword(s):  
Supply Chain ◽  
Voluntary Disclosure ◽  
Data Availability ◽  
Earnings Guidance ◽  
Future Prospects ◽  
Earnings Announcement ◽  
Supply Chain Relationships ◽  
Information Transfers ◽  
Positive Effect

ABSTRACT We examine the relation between information externalities along the supply chain and voluntary disclosure. Information transfers from a major customer's earnings announcement (EA) can substitute for its supplier's disclosure. Conversely, if the customer's EA increases uncertainties regarding the supplier's future prospects, it can increase the demand for disclosure. After controlling for information incorporated in supplier returns, we find that the supplier is more likely to issue earnings guidance after the customer's EA when the EA news deviates more from the market's expectation. The positive effect of the customer's news on earnings guidance is weaker when common investors, supply-chain analysts, or a common industry allow investors to better understand the value implications of the news, while the effect increases with the importance of the customer to the supplier. The effect is also stronger when EA news is negative rather than positive. Collectively, the results suggest that supply-chain relationships influence voluntary disclosure. Data Availability: All data are publicly available from sources indicated in the text.

Are Seemingly Self-Serving Attributions in Earnings Press Releases Plausible? Empirical Evidence

2013 ◽  
Vol 89 (2) ◽  
pp. 635-667 ◽  
Author(s):  
Michael D. Kimbrough ◽  
Isabel Yanyan Wang
Keyword(s):  
Attribution Theory ◽  
Poor Performance ◽  
Data Availability ◽  
Bad News ◽  
Specific Information ◽  
Press Releases ◽  
Cross Sectional ◽  
External Causes ◽  
Earnings Press Releases ◽  
Industry Peers

ABSTRACT Seemingly self-serving attributions either attribute favorable performance to internal causes (enhancing attributions) or poor performance to external causes (defensive attributions). Managers presumably provide such attributions in earnings press releases to heighten (dampen) investors' perceptions of the persistence of good (bad) earnings news, thereby increasing (decreasing) the market reward (penalty) for good (bad) earnings news. Building on attribution theory and prior research on earnings commonality, this study investigates cross-sectional differences in investors' responses to quarterly earnings press releases that contain seemingly self-serving attributions. Using a random sample of press releases from 1999 to 2005, we find that firms that provide defensive attributions to explain earnings disappointments experience less severe market penalties when: (1) more of the their industry peers also release bad news, and (2) their earnings share higher commonality with industry- and market-level earnings. On the other hand, firms that provide enhancing attributions to explain good earnings news reap greater market rewards when: (1) more of their industry peers release bad news, and (2) their earnings share lower commonality with industry- and market-level earnings. Collectively, our results demonstrate that investors neither ignore seemingly self-serving attributions nor accept them at face value, but rely on industry- and firm-specific information to assess their plausibility. Data Availability: Data are publicly available from the sources identified in the text.

The Dark Side of Low Financial Reporting Frequency: Investors' Reliance on Alternative Sources of Earnings News and Excessive Information Spillovers

2020 ◽  
Vol 95 (6) ◽  
pp. 23-49 ◽  
Author(s):  
Salman Arif ◽  
Emmanuel T. De George
Keyword(s):  
Financial Reporting ◽  
Trading Volume ◽  
Price Volatility ◽  
Data Availability ◽  
Dark Side ◽  
Earnings Announcement ◽  
Earnings Information ◽  
Alternative Sources ◽  
Annual Earnings ◽  
Reporting Frequency

ABSTRACT This paper examines how low financial reporting frequency affects investors' reliance on alternative sources of earnings information. We find that the returns of semi-annual earnings announcers (i.e., low reporting frequency stocks [LRF]) are almost twice as sensitive to the earnings announcement returns of U.S. industry bellwether peers for non-reporting periods compared to reporting periods. Strikingly, these heightened spillovers are followed by return reversals when investors finally observe own-firm earnings at the subsequent semi-annual earnings announcement. This indicates that investors periodically overreact to peer-firm earnings news in the absence of own-firm earnings disclosures in interim periods. We also find elevated price volatility and trading volume around earnings announcements for non-reporting periods, consistent with theories of investor overconfidence. Collectively, our results suggest that investors are unable to successfully offset the information loss arising from low reporting frequency, thus impairing their ability to value firms and adversely affecting the quality of financial markets. JEL Classifications: M41; M48; G14. Data Availability: Data are available from the public sources cited in the text.

How Disaggregated Forecasts Influence Investor Response to Subsequent Earnings Announcements

2019 ◽  
Vol 4 (1) ◽  
pp. 157-171
Author(s):  
Shana M. Clor-Proell ◽  
D. Eric Hirst ◽  
Lisa Koonce ◽  
Nicholas Seybert
Keyword(s):  
Earnings Announcements ◽  
Earnings Forecasts ◽  
Data Availability ◽  
Earnings Forecast ◽  
Multiple Points ◽  
Earnings Announcement ◽  
Carry Over

Firms often issue disaggregated earnings forecasts, and prior research reveals benefits to doing so. However, we hypothesize and experimentally find that the benefits of disaggregated forecasts do not necessarily carry over to the time of actual earnings announcements. Rather, disaggregated forecasts create multiple points of possible comparison between the forecast and the subsequent earnings announcement. Thus, when firms disaggregate forecasts and subsequently release disaggregated actual earnings numbers, investors reward firms that beat those multiple benchmarks, but punish firms that miss those multiple benchmarks. Thus, we show that issuing a disaggregated earnings forecast to achieve the associated benefits can backfire after the announcement of actual earnings. Our results have implications for researchers and firm managers. Data Availability: Contact the authors.

scholarly journals The Effect of Ex Ante Management Forecast Accuracy on the Post-Earnings-Announcement Drift

2012 ◽  
Vol 87 (5) ◽  
pp. 1791-1818 ◽  
Author(s):  
Li Zhang
Keyword(s):  
Earnings Announcements ◽  
Forecast Accuracy ◽  
Data Availability ◽  
Management Forecasts ◽  
Composite Measure ◽  
Earnings Announcement ◽  
Post Earnings Announcement Drift ◽  
Management Forecast ◽  
Ex Ante

ABSTRACT I examine the effect of ex ante management forecast accuracy on the post-earnings-announcement drift when management forecasts about next quarter's earnings are bundled with current quarter's earnings announcements. I build a composite measure of ex ante management forecast accuracy that takes into account forecast ability, forecast difficulty, and forecast environment. The results show that the bundled forecasts with higher ex ante accuracy mitigate investors' under-reaction to current earnings and reduce the magnitude of the post-earnings-announcement drift. Data Availability: The data used in this paper are available from the sources listed in the text.

The Timeliness of Bad Earnings News and Litigation Risk

2012 ◽  
Vol 87 (6) ◽  
pp. 1967-1991 ◽  
Author(s):  
Dain C. Donelson ◽  
John M. McInnis ◽  
Richard D. Mergenthaler ◽  
Yong Yu
Keyword(s):  
Lower Incidence ◽  
Data Availability ◽  
Earnings Forecast ◽  
Litigation Risk ◽  
Prior Work ◽  
Press Releases ◽  
Analyst Earnings ◽  
Jel Classifications

ABSTRACT This study investigates whether the timely revelation of bad earnings news is associated with a lower incidence of litigation. The timeliness of earnings news is captured by a new measure based on the evolution of the consensus analyst earnings forecast. Holding total bad earnings news and other determinants of litigation constant, we find that earlier revelation of bad earnings news lowers the likelihood of litigation. This result holds for both settled and dismissed lawsuits. Further, we reconcile our findings with prior work that measures timeliness using managerial warnings via press releases. These tests suggest our findings are attributable to the ability of our timeliness measure to capture bad earning news revealed through disclosure channels beyond press releases. Data Availability: Data are available from public sources identified in the paper. JEL Classifications: K22; K41; M41.

scholarly journals Incentives for Tax Planning and Avoidance: Evidence from the Field

2013 ◽  
Vol 89 (3) ◽  
pp. 991-1023 ◽  
Author(s):  
John R. Graham ◽  
Michelle Hanlon ◽  
Terry Shevlin ◽  
Nemit Shroff
Keyword(s):  
Tax Planning ◽  
Data Availability ◽  
Financial Accounting ◽  
Publicly Traded ◽  
Corporate Tax ◽  
Public Firms ◽  
Planning Strategy ◽  
Earnings Per Share ◽  
Survey Responses ◽  
Reputational Concerns

ABSTRACT We analyze survey responses from nearly 600 corporate tax executives to investigate firms' incentives and disincentives for tax planning. While many researchers hypothesize that reputational concerns affect the degree to which managers engage in tax planning, this hypothesis is difficult to test with archival data. Our survey allows us to investigate reputational influences and, indeed, we find that reputational concerns are important—69 percent of executives rate reputation as important and the factor ranks second in order of importance among all factors explaining why firms do not adopt a potential tax planning strategy. We also find that financial accounting incentives play a role. For example, 84 percent of publicly traded firms respond that top management at their company cares at least as much about the GAAP ETR as they do about cash taxes paid and 57 percent of public firms say that increasing earnings per share is an important outcome from a tax planning strategy. JEL Classifications: D83; G31, M41. Data Availability: Survey responses are confidential. Other data are available from public sources identified in the paper.

Technological Peer Pressure and Product Disclosure

2018 ◽  
Vol 93 (6) ◽  
pp. 95-126 ◽  
Author(s):  
Sean Shun Cao ◽  
Guang Ma ◽  
Jennifer Wu Tucker ◽  
Chi Wan
Keyword(s):  
Product Development ◽  
Voluntary Disclosure ◽  
Earnings Forecasts ◽  
Peer Pressure ◽  
Data Availability ◽  
Test Results ◽  
Management Earnings Forecasts ◽  
Press Releases ◽  
Negative Relation ◽  
Proprietary Costs

ABSTRACT We introduce a firm-specific measure of the technological aspect of competition—technological peer pressure—and examine firm-initiated product development-related press releases. We argue that empirical examinations of the theorized negative relation between competition and disclosure require the type of voluntary disclosure to be relevant to the dimension of competition under examination to ensure that firms incur significant proprietary costs of disclosure. In other words, many types of disclosure do not provide actionable information to competitors and, thus, should not be affected by that dimension of competition. We expect a negative relation between technological peer pressure and product disclosure because the latter reveals firms' strategies, allocations, and progress of technological investments in product development to competitors. In contrast, we do not expect a negative relation between technological peer pressure and management earnings forecasts—the most common type of voluntary disclosure used in accounting research. Our test results are consistent with these expectations. Data Availability: All data are available from public sources. Our TPP Measure is available for download, please see the link in Appendix G.

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