Tone Management

2013 ◽  
Vol 89 (3) ◽  
pp. 1083-1113 ◽  
Author(s):  
Xuan Huang ◽  
Siew Hong Teoh ◽  
Yinglei Zhang
Keyword(s):  
Balance Sheet ◽  
Cash Flows ◽  
Stock Option ◽  
Earnings Restatements ◽  
Future Earnings ◽  
Accruals Management ◽  
Perception Management ◽  
The One ◽  
Return Effect ◽  
Earnings Press Releases

ABSTRACT We investigate whether and when firms manage the tone of words in earnings press releases, and how investors react to tone management. We estimate abnormal positive tone, ABTONE, as a measure of tone management from residuals of a tone model that controls for firm quantitative fundamentals such as performance, risk, and complexity. We find that ABTONE predicts negative future earnings and cash flows, is positively associated with upward perception management events, such as, just meeting/beating thresholds, future earnings restatements, SEO, and M&A, and is negatively associated with a downward perception management event, stock option grants. ABTONE has a positive stock return effect at the earnings announcement and a delayed negative reaction in the one and two quarters afterward. Balance sheet constrained firms and older firms are more likely to employ tone management over accruals management. Overall, the evidence is consistent with managers using strategic tone management to mislead investors about firm fundamentals.

MENGELOLA RESIKO DENGAN PRODUK DERIVATIF

2008 ◽  
Author(s):  
Dandes Rifa
Keyword(s):  
Risk Management ◽  
Value At Risk ◽  
Foreign Currency ◽  
Balance Sheet ◽  
Cash Flows ◽  
Market Risks ◽  
Hedging Strategies ◽  
Operational Hedging ◽  
Potential Risks ◽  
Derivative Products

The main objective of risk management is to minimize the potential for losses (risk) arising from unexpected changes in currency rates, credit, commodities and equities. One of the risks faced by companies is market risk (value at risk). This article aims to explain that risk management can be one of them by using derivative products. Derivative transactions is very useful for business people who want to hedge (hedging) against a commodity, which always experience price changes from time to time. There are three strategies that can be used to hedge the balance sheet hedging strategy, operational hedging strategies and contractual hedging strategies. Staregi contractual hedging is a form of protection that is done by forming a contractual hedging instruments in order to provide greater flexibility to managers in managing the potential risks faced by foreign currency. Most of these contractual hedging instrument in the form of derivative products. The management can enhance shareholder value by controlling risk. -Party investors and other interested parties hope that the financial manager is able to identify and manage market risks to be faced. If the value of the firm equals the present value of future cash flows, then risk management can be justified. 

Accounting for Employee Stock Options

2004 ◽  
Vol 18 (2) ◽  
pp. 135-156 ◽  
Author(s):  
Michael Kirschenheiter ◽  
Rohit Mathur ◽  
Jacob K. Thomas
Keyword(s):  
Stock Options ◽  
Financial Statements ◽  
Cash Flows ◽  
Stock Option ◽  
Share Price ◽  
Employee Stock Options ◽  
Deferred Taxes ◽  
Recommended Treatment ◽  
Option Values ◽  
The Common

Accounting for employee stock options is affected by whether outstanding options are viewed as equity or liabilities. The common perception is that the FASB's recommended treatment (per SFAS No. 123), which is based on the options-as-equity view, results in representative financial statements. We argue that this treatment distorts performance measures for three reasons. First, the deferred taxes associated with nonqualified options should also be included as equity, but are not. Second, since unexpected share price changes affect optionholders and equityholders differently, combining their interests provides an average earnings effect that is not representative for either group. We show that efforts to isolate the interests of common stockholders via diluted earning per share calculations (per SFAS No. 128) are inherently incapable of identifying wealth transfers between stockholders and optionholders. Finally, projections of future cash flow statements prepared under SFAS No. 95 overstate cash flows to current equityholders by the pretax value of projected option grants. We show that these distortions can be avoided simply by accounting for options as liabilities at grant and thereafter recognizing changes in option values (similar to the accounting for stock appreciation rights). Our analysis of stock option accounting leads to two, more general implications: (1) all securities other than common shares should be treated as liabilities, thereby simplifying the equity versus liability distinction, and (2) these liabilities should be recorded at fair values, thereby obviating the need to consider earnings dilution.

Where Did All the Dollars Go? The Effect of Cash Flows on Capital and Asset Structure

2011 ◽  
Vol 46 (5) ◽  
pp. 1259-1294 ◽  
Author(s):  
Sudipto Dasgupta ◽  
Thomas H. Noe ◽  
Zhen Wang
Keyword(s):  
Cash Flow ◽  
Economic Effect ◽  
Balance Sheet ◽  
Cash Flows ◽  
Long Run ◽  
Goods Market ◽  
Short Run ◽  
Debt Market ◽  
Short And Long Term

AbstractThis paper documents the short- and long-term balance sheet effect of cash flows. We show that cash savings in the short run and debt reduction in both the short and the long run account for a substantial fraction of cash flow use. Although, in the long run, investment exhibits substantial sensitivity to cash flows, investment does not absorb the entire cash flow shock. In fact, the tighter the financial constraints, the smaller the fraction of cash flow absorbed by investment and the more by leverage reduction. Firms stage their response to increases in cash flow, delaying investment while building up cash stocks and reducing leverage. These results suggest that much of the short-run economic effect of cash flow shocks to the corporate sector may be channeled into the corporate debt market rather than the capital goods market, especially when financing constraints tighten.

GASB No. 34's Governmental Financial Reporting Model: Evidence on Its Information Relevance

2007 ◽  
Vol 82 (1) ◽  
pp. 205-240 ◽  
Author(s):  
Elizabeth Plummer ◽  
Paul D. Hutchison ◽  
Terry K. Patton
Keyword(s):  
School Districts ◽  
Financial Reporting ◽  
Default Risk ◽  
Balance Sheet ◽  
Cash Flows ◽  
Working Capital ◽  
Information Relevance ◽  
Net Assets ◽  
Accrual Basis ◽  
The Government

This study uses a sample of 530 Texas school districts to investigate the information relevance of governmental financial statements published under Governmental Accounting Standards Board Statement No. 34 (GASB No. 34). Specifically, we examine whether the new government-wide statements provide information relevant for assessing a government's default risk, and if this information is incremental to that provided by the governmental funds statements. GASB No. 34 requires governments to publish governmental funds statements prepared on a modified accrual basis, and government-wide statements prepared on an accrual basis. We find that GASB No. 34's Statement of Net Assets (similar to a corporation's balance sheet) provides information relevant for assessing default risk, and this information is incremental to that provided by the governmental funds statements. However, GASB No. 34's Statement of Activities (similar to a corporation's income statement) does not provide information relevant for assessing default risk. The accrual “earnings” measure is not more informative than the modified-accrual “earnings” measure. A government's modified accrual earnings measure can be thought of as a type of measure of changes in working capital. Therefore, our results are consistent with research on corporate entities that attributes the superiority of earnings over cash flows primarily to working capital accruals and not long-term accruals. For our sample of school districts, evidence suggests that total net assets from the government-wide Statement of Net Assets, along with a measure of modified-accrual “earnings” from the governmental funds statement, provide the best information for explaining default risk.

scholarly journals Kemampuan Laba dan Arus Kas Operasi dalam Memprediksi Laba dan Arus Kas Masa Depan

2018 ◽  
pp. 80
Author(s):  
Frans AP Dromexs Lumbantoruan ◽  
I Gusti Ngurah Agung Suaryana
Keyword(s):  
Cash Flow ◽  
Stock Exchange ◽  
Linear Regression Analysis ◽  
Flow Property ◽  
Multiple Linear Regression Analysis ◽  
Cash Flows ◽  
Future Earnings ◽  
Analysis Technique ◽  
Operating Cash Flow ◽  
Future Cash Flows

This study aims to determine the ability of earnings and operating cash flows in predicting earnings and future cash flows. This research was conducted on property and real estate companies listed on the Indonesia Stock Exchange. The samples used by 20 companies with 40 observations. The sampling was done by nonprobability samplingmethod with purposive samplingtechnique. The analysis technique used is multiple linear regression analysis. Based on the result of the analysis, earnings influences in predicting future earnings. Likewise, earnings and operating cash flow have an effect in predicting future cash flows. However, operating cash flow is not influential in predicting future earnings. Keywords: profitability, cash flow, property

scholarly journals Do corporate bond rating revisions convey information about earnings and dividend changes?

2012 ◽  
Vol 9 (3) ◽  
pp. 373-393 ◽  
Author(s):  
Steven T. Anderson ◽  
Gurmeet Singh Bhabra ◽  
Harjeet S. Bhabra ◽  
Asjeet S. Lamba
Keyword(s):  
Stock Returns ◽  
Cash Flows ◽  
Corporate Bond ◽  
Bond Rating ◽  
Future Earnings ◽  
Rating Agencies ◽  
Abnormal Stock Returns ◽  
Rating Changes ◽  
Future Cash Flows ◽  
Rating Downgrades

We study the information content of corporate bond rating changes regarding future earnings and dividends. Consistent with previous findings, rating downgrades are associated with negative abnormal stock returns, while rating upgrades appear to be nonevents. For downgrades, earnings decline in the two years prior to and the year of the rating change announcement but increase in the year after the rating review. We also find that rating downgrades are followed by a subsequent downward adjustment in dividends. While rating upgrades follow a period of rising earnings, they do not signal any increase in future earnings and no subsequent dividend adjustments are observed. Overall, our results indicate that rating agencies respond more to permanent changes in cash flows and provide little information, if any, about future cash flows.

scholarly journals The ability of cash flows to predict the earning: Evidence from Jordan

2021 ◽  
Vol 18 (4) ◽  
pp. 36-44
Author(s):  
Mohammad Fawzi Shubita
Keyword(s):  
Stock Exchange ◽  
Predictive Ability ◽  
Cash Flows ◽  
Operating Cycle ◽  
Prediction Ability ◽  
Future Earnings ◽  
Industrial Companies ◽  
Amman Stock Exchange ◽  
Great Support ◽  
The Relationship

This study aims to investigate the ability of cash flows components to predict the earning and to know the extent of the relationship between accounting profits and cash flow measures. The study sample consisted of 77 industrial companies listed on the Amman Stock Exchange in Jordan for the period from 2006 to 2019. This study relied on the regression method to test the relationship between the study variables. The study findings showed that the cash flows from operating, investing, and financial activities have a statistically significant impact on predicting future earnings. The study also examined the effect of length of operating cycle and company’s size on the predictive ability of cash flows regarding future earnings. The main results for this aspect are that large companies and short operating cycle companies have higher prediction ability for future earnings than small and long operating cycle companies. This paper provides evidence of the information content of cash flows for future earnings in emerging markets like Jordan and is important for Jordanian shareholders by enabling them to evaluate company’s performance. AcknowledgmentsI would like to thank Amman Arab University for its great support, and for funding this study.

Usefulness of Accounting Estimates

2016 ◽  
Vol 32 (1) ◽  
pp. 123-135 ◽  
Author(s):  
Li Li Eng ◽  
Thanyaluk Vichitsarawong
Keyword(s):  
Cash Flow ◽  
Exploratory Study ◽  
Abnormal Returns ◽  
Cash Flows ◽  
Recent Period ◽  
Future Earnings ◽  
China And India ◽  
Accounting Estimates ◽  
Out Of Sample ◽  
Over Time

This is an exploratory study to examine the quality or usefulness of accounting estimates of companies in China and India over time. Specifically, we examine how well the accounting estimates are able to predict future earnings and cash flows during the period 2003-2013. The results for India indicate that the out-of-sample earnings and cash flow predictions derived are more accurate and more efficient in the more recent period (2010-2013) than the earlier period (2003-2006). In contrast, the out-of-sample earnings and cash flow predictions for China are generally more biased, less accurate, and less efficient. The results indicate abnormal returns earned on hedge portfolios formed on earnings (cash flow) predictions for India in the recent period. In contrast, none of the portfolios for China earn positive returns. The results suggest that the accounting estimates in India in recent years have become better predictors of future earnings and cash flow than accounting estimates in the earlier period. However, the accounting estimates in China are not relevant for predicting earnings and cash flows over the years in the sample period.

Managerial Equity Holdings and Income Smoothing Incentives

2017 ◽  
Vol 31 (1) ◽  
pp. 195-218 ◽  
Author(s):  
Sydney Qing Shu ◽  
Wayne B. Thomas
Keyword(s):  
Risk Taking ◽  
Agency Problems ◽  
Discretionary Accruals ◽  
Stock Option ◽  
Income Smoothing ◽  
Future Earnings ◽  
Future Performance ◽  
Excessive Risk Taking ◽  
Excessive Risk ◽  
Equity Holdings

ABSTRACT We explore how managerial stock holdings and option holdings affect CEOs' income smoothing incentives. Given the different roles of stock holdings and option holdings in solving agency problems, managers may smooth past earnings using discretionary accruals for the purpose of revealing information to help investors better predict future earnings or for the purpose of hiding volatility of past earnings. We find the association between past smoothing and predictability of future earnings is increasing (decreasing) in CEO stock (option) holdings. Results are consistent with stock holdings aligning the interests of managers and shareholders, and managers using discretionary accruals to smooth past earnings to reveal information to investors about future performance. In contrast, option holdings have been linked with excessive risk taking by managers, and managers use discretionary accruals to mask volatility of less predictable earnings. We demonstrate that income smoothing can be informative or opportunistic, depending on the incentives of CEOs.

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