Reporting and Non-Reporting Incentives in Leasing

2019 ◽  
Vol 94 (6) ◽  
pp. 137-164 ◽  
Author(s):  
Judson Caskey ◽  
N. Bugra Ozel
Keyword(s):  
Capital Markets ◽  
Second Order ◽  
Present Value ◽  
Reporting Incentives ◽  
Weak Evidence ◽  
Operating Leases ◽  
Tax Deductions ◽  
Debt Covenant ◽  
Covenant Violations ◽  
Jel Classifications

ABSTRACT This study sheds light on the extent to which the use of operating leases depends on reporting incentives, such as understating liabilities, and non-reporting incentives that partly arise from the overlap between accounting, bankruptcy, and tax laws, such as increasing financing capacity and flexibility. We provide evidence that expanding financing capacity, accommodating volatile operations, and maximizing the present value of tax deductions are all important drivers of leasing decisions. Our findings suggest that capital markets and contracting-based reporting incentives have little influence on operating lease use. In particular, we find weak evidence that firms increase operating leases in advance of issuing equity, and no evidence that firms use operating leases to window-dress in advance of issuing debt, to avoid debt covenant violations, for compensation purposes, or to paint a better picture on an ongoing basis. These findings are consistent with reporting incentives playing a second-order role in leasing decisions. JEL Classifications: G32; G33; K34; M41.

Theory of mind impairments in schizophrenia: symptomatology, severity and specificity

2001 ◽  
Vol 31 (2) ◽  
pp. 207-220 ◽  
Author(s):  
GRAHAM J. PICKUP ◽  
CHRISTOPHER D. FRITH
Keyword(s):  
Theory Of Mind ◽  
Matched Control ◽  
Single Case ◽  
Mental States ◽  
Second Order ◽  
Problem Solving Skills ◽  
Weak Evidence ◽  
Schizophrenic Patients ◽  
Paranoid Symptoms ◽  
Low Iq

Background. Several studies have examined the ability of schizophrenic patients to represent mental states (‘theory of mind'; ToM). There is consensus that some patients have impaired ToM, but there is disagreement about the relation between ToM and symptomatology, and about the severity and specificity of the deficit.Methods. Two first-order and one second-order false belief tests of ToM were given to groups of schizophrenic patients and psychiatric and normal controls. The relation between ToM and symptomatology was explored using regression and symptom subgroup analyses. Severity was investigated by using the same task methodology as in autism research, to enable direct comparison with that disorder. Specificity was investigated using matched control tasks which were as difficult as the ToM tasks, but did not require ToM.Results. Symptom subgroup analysis showed that schizophrenic patients with behavioural signs were impaired relative to controls on ToM, and that remitted patients and a single case with passivity symptoms performed as well as controls. Regression analysis showed that ratings of behavioural signs predicted impaired ToM in schizophrenia. There was weak evidence that a subgroup with paranoid symptoms had ToM impairments, although these were associated with low IQ. Schizophrenic patients only showed ToM deficits on the second-order task. No impairments appeared on the matched control tasks which did not require ToM.Conclusions. There is a clear association between ToM impairment and behavioural signs in schizophrenia. Deficits in paranoid patients are harder to detect with current tasks and may be compensated for by IQ-dependent problem-solving skills. ToM impairments in schizophrenia are less severe than in autism, but are specific and not a reflection of general cognitive deficits.

scholarly journals Landowner Incentives to Participate in a Purchase of Development Rights Program with Application to Maryland

1983 ◽  
Vol 12 (1) ◽  
pp. 61-65 ◽  
Author(s):  
Tim Phipps
Keyword(s):  
Capital Markets ◽  
Perfect Information ◽  
Participation Rates ◽  
Present Value ◽  
Low Levels ◽  
Development Rights ◽  
Purchase Of Development Rights ◽  
Rates Of Growth ◽  
Development Pressure

A theory-based participation model is developed using the assumptions of perfect capital markets and perfect information. Given this specification it is shown that participation in a PDR program is always equivalent in present value terms to selling the land, and is always at least as good as not participating and remaining in farming.In order to investigate participation rates in the Maryland PDR program a less restrictive model is developed which relaxes the perfect capital markets assumption. It is found that a PDR program is most likely to be successful in regions characterized by relatively low levels of development pressure, and least likely to be successful in areas experiencing high rates of growth or areas that are not undergoing development pressure.

Executive Bonus Contract Characteristics and Share Repurchases

2017 ◽  
Vol 93 (1) ◽  
pp. 289-316 ◽  
Author(s):  
Sunyoung Kim ◽  
Jeff Ng
Keyword(s):  
Share Repurchases ◽  
Weak Evidence ◽  
Compensation Design ◽  
Jel Classifications ◽  
Do So ◽  
As If

ABSTRACT We examine the importance of bonus contract characteristics, specifically, with respect to the relation between EPS-based bonuses and share repurchases. We find that managers are more (less) likely to repurchase shares and spend more (less) on repurchases when as-if EPS just misses (exceeds) the bonus threshold (maximum) EPS level. We find no such relation when as-if EPS is further below the threshold. We find weak evidence that managers of firms with as-if EPS just below the EPS target are more likely to repurchase shares and spend more on repurchases relative to firms with as-if EPS just above the EPS target. We further find that the incentive-zone slopes specified in the bonus contracts are positively associated with share repurchases. Managers making bonus-motivated repurchases do so at a higher cost. Together, our results highlight the importance of compensation design in motivating managers' behavior and aligning managers' incentives with shareholders. JEL Classifications: M41; M52.

The Impact of Financial Covenants in Private Loan Contracts on Classification Shifting

2019 ◽  
Vol 65 (8) ◽  
pp. 3637-3653 ◽  
Author(s):  
Yun Fan ◽  
Wayne B. Thomas ◽  
Xiaoou Yu
Keyword(s):  
Earnings Forecasts ◽  
Management Technique ◽  
Loan Contracts ◽  
Special Items ◽  
Classification Shifting ◽  
Distressed Firms ◽  
Debt Covenant ◽  
The Impact ◽  
Covenant Violations ◽  
Private Loan

This study examines whether firms with private loan contracts that contain debt covenants based on earnings before interest, taxes, depreciation, and amortization (EBITDA) are more likely to misclassify core expenses as special items (i.e., classification shift). Misclassifying core expenses as income-decreasing special items allows the firm to increase EBITDA and thereby potentially avoid debt covenant violations. Consistent with our expectation, firms misclassify core expenses as special items when at least one EBITDA-related financial covenant is close to being violated. In addition, classification shifting is more prominent when financially distressed firms are close to violating at least one EBITDA-related covenant. Whereas prior research on classification shifting focuses primarily on equity market incentives (e.g., meeting analysts’ earnings forecasts), our study extends this research to private loan contracts to highlight that creditors also affect classification shifting. Classification shifting appears to be an additional earnings management technique used by managers to avoid debt covenant violations. This paper was accepted by Shivaram Rajgopal, accounting.

Tangible Long-Lived Asset Impairments and Future Operating Cash Flows under U.S. GAAP and IFRS

2017 ◽  
Vol 93 (1) ◽  
pp. 187-211 ◽  
Author(s):  
Elizabeth A. Gordon ◽  
Hsiao-Tang Hsu
Keyword(s):  
Predictive Value ◽  
Cash Flows ◽  
Negative Association ◽  
Data Availability ◽  
Economic Factors ◽  
Negatively Associated ◽  
Operating Cash Flows ◽  
Reporting Incentives ◽  
Asset Impairments ◽  
Jel Classifications

ABSTRACT This paper investigates the predictive value of tangible long-lived asset impairments for changes in future operating cash flows under U.S. GAAP and IFRS. We find that impairments reported under IFRS are negatively associated with changes in future operating cash flows, whereas those under U.S. GAAP, on average, are not. We investigate whether differences in the predictive value are attributable to differences in recognition or measurement, providing evidence suggesting that impairment recognition under U.S. GAAP is delayed. Evidence also suggests that the value-in-use measurement attribute, allowed under IFRS, does not induce under-impairing as IFRS and U.S. GAAP impairments are similarly related to future impairments. The main result of a negative association under IFRS, but not U.S. GAAP, holds after considering future impairments to control for measurement differences, macro-economic factors, and firm reporting incentives. Further, impairment losses under IFRS are more predictive in high-enforcement countries. JEL Classifications: D78; F02; M16; M41; G38. Data Availability: Data used are available from sources identified in the paper.

Creditor Influence and CEO Compensation: Evidence from Debt Covenant Violations

2018 ◽  
Vol 93 (5) ◽  
pp. 23-50 ◽  
Author(s):  
Steven Balsam ◽  
Yuqi Gu ◽  
Connie X. Mao
Keyword(s):  
Risk Taking ◽  
Ceo Compensation ◽  
Regression Discontinuity ◽  
Firm Dynamics ◽  
Debt Covenants ◽  
Compensation Package ◽  
Debt Covenant ◽  
Debt Covenant Violation ◽  
The Right ◽  
Covenant Violations

ABSTRACT Debt covenant violation alters firm dynamics, providing creditors with the right to demand repayment, and via that right, influence firm actions. We provide evidence consistent with creditors employing that channel to influence CEO compensation. Using regression discontinuity analysis, we show that in the year after a covenant violation, after controlling for other factors, CEO compensation is 8.5 percent lower and the CEO's compensation package contains fewer risk-taking incentives, as the vega associated with newly granted options is 26 percent lower. These changes are more pronounced when the creditor has greater influence, such as when the borrower and creditor have a prior lending relationship, the creditor is a highly reputable bank, or when the borrower is financially weaker. We also find that CEOs' risk-taking incentives decrease with the number of debt covenants; in particular, the number of performance debt covenants being breached. JEL Classifications: G21; G34.

Incentives and Penalties Related to Earnings Overstatements that Violate GAAP

1999 ◽  
Vol 74 (4) ◽  
pp. 425-457 ◽  
Author(s):  
Messod D. Beneish
Keyword(s):  
Insider Trading ◽  
Efficient Method ◽  
Corporate Performance ◽  
Securities And Exchange Commission ◽  
External Financing ◽  
Trading Behavior ◽  
The Face ◽  
Debt Covenant ◽  
The Cost ◽  
Covenant Violations

This paper investigates the incentives and the penalties related to earnings overstatements primarily in firms that are subject to accounting enforcement actions by the Securities and Exchange Commission (SEC). I find (1) that managers in treatment firms are more likely to sell their holdings and exercise stock appreciation rights in the period when earnings are overstated than are managers in control firms, and (2) that the sales occur at inflated prices. I do not find evidence that earnings overstatement in these firms is motivated by concerns about debt covenant violations or the cost of external financing. The evidence suggests that the monitoring of managers' trading behavior can be informative about the likelihood of earnings overstatement. Many economists believe that insider trading is an efficient method of compensating managers for their efforts. These economists argue that reputation losses would preclude managers from making profitable trades before periods of poor corporate performance. Consequently, this paper also investigates the employment and monetary penalties imposed on managers after the earnings overstatement is publicly discovered. This evidence reveals that (1) managers' employment losses subsequent to discovery are similar in firms that do and do not overstate earnings and (2) that the SEC is not likely to impose trading sanctions on managers in firms with earnings overstatement unless the managers sell their own shares as part of a firm security offering. The evidence suggests that neither employment or SEC-imposed monetary losses are effective in preventing the managers in these firms with extreme earnings overstatements from selling their stake in their firms in the face of declining performance.

Do Big 4 Auditors Provide Higher Audit Quality after Controlling for the Endogenous Choice of Auditor?

2014 ◽  
Vol 33 (4) ◽  
pp. 197-219 ◽  
Author(s):  
John Daniel Eshleman ◽  
Peng Guo
Keyword(s):  
Propensity Score ◽  
Propensity Score Matching ◽  
Audit Quality ◽  
Data Availability ◽  
Accounting Restatements ◽  
Big 4 ◽  
Audit Firms ◽  
Weak Evidence ◽  
Matching Procedure ◽  
Jel Classifications

SUMMARY: Recent research suggests that Big 4 auditors do not provide higher audit quality than other auditors, after controlling for the endogenous choice of auditor. We re-examine this issue using the incidence of accounting restatements as a measure of audit quality. Using a propensity-score matching procedure similar to that used by recent research to control for clients' endogenous choice of auditor, we find that clients of Big 4 audit firms are less likely to subsequently issue an accounting restatement than are clients of other auditors. In additional tests, we find weak evidence that clients of Big 4 auditors are less likely to issue accounting restatements than are clients of Mid-tier auditors (Grant Thornton and BDO Seidman). Taken together, the evidence suggests that Big 4 auditors do perform higher quality audits. JEL Classifications: M41, M42 Data Availability: All data are publicly available from sources identified in the text.

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