Reporting of discontinued operations and dividend payout policy

Purpose This study aims to examine the relationship between the types of discontinued operations (i.e. income-increasing versus income-decreasing) and a firm’s dividend payout policy. The authors extend our analysis to examine whether equity investors react differently to dividend payout changes that are preceded by the reporting of different types of discontinued operations. Design/methodology/approach Ordinary least squares regressions are used to test the association between discontinued operations and dividend payouts. The investor response test uses cumulative abnormal return around the announcement of dividend payout changes. Findings The authors find that firms temporarily increase (decrease) their dividend payout in the quarter following the reporting of income-increasing (income-decreasing) discontinued operations. The authors further find that these results are stronger when the magnitude of the income increase or income decrease is larger and when firms report disposal gains or losses. Although prior literature finds evidence that dividend increases are associated with a significant positive market reaction, the results show that investors do not react positively to dividend increases that are preceded by reporting income-increasing discontinued operations. Originality/value This study adds to the literature on the effects of financial reporting (i.e. the types of discontinued operations) on a firm’s payout policy (i.e. dividend payout). The authors also add to the literature that examines investors’ perceptions of a firm’s payout changes when such changes are transitory in nature.

Comparison of approaches to inventory valuation in RAS 5/2019 and ifrs 2 in the context of solving the problem of convergence of russian and international accounting practices

Currently, the implementation of the Program for the Development of Federal Accounting Standards for 2019 - 2021, approved by the Order of the Ministry of Finance of Russia No. 83n dated 05.06.2019, is being carried out and certain results of this work can be stated. These include changes in the content of a number of existing standards. First of all, it should be noted the amendments already adopted to PBU 1/2008 "Accounting Policy of the Organization", adopted and coming into force for reporting for 2022 "Accounting for Leases" (PBU 25/2018), as well as amendments to the standards that have come into force for reporting for 2020 “Accounting for State Aid” (PBU 13/2000), “Accounting for Calculations of Corporate Income Tax” (PBU 18/02), “Information on Discontinued Operations” (PBU 16/02). But the breakthrough year, based on the reform program, promises to be 2021, from the beginning of which the application of seven new standards should begin, including the FSBU "Inventories".

Comparison of approaches to inventory valuation in RAS 5/2019 and ifrs 2 in the context of solving the problem of convergence of russian and international accounting practices

Currently, the implementation of the Program for the Development of Federal Accounting Standards for 2019 - 2021, approved by the Order of the Ministry of Finance of Russia No. 83n dated 05.06.2019, is being carried out and certain results of this work can be stated. These include changes in the content of a number of existing standards. First of all, it should be noted the amendments already adopted to PBU 1/2008 "Accounting Policy of the Organization", adopted and coming into force for reporting for 2022 "Accounting for Leases" (PBU 25/2018), as well as amendments to the standards that have come into force for reporting for 2020 “Accounting for State Aid” (PBU 13/2000), “Accounting for Calculations of Corporate Income Tax” (PBU 18/02), “Information on Discontinued Operations” (PBU 16/02). But the breakthrough year, based on the reform program, promises to be 2021, from the beginning of which the application of seven new standards should begin, including the FSBU "Inventories".

Financial performance following discontinued operations

Purpose Prior literature provides empirical evidence that financial performance improves for core remaining operations after a firm discontinues some of their operations. This study aims to examine whether the association between discontinued operations and future financial performance improvement is affected by a regulatory rule (i.e. Statement of Financial Accounting Standards 144 [SFAS 144]) that significantly altered the reporting requirements of discontinued operations. This study also examines whether the association is dependent on the profitability of the operations discontinued. Design/methodology/approach Ordinary least square regressions are used to test the association between discontinued operations and financial performance improvement, conditional on the profitability of operations discontinued in the pre-SFAS 144 and SFAS 144 regulatory regimes. Data on profitability of operations discontinued is hand-collected. Findings Results suggest that firms experience improvement in financial performance following the reporting of discontinued operations in the pre-SFAS 144 era. Using hand-collected data on the profitability of operations discontinued, this research study also shows that improvement in performance is stronger for firms that discontinue loss operations compared to those that discontinue profitable operations. Originality/value This study explores the impact of regulatory change on the association between discontinued operations and future performance. Furthermore, unique hand-collected data is used to understand whether financial performance improvement is conditional on the profitability of the operations discontinued. Results documented in this paper should be of interest to investors, regulators and analysts in understanding the long-term strategic implications of discontinued operations.

Why discontinue operations? Interrelated elements of the corporate focus hypothesis

Purpose The purpose of this paper is to reexamine the corporate focus hypothesis to establish the characteristics of firms that discontinue operations. The authors concentrate on four interrelated elements of the hypothesis, diversification, performance, financial constraint and market-based risk measures. The authors also examine whether firms reporting positive- or negative-valued discontinued operations have different characteristics. Design/methodology/approach Analyzing discontinued operations provides a broad sample of strategically important exit decisions using a variety of different disposal methods. The authors use logistic regression models to explore whether the elements of the corporate focus hypotheses, and interactions between them, explain decisions to discontinue operations, and also the differences between firms making negative- and positive-valued announcements. Findings Firms that discontinue operations are more diverse, with weak operating performance, higher financial constraints and perform poorly in financial markets. Interrelationships between these factors strongly affect exit decisions. Companies reporting negative-valued discontinued operations are smaller, make lower capital investments and face greater cash constraints and market risk. Those announcing positive-valued discontinuations are larger and make higher payouts and capital expenditures. Their overall performance is weaker than for control firms, but clearly superior to companies discontinuing negative-valued operations. Originality/value Discounted operations represent a wide range of exit decisions. They provide a much larger sample than most previous studies of divestitures. The authors include β, the Sharpe ratio, cash holdings, payouts to shareholders, capital expenditures and also cross-product terms between the elements of the corporate focus hypothesis, all of which have received little attention in prior research. There are significant differences between firms announcing positive and negative-valued discontinued operations.