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Prior research documents capital market benefits of increased investor attention to accounting disclosures and media coverage; however, little is known about how investors and markets respond to attention‐grabbing events that reveal little nonpublic information. We use daily firm advertising data to test how advertisements, which are designed to attract consumers' attention, influence investors' attention and financial markets (i.e., spillover effects). Exploiting the fact that firms often advertise at weekly intervals, we use an instrumental variables approach to provide evidence that print ads, especially in business publications, trigger temporary spikes in investor attention. We further find that trading volume and quoted dollar depths increase on days with ads in a business publication. We contribute to research on how management choices influence firms' information environments, determinants and consequences of investor attention, and consequences of advertising for financial markets.

We investigate whether recognition on the face of the financial statements versus disclosure in the footnotes influences the amount that financial managers report for a contingent liability. Using an experiment with corporate controllers and chief financial officers, we find that financial managers in public companies expend more cognitive effort and exhibit less strategic bias under recognition than disclosure. This difference appears to be associated with capital market pressures experienced by public company managers as we find that both the cognitive effort and bias exhibited by private company managers are unaffected by placement. As a result, public company managers make higher liability estimates for recognized versus disclosed liabilities. Their liability estimates are similar to those of private company managers for recognition but lower than private company managers� estimates for disclosure. Our results have implications for auditors and financial statement users in evaluating recognized versus disclosed information for public and private companies.

This study examines the association between firms’ intangible assets and properties of the information contained in analysts’ earnings forecasts. We hypothesize that analysts will supplement firms’ financial information by placing greater relative emphasis on their own private (or idiosyncratic) information when deriving their earnings forecasts for firms with significant intangible assets. Our evidence is consistent with this hypothesis. We find that the consensus in analysts’ forecasts, measured as the correlation in analysts’ forecast errors, is negatively associated with a firm’s level of intangible assets. This result is robust to controlling for analyst uncertainty about a firm’s future earnings, which we also find to be higher for firms with high levels of internally generated (and expensed) intangibles. Given that analyst uncertainty increases and analyst consensus decreases with the level of a firm’s intangible assets, we also expect and find that the degree to which the mean forecast aggregates private information and is more accurate than an individual analyst’s forecast increases with a firm’s intangible assets. Finally, additional analysis reveals that lower levels of analyst consensus are associated with high-technology manufacturing companies, and that this association is explained by the relatively high R&D expenditures made by these firms. Overall, our results are consistent with financial analysts augmenting the financial reporting systems of firms with higher levels of intangible assets (in terms of contributing to more accurate earnings expectations), particularly R&D-driven high-tech manufacturers.

In this paper we report results of an experiment that addresses several issues related to the effectiveness and efficiency of analytical procedures guidance for reviews of interim financial statements. Using materials developed from a public company which issued materially misstated interim financial statements, practicing auditors are asked to perform analytical procedures and to indicate which accounts warrant investigation. Based on professional standards and recent research, auditors receive one of three combinations of expectation-formation instructions and current book values. To mirror audit practice, one group of auditors receives no instruction about expectation formation and is provided current-quarter book values. A second group receives explicit instructions to form expectations along with current book values, and a third group receives the same expectation-formation instructions as the second

Substantive auditing procedures are applied to accounting data to determine whether material accounting error may be present. Such auditing procedures can be classified into two broad types: tests of details of transactions and balances and analytical review procedures applied to financial information. An analytical review involves the study and comparison of relationships among data. One use of analytical review is to predict or identify the need for other auditing procedures such as extensive tests of details. The effectiveness and efficiency of analytical review in the predictive mode depends upon (1) the presence of accounting error, and (2) the ability of the procedure to detect the error. There appears to be no published work on the distributions of auditor-initiated adjustments and very limited work on the effectiveness and efficiency of analytical review in predicting such adjustments. In this paper, I present distributional statistics on auditor-initiated adjustments for a sample of small manufacturing firms. I also present prediction results for widely applicable analytical review procedures which use limited and readily available information.

The power of graphs to convey relationships and changes in relationships between two variables is well accepted. In fact, it is common for anyone describing a relationship between variables to draw a graph depicting that relationship. Graphs also seem particularly useful in detecting changes in relationships. In the financial area, we see graphs of the Dow-Jones Index, unemployment rates, money supply, and of significant accounting numbers-income, rate of return, sales, etc. These items are graphed to help detect changes in trends not easily identified by standard statistical models. The major drawback of graphs has been the limitation of their use to describing the relationship between two variables. This paper examines a multidimensional graphic technique which may be useful for describing the financial status of a firm. Since it is a graphic technique, it can help individuals understand the relationships between financial variables and allow them to identify changes in the trend of firms' financial conditions more quickly than statistical models.

This paper reports on an empirical study concerning the stipulation that detailed financial information is more useful for lending decision making. Prior research and other evidence assert that the utility of more detailed data is greater than the utility of (condensed) aggregated data. Since the utility of using data cannot be evaluated in a direct manner, decision effects have been used as a surrogate measure. The primary result of this research shows that the perceived risk of the borrowing firm tends to be negatively influenced by the aggregation of financial reports only when the financial situation of that firm is marginal. This result, then, supports imputing a higher utility for detailed data, but only under certain conditions. A secondary result casts doubts on the strength of the predictive ability of financial ratios if not accompanied by financial information more detailed than that used in computing these ratios.

In view of the position taken by Professor Philips in many of his previous writings, I do not find it unusual that he is involved in research inquiring into whether the market value of some of the assets held by an entity constitutes significant information to users of that entity's financial statements. But let me hasten to add that I do not wish to imply that the position he has taken previously has in any way biased this research. To the contrary, the research undertaken appears to have been well thought out and carefully conducted. The statistical analysis appears to be complete with due attention paid to the limitations of the study, the appropriate tests applied to the residuals, the inferences cautiously stated, the possible sources of bias disclosed, and so on. And what are the results of this research? The researchers have stated their objective in question form: "Do nonoperating items in financial statements constitute relevant financial information to decision makers, especially investors?" To answer this question they have studied the relationship between nonoperating items and bank stock values paying particular attention to realized and unrealized security gains and losses. They conclude that there is some association between realized and unrealized security gains and losses and bank stock values which requires further investigation and that the existence of this association suggests that banks should disclose the market values of their security portfolios. But I fail to find an unequivocal answer to the question posed by the researchers. And from the results of the research, I believe the question should be answered negatively. The researchers have stated they have sought to determine relevance; they have shown only some statistical significance. What is statistically significant may not be relevant simply because it is immaterial. Note that even with the inclusion of the operating earnings variable, the variables in the equations in Table 1 explain at

In this paper, I provide some evidence concerning the relationship between financial information and a firm's entry into a capital market. The main assumption underlying this study is that corporations will be motivated to upgrade their financial disclosure in order to obtain scarce money capital as cheaply as possible.' To assess the relationship between disclosure and capital market entry, I selected the entry of an enterprise-investor into an international new issues market. My reason for this choice was simply that a firm would be expected to make its security issues relatively appealing during entry in order to attract support from an audience which possesses alternative outlets for their savings.2 The demand for information would appear to be even stronger in an international setting where investors are often unacquainted with the relative merits of foreign borrowers.3 The effect of

Materiality is a vital concept, one of the cornerstones of accountancy. The assumption that the item in question is in some sense material is implicit in every decision to render some event into a financial datum, to classify a transaction, to dispute some controversial accounting treatment. Thus, for every decision made in accounting there is a prior, if often subconscious, decision that the item in question is material. Else, why bother about it? Let us define materiality in accounting thus: the relative, quantitative importance of some piece of financial information, to a user, in the context of a decision to be made. A survey of widely quoted definitions' suggests that the matter, while somewhat ineffable, has been settled to everyone's satisfaction. Yet if one but reread them, it is evident that problems certainly do exist. Not one of these definitions is by itself operational. The implications of all these statements are that accountants can identify those who have a legitimate interest in a company; that they can select some representative individual from this motley group, and that they can understand and satisfy the informational needs of this idealized user. Now we all know that this is just not so. Identification of what has been

The specified objective of Stallman's paper is to develop a criterion for judging disclosure under experimental conditions. It does not purport to test real world phenomena. At least two of the assumptions need to be highlighted. One is that the objective of accounting is to report relevant financial information useful for decision making. There can be little quarrel with this. A second is implied rather than explicitly stated: that improved disclosure increases usefulness or, more specifically, that more information aids those who use the best analytic techniques while at the same time improves or leaves unaffected the decisions made by those using less adequate analytic techniques. Such a Pareto Optimality view suggests that if the experiment is repeated, some less sophisticated investors should be included to investigate the validity of this second assumption.