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Copyright of Contemporary Accounting Research is the property of Canadian Academic Accounting Association and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Copyright of Contemporary Accounting Research is the property of Canadian Academic Accounting Association and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Copyright of Contemporary Accounting Research is the property of Canadian Academic Accounting Association and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

The implied costs of equity capital to earnings-based valuation in developed countries are compared from the study of the Edwards-Bell-Ohlson residual income valuation model and the cost of equity capital model of Ohlson and Juettner-Nauroth.

An arbitrage free trilateral model of a credible target zone regime with bands on each bilateral exchange rate is suggested. Without arbitrage, there are only two dimensions. Any two rates must be within their boundaries. However, movement is also limited by the band of the redundant rate. Hence, target zone models formulated for bilateral situations are not applicable for general systems with a cobweb of bilateral bands, such as the European Monetary System. The model is estimated using simulated moments because the model has no known analytical solution.

Verrecchia (1983) investigates a manager's incentives for costly, discretionary disclosure of his information to risk-averse traders when the functional form of prices is exogenously specified. We extend Verrecchia (1983) by deriving the endogenously determined functional form of prices that would arise when all traders have constant risk tolerance. We show that these endogenously determined prices are inconsistent with the assumed prices in Verrecchia (1983) when the manager elects to not disclose. We derive the manager's disclosure strategy for our setting and extend the comparative static results in Verrecchia (1990) for risk-neutral traders to a setting where traders have constant risk tolerance and prices are endogenously derived. Further, in our setting, discretionary disclosure does not affect how traders price risk of different outcomes. Also, we offer a representation of risk-averse traders' prices using risk-adjusted distributions. Finally, these results provide implications for empirical-archival discretionary disclosure studies. [ABSTRACT FROM AUTHOR]

We study the effects of mandatory disclosure on competitive interactions in the setting of oil and gas (O&G) reserve disclosures by North American public firms. We document that reserve disclosures inform competitors: when one firm announces larger increases in O&G reserves, competitors experience lower announcement returns and higher real investments. To sharpen identification, we analyze several sources of cross-sectional variation in these patterns, the degree of competition, and the sign and the source of reserves changes. We also exploit two plausibly exogenous shocks: the tightening of the O&G reserve disclosure rules and the introduction of fracking technology. Additional tests more directly focused on the presence of proprietary costs confirm that the mandated reserve disclosures result in a relative loss of competitive edge for announcing firms. Our collective evidence highlights important trade-offs in the market-wide effects of disclosure regulation. [ABSTRACT FROM AUTHOR]

Considerable debate continues regarding the use of earnings histograms as evidence consistent with earnings management. Durstchi and Easton (2005) offer scaling and sample selection as alternative explanations for apparent discontinuities in cross-sectionally pooled histograms of earnings. We revisit the broad question of whether irregularities in reported earnings numbers can constitute evidence consistent with earnings management. We use a matched-pair design to avoid sample selection issues and study three irregularities in reported earnings per share (EPS). We first study the discontinuity pattern in the last digit (cents) of reported EPS noted by Thomas (1989) that the last digit of EPS is more likely to be zero or five and less likely to be nine for profit firms while the pattern does not appear for loss firms. Second, we consider the threshold irregularity in EPS changes noted by Degeorge, Patel, and Zeckhauser (1999), that one cent decreases are underrepresented, relative to expectations. Third, we also revisit the rounding pattern in (unreported) third decimals of EPS noted by Das and Zhang (2003) that the one tenth of a cent is more likely between five and nine for profit firms. Our study enhances confidence in each reported irregularity’s validity by identifying matched pairs of firm-years reporting EPS under two measurement regimes: one in place during the reporting period in real time, the other subsequently reported to conform to a new reporting standard. We report evidence consistent with EPS management that is not plausibly attributable to either sample selection or scaling. [ABSTRACT FROM AUTHOR]

This paper explores possible links between overproduction and future gross domestic product (GDP) growth. Using a measure of economywide overproduction that captures firms' real earnings management (REM) incentives, we find that REM-driven overproduction has a negative moderating effect on the positive association between growth in aggregate accounting performance and one-quarter-ahead GDP growth documented in the literature. We also find that macro forecasters do not fully incorporate this effect into their forecasts. Our findings contribute primarily to the literature that links aggregate accounting information to GDP growth. [ABSTRACT FROM AUTHOR]

Copyright of Contemporary Accounting Research is the property of Canadian Academic Accounting Association and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

We analyze the effect of accounting bias on the competition and market structure of an industry. In our model, firms’ interim accounting reports on investment projects may contain bias introduced by the mandatory accounting system. We find that this bias strictly decreases firms’ profits when investors do not have an abandonment option, but different results emerge when we allow the investors to divest in the interim. Specifically, a conservative accounting regime may increase the likelihood of projects being discontinued, inducing some firms to exit from the product market and leaving rivals to capture their market share. A conservative regime can thus soften market competition and result in ex ante higher investment payoff, higher consumer surplus, and higher total social welfare. Since industries often have common reporting standards, we also identify the degrees of industry-wide accounting bias that maximize the expected investor payoffs. Finally, we allow for investors to coordinate their divestment decisions when both firms report unfavorable costs and show an improvement to both firm profits and consumer surplus. [ABSTRACT FROM AUTHOR]