Accounting - Research Publications
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ItemAuditor Style and Financial Statement Comparability(American Accounting Association, 2014-03-01)The term “audit style” is used to characterize the unique set of internal working rules of each Big 4 audit firm for the implementation of auditing standards and the enforcement of GAAP within their clienteles. Audit style implies that two companies audited by the same Big 4 auditor, subject to the same audit style, are more likely to have comparable earnings than two firms audited by two different Big 4 firms with different styles. By comparable we mean that two firms in the same industry and year will have a more similar accruals and earnings structure. For a sample of U.S. companies for the period 1987 to 2011, we find evidence consistent with audit style increasing the comparability of reported earnings within a Big 4 auditor's clientele.
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ItemIs Financial Reporting Still Useful? Australian Evidence(Wiley, 2019-03-01)There has been recent and growing criticism of the usefulness of financial reporting for investors, particularly the annual financial statements. In response, the IASB is pursuing several projects aimed at improving the relevance of financial information. To inform the IASB’s work, we investigate, using a mixed‐method approach, the extent and nature of the use of annual financial statements by equity investors. We examine the relevance of financial reporting for equity valuation in Australia across time. We find that financial reporting (specifically, reported net income, shareholders’ equity, and operating cash flows) remains relevant for investment decisions. We further support this finding with evidence from field interviews that provide insight into how and why financial statements are used by equity investors. The field evidence also demonstrates that no one financial statement dominates in investor decision making. Given the increasing availability of more timely, forward‐looking information from alternative sources, we examine the relevance of non‐GAAP financial information and other non‐financial information for investor decision making. We find that non‐GAAP financial information (as proxied by EBIT and EBITDA) is more value relevant than statutory measures. We further find a broad range of non‐financial information is utilized by investors in making investment decisions both as a ‘screen’ and for valuation purposes. Our findings inform regulators and other stakeholders as we provide evidence of the continuing relevance of financial statements and the complementary role of non‐GAAP financial and other information. Our evidence provides a rebuttal to the recent criticism.
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ItemKeeping it private: financial reporting by large proprietary companies in Australia(WILEY, 2019-03-01)Since 2010, proprietary companies have had a choice of preparing three types of financial reports that vary in scope. We find that between 2010 and 2015, most proprietary companies in our random sample chose the lowest scope option, with very low quality financial reports. Few adoptedthenewoptionprovidedbyAASB1053Application of Tiers of AustralianAccounting Standards. The characteristics of the firms that adopted each type of report are consistent with the regulator’s intention. Our findings should provide a better understanding of how accounting standards impact practice, and should assist regulators to reform private company financial reporting.
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ItemSpeculation and e-commerce: The long and the short of IT(Elsevier BV, 2010-06-01)
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ItemTop Management Turnover: An Examination of Portfolio Holdings and Fund Performance(SAGE Publications, 2006-01-01)We examine the performance and portfolio characteristics of actively managed equity funds impacted by top management turnover. Utilizing a unique database of monthly portfolio holdings, our study finds that, post-replacement, previously poor performing funds experience improved returns. However, this improved performance is not attributable to superior stock selection skill. We also find these new managers decrease the fund's reliance on momentum strategies and decrease the portfolio's concentration, which then leads to a reduced tracking-error volatility. Prior to the replacement event, underperforming investment managers exhibit preferences for larger, growth-oriented stocks, as well as riding momentum strategies and increasing portfolio turnover.
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ItemSeasonality in fund performance: An examination of the portfolio holdings and trades of investment managers(WILEY, 2006-09-01)Abstract: This study examines the extent to which seasonal variation arises across calendar months in the performance of active Australian equity managers. While it is well documented that there is seasonality in equity market returns, it is unknown whether calendar month variation in managed fund performance exists. Employing a unique database of monthly stock holdings, we find evidence consistent with systematic variation in the risk‐adjusted performance of active investment managers over the calendar year. Specifically, we find fund performance is higher in the months when corporate earnings are announced. We also document that the performance of fund managers is lower in the months preceding the tax year‐end. Finally, we report evidence that investment manager performance is greater than normal in December, possibly due to both window dressing and the Christmas holiday effect. These findings have important implications for investors attempting to exploit anomalies in fund returns by timing their entry and exit points from active equity funds.
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ItemAre active fund managers collectors of private information or fast interpreters of public information?(WILEY-BLACKWELL, 2010-09)Abstract Recent studies of fund manager performance find evidence of outperformance. However limited research exists as to whether such outperformance is because of privately collected information, or merely expedient interpretation of publicly released information. In this study, we examine the trade sequences of active Australian equity fund managers around earnings announcements to provide insights into the source of fund managers’ superior information. We document an increased occurrence of buy‐sell trade sequences around good‐news earnings announcements. The evidence is consistent with fund managers having both private information about forthcoming good‐news earnings announcements and being ‘short‐term profiteers’. We find no evidence that fund managers have private information about forthcoming bad‐news earnings announcements. However, we do find an increase in the frequency of fund managers not trading before bad‐news earnings announcements only to subsequently sell during announcements.
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ItemAn examination of the performance of the trades and stock holdings of fund managers: Further evidence(UNIV WASHINGTON SCH BUSINESS & ADMINISTRATION, 2003-12)
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ItemProfits versus Losses: Does Reporting an Accounting Loss Act as a Heuristic Trigger to Exercise the Abandonment Option and Divest Employees?(American Accounting Association, 2007)The binary classification of firms into profits or losses represents a powerful heuristic. The literature that has examined the impact on the firm of this earnings heuristic has focused on the earnings management actions of small profit firms. The impact of this earnings heuristic on the actions of firms reporting accounting losses and the decision-making effects the heuristic may have other than earnings management have not been examined. In this study we hypothesize that reporting an accounting loss acts as a heuristic trigger for firms to exercise the abandonment option and discard unproductive investments. The results are consistent with the hypothesis. We find that there is a sharp and economically significant discontinuity around zero in the level of investment in labor between small profit and small loss firms. The discontinuity is due to loss firms having a lower-than-expected level of investment in labor, given their economic fundamentals. Further tests show that this discontinuity is due to the exercise of the abandonment option. We find that firms switching from a profit to a loss cut labor to a greater extent than other firms with similar changes in earnings that do not pass the loss threshold. Taken together the results are consistent with the accounting loss heuristic acting as a major disciplinary or incentive altering event that resolves agency problems.