A772 Seminar in Financial Accounting Research Fall 2014 Course Outline

Transcription

1 A772 Fall of 8 A772 Seminar in Financial Accounting Research Fall 2014 Course Outline Accounting and Financial Management Services DeGroote School of Business McMaster University COURSE DESCRIPTION This seminar provides a broad overview of contemporary empirical research in financial accounting. Most of the research relies on archival data utilizing accounting and stock market databases. Topics include the impact of accounting information on security prices, post-earnings announcement drift and other market anomalies, voluntary firm level disclosure policy, accounting policy choices and earnings management, earnings/returns associations, market response to accounting data, stock analyst, corporate governance, cost of capital and etc. INSTRUCTOR AND CONTACT INFORMATION Name: Dr. Emad Mohammad Office: DSB mohde@mcmaster.ca Tel: (905) Ext: Office Hours: by appointment REQUIRED COURSE MATERIALS AND READINGS A textbook is not required for this course. The course readings will consist of book chapters, published papers, and working papers. CLASS FORMAT The course will be conducted in seminars that address empirical financial accounting research. For each seminar, I will assign two sets of readings: primary readings and background readings. Each student is required to prepare a two-page critique for each primary reading. The critiques should discuss the strengths and weaknesses of the paper. The quality of the critiques is expected to increase throughout the term. The assignments should be handed at the beginning of the class. Moreover, students should be prepared to cite the background readings during class discussions. Finally, each student will be assigned a primary reading paper for which to lead the discussion during the seminar. That discussion should be based on the student s written critique for that paper.

2 A772 Fall of 8 EVALUATION Your grade is based on participation in class discussions, written assignments, term paper, and final exam. Your grade will be determined as follows: Written assignments 25% Class discussion 25% Term paper 25% Final exam 25% Total 100% Conversion At the end of the course your overall percentage grade will be converted to your letter grade in accordance with the following conversion scheme. LETTER GRADE PERCENT A A A B B B F Please review the Graduate Examinations Policy: AcademicStudies/GradExamsPolicy.pdf ACADEMIC DISHONESTY It is the student s responsibility to understand what constitutes academic dishonesty. Please refer to the University Senate Academic Integrity Policy at the following URL: This policy describes the responsibilities, procedures, and guidelines for students and faculty should a case of academic dishonesty arise. Academic dishonesty is defined as to knowingly act or fail to act in a way that results or could result in unearned academic credit or advantage. Please refer to the policy for a list of examples. The policy also provides faculty with procedures to follow in cases of academic dishonesty as well as general guidelines for penalties. For further information related to the policy, please refer to the Office of Academic Integrity at:

3 A772 Fall of 8 MISSED ACADEMIC WORK Late assignments will not be accepted. No extensions are available except under extraordinary circumstances. Please discuss any extenuating situation with your instructor at the earliest possible opportunity. POTENTIAL MODIFICATIONS TO THE COURSE The instructor and university reserve the right to modify elements of the course during the term. The university may change the dates and deadlines for any or all courses in extreme circumstances. If either type of modification becomes necessary, reasonable notice and communication with the students will be given with explanation and the opportunity to comment on changes. It is the responsibility of the student to check their McMaster and course websites weekly during the term and to note any changes. COPYRIGHT McMaster University has signed a license with the Canadian Copyright Licensing Agency (Access Copyright) which allows professors, students, and staff to make copies allowed under fair dealing. Fair dealing with a work does not require the permission of the copyright owner or the payment of royalties as long as the purpose for the material is private study, and that the total amount copied equals NO MORE THAN 10 percent of a work or an entire chapter which is less than 20 percent of a work. In other words, it is illegal to: i) copy an entire book, or ii) repeatedly copy smaller sections of a publication that cumulatively cover over 10 percent of the total work s content. Please refer to the following copyright guide for further information: STUDENT ACCESSIBILITY SERVICES Student Accessibility Services (SAS) offers various support services for students with disabilities. Students are required to inform SAS of accommodation needs for course work at the outset of term. Students must forward a copy of such SAS accommodation to the instructor normally, within the first three (3) weeks of classes by setting up an appointment with the instructor. If a student with a disability chooses NOT to take advantage of an SAS accommodation and chooses to sit for a regular exam, a petition for relief may not be filed after the examination is complete. The SAS website is:

4 A772 Fall of 8 Course Schedule Week 1: Accounting Earnings, Stock Prices, and Market Efficiency 1. Kothari, S.P., 2001, Capital markets research in accounting, Journal of Accounting & Economics 31, Sections 1-3 and Ball, R., and P. Brown An empirical evaluation of accounting income numbers, Journal of Accounting Research, Beaver, W. H The information content of annual earnings announcements, Journal of Accounting Research, Supplement, Lev, B On the usefulness of earnings and earnings research: lessons and directions from two decades of empirical research. Journal of Accounting Research 27, (Supplement): Fama, E. F "Efficient capital markets: A review of theory and empirical work." Journal of Finance 25: Lee, C. M.C., 2001 Market Efficiency and Accounting Research: A Discussion of Capital Market Research in Accounting by S.P. Kothari, Journal of Accounting and Economics: Bartov, E Patterns in unexpected earnings as an explanation for postannouncement drift, The Accounting Review 67, (Muhammad) 2. Francis, J., K. Schipper, and L. Vincent Expanded disclosures and the increased usefulness of earnings announcements. The Accounting Review 77 (July): (Yi) 3. Hirshleifer, David A.; Myers, James N.; Myers, Linda A.; Siew Hong Teoh Do Individual Investors Cause Post-Earnings Announcement Drift? Direct Evidence from Personal Trades, Accounting Review 83, (Tien) Week 2: Market Efficiency and Accounting Information: Pricing of Accruals 1. Dechow, P., 1994 Accounting Earnings and Cash Flows as Measures of Firm Performance, Journal of Accounting and Economics, July: Barth, M., W. Beaver, J. Hand, and W. Landsman, 1999 Accruals, Cash Flows, and Equity Values, Review of Accounting Studies, December: Sloan, R., 1996 Do Stock Prices Fully Reflect Information in Accruals and Cash Flows About Future Earnings? The Accounting Review, July: Collins, D.W., G. Gong, and P. Hribar Investor sophistication and the mispricing of accruals. Review of Accounting Studies 8, Bradshaw, M. T., S. A. Richardson, and R. G. Sloan Do Analysts and Auditors Use Information in Accruals? Journal of Accounting Research 39 (1): Hirshleifer, D., K. Hou, S. H. Teoh, and Y. Zhang Do Investors Overvalue Firms with Bloated Balance Sheets? Journal of Accounting and Economics 38:

5 A772 Fall of 8 Week 3: The Information Content in Cash Flows and Earnings. : 1. Wilson, G.P., 1987 The Incremental Information Content of the Accrual and Fund Components of Earnings after Controlling for Earnings, The Accounting Review (April: Bowen, R., D. Burgstahler and L. Daley, 1987 The Incremental Information Content of Accruals vs. Cash Flows, The Accounting Review October: Dechow, P., 1994 Accounting Earnings and Cash Flows as Measures of Firm Performance: The Role of Accounting Accruals, Journal of Accounting and Economics Vol. 18: Bernard, V. and T. Stober, 1989 The Nature and Amount of Information Reflected in Cash Flows and Accruals, The Accounting Review October: Dechow, P., S. Richardson, and R. Sloan, 2008 The persistence and pricing of the cash component of earnings, Journal of Accounting Research 46: Week 4: Accounting and Firm Valuation I: Theory 1. Holthausen, R.W. and R.L. Watts, 2001 The Relevance of the Value-Relevance Literature for Financial Accounting Standard Setting, Journal of Accounting and Economics September: Barth, M., W. Beaver, and W. Landsman, 2001 The Relevance of the Value-Relevance Literature for Financial Accounting Standard Setting: Another View, Journal of Accounting and Economics September: Ohlson, J Earnings, Book Values, and Dividends in Security Valuation. Contemporary Accounting Research Spring: Ohlson, J., and X. Zhang Accrual Accounting and Equity Valuation. Journal of Accounting Research 36, Supplement: Ohlson, James A., Earnings, Book Values, and Dividends in Equity Valuation: An Empirical Perspective. Contemporary Accounting Research Vol. 18 No. 1. Week 5: Accounting and Firm Valuation II: Empirical Evidence 1. Frankel. R. and C. Lee Accounting Valuation, Market Expectation, and Cross-Sectional Returns. Journal of Accounting and Economics. (June 1998): Dechow P., A. Hutton and R. Sloan An Empirical Assessment of the Residual Income Valuation Model. Journal of Accounting and Economics 26, Myers J Implementing Residual Income Valuation with Linear Information Dynamics. The Accounting Review 74,

6 A772 Fall of 8 Week 6: Voluntary Disclosure 1. Verrecchia, R. Essays on Disclosure, Journal of Accounting and Economics (December 2001): Dye, R. An Evaluation of Essays on Disclosure and the Disclosure Literature Journal of Accounting and Economics (December 2001): Healy, P.M. and K.G. Palepu, Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature Journal of Accounting and Economics (September 2001): Core, J.E., A review of the empirical disclosure literature: Discussion Journal of Accounting and Economics (September 2001): Botosan, C., Disclosure Level and the Cost of Equity Capital, The Accounting Review (July 1997): Bushman, R., J. Piotroski, and A. Smith, What Determines Corporate Transparency? Journal of Accounting Research (May 2004): Guo, R., B. Lev, and N. Xhou Competitive Costs of Disclosure by Biotech Firms, Journal of Accounting Research (May 2004): Week 7: Earnings Management 1. Schipper, K Commentary on earnings management, Accounting Horizons 3, Jones, J Earnings management during import relief investigations. Journal of Accounting Research 29, Dechow. P, R. Sloan, and A. Sweeney Detecting earnings management, The Accounting Review (April), Burgstahler, D. and I. Dichev, Earnings Management to Avoid Earnings Decreases and Losses, Journal of Accounting and Economics (December 1997): Degeorge, F., J. Patel and R. Zeckhauser Earnings management to exceed thresholds, Journal of Business, 72 (1): Bartov, E., D. Givoly, and C. Hayn, The Rewards to Meeting or Beating Earnings Expectations, Journal of Accounting and Economics (June 2002): Week 8: Contracting Perspective and Executive Compensation 1. Lambert, R. Contracting Theory and Accounting, Journal of Accounting and Economics (December 2001): Magee, Robert P. Discussion of Contracting Theory and Accounting Journal of Accounting and Economics (December 2001): Watts, R. L., and J. L. Zimmerman Positive Accounting Theory. Edited by A. Rappaport, Contemporary Topics in Accounting Series. Eaglewood Cliffs, NJ: Prentice- Hall, Inc. 4. Healy, P The effect of bonus schemes on accounting decisions. Journal of Accounting and Economics (April),

7 A772 Fall of 8 5. Murphy, K.J Executive compensation, in: O. Ashenfelter and D. Card, eds., Handbook of Labor Economics Volume 3B (North Holland, Amsterdam). 1. Rajgopal, S., and T. Shevlin Empirical evidence on the relation between stock option compensation and risk taking. Journal of Accounting and Economics 33, Yermack, D Good timing: CEO stock option awards and company news announcements. The Journal of Finance 52, Holthausen, R., D. Larcker, and R. Sloan Annual bonus schemes and the manipulation of earnings. Journal of Accounting and Economics 19, Week 9: Financial Analyst and Management Earnings Forecasts Background Reading 1. Schipper, K Commentary on Analysts Forecasts. Accounting Horizons (December): Healy, P. and K. Palepu, 2001, Information Asymmetry, Corporate Disclosure, and the Capital Markets: A Review of the Empirical Disclosure Literature, Journal of Accounting and Economics 31: Hirst, D.E., L. Koonce, and S. Venkataraman, 2008, Management Earnings Forecasts: A Review and Framework, Accounting Horizons 22(3): Barron, O.E., Kim, O., Lim, S., and Stevens, D.E., 1998, Using Analysts Forecasts to Measure Properties of Analysts Information Environment. The Accounting Review 73 (4): Lang, M.H., Lins, K.V., and Miller, D.P., 2003, ADRs, Analysts, and Accuracy: Does Cross-Listing in the United States Improve a Firm s Information Environment and Increase Market Value? Journal of Accounting Research 41(2): Yu, F., 2008, Analyst Coverage and Earnings Management, Journal of Financial Economics 88: Hope, O.K., T. Kang, and J. Kim, 2011, Voluntary Disclosure Practices by Foreign Firms Cross-Listed in the United States, Working Paper, University of Toronto and Oklahoma State University. Week 10 Empirical Accounting Research on International Capital Markets 1 Background Reading 1. Basu, S., 1997, The Conservatism Principle and the Asymmetric Timeliness of Earnings, Journal of Accounting and Economics 24: : 1. Ball, R., S.P. Kothari and A. Robin, 2000, The Effect of International Institutional Factors on Properties of Accounting Earnings, Journal of Accounting and Economics 29: Leuz, C, D. Nanda, Wysocki, P., 2003, Earnings Management and Investor Protection: An International Comparison, Journal of Financial Economics 69: Bushman, R.M. and J.D. Piotroski, 2006, Financial Reporting Incentives for Conservative Accounting: The Influence of Legal and Political Institutions, Journal of Accounting andeconomics 42:

8 A772 Fall of 8 Week 11 Empirical Accounting Research on International Capital Markets 2 Background Reading: 1. La Porta, R., F. Lopez-De-Silanes, A. Shleifer, and R. Vishney, 1998, Law and Finance, The Journal of Political Economy 106 (6): Pincus, M., S. Rajgopal, and M. Venkatachalam, 2007, The Accrual Anomaly: International Evidence, The Accounting Review 82(1): DeFond, M., M. Hung, and R. Trezvant, 2007, Investor Protection and the Information Content of Annual Earnings Announcements: International Evidence, Journal of Accounting and Economics 43: : 1. Hail, L. and C. Leuz, 2006, International Differences in the Cost of Equity Capital: Do Legal Institutions and Security Regulation Matter? Journal of Accounting Research 44(3): Ball, R., Hail, L., and F.P. Vasvari, 2011, Equity Cross-Listings in the U.S. and the Price of Debt, Working paper, University of Chicago, The Wharton School, and London Business School. 3. Dyck, A., and Zingales, L., 2004, Private Benefits of Control: An International Comparison,, Journal of Finance 59: Week 12: TBD