AMIS 8780 Summer-Fall 2018 Doctoral Seminar in Accounting Course Outline

Transcription

1 Instructor: Xue Wang Class Hours: TBA Classroom: AMIS conference room Office: 412 Fisher Hall Phone: Office Hours: By appointment Course Objective AMIS 8780 Summer-Fall 2018 Doctoral Seminar in Accounting Course Outline This course is designed to introduce you to empirical research topics in financial accounting and how it relates to work in economics, finance, and law. Materials Attached is the plan and a reading list of 14 sessions of class. Published articles can be obtained from the library website. I will post required readings and other materials on a shared Dropbox folder. Please let me know if you have trouble finding assigned materials. Each session covers a set of required readings that will be discussed in class (the ** articles). In addition, a set of background and supplementary readings is also included for each session in order to provide a deeper understanding of the issues and methods pertinent to the session. Please note that this reading list is merely a starting point for you to learn to appreciate the literature. The literature on these topics is vast and we cannot ever hope to run a comprehensive PhD seminar on these topics. The idea is to make you literate enough to pick up a research paper and consume it in an intelligent and critical manner. Class Format The course will be run as a seminar. In each class, we will cover 3 or more papers. All students are expected to read the required papers before class and be prepared to discuss the papers in class. Students will be tasked with presenting papers to the class. Each registered student will be assigned 1-2 papers to present in class for each class session. Unregistered students will be assigned fewer papers. See the last page of the syllabus for assigned student presentations. Note that you are free to make bilateral trades of presentation assignments as long as I am informed no later than two days prior to the first of the traded presentations. 1

2 Class Presentation Responsibilities Each class participant will be responsible for leading discussion of some papers during the course. These presentations will be informal, and you should not plan to talk uninterrupted or to talk through the entire paper. However, you should gain an especially deep understanding of the paper you are assigned so that you can lead discussion of it and answer questions that arise about it. You should plan to cover the following issues: What is the research question? How does the research relate to prior research? What are the specific hypotheses? How were they tested? What is the big insight from the paper (if any)? What reservations do you have about the paper (if any)? What applications do you see in financial reporting or other financial contexts (if any)? Assignments There will be two writing assignments. For the two papers marked $$ in the reading list, you are to write a short paper that either critiques or builds on that paper. I expect that your paper should be about 2 single-spaced pages long. It should do the following. Identify the main research question or questions in the assigned paper. Briefly describe how the paper fits (or why it doesn t fit very well) with the theme and other readings for the week. At this point, you have a choice. You can either (1) critique the paper, recommending specific changes that would result in a project that better gets at the main research questions; (2) propose a new project that would get at the same basic research questions in a different way; (3) propose a new project that would exploit what you ve learned from the other reading and would investigate a different (but presumably related) research question. If you choose options #2 or 3, keep in mind that your proposal will need to be brief. I recommend using a slightly expanded version of the Bill Kinney 3 paragraph format (in which the three paragraphs covers the following: what is the research question? Why is it important? How will you investigate it?) Referee Report There will be one referee report due at the end of the summer sessions. You are required to write a journal-style referee report together with a letter to editor. I will distribute the paper to be reviewed during the week of July 16, You have 48 hours to complete this task. You are free to consult any other references, but you are not allowed to talk to faculty and fellow Ph. D students regarding the paper and the report. The referee report should each be approximately three pages, starting with a brief summary of the paper and its strengths and weaknesses, then proceeding to an evaluation of its main flaws, if any, and whether they are susceptible to correction in a revision of the paper. Be as constructive as possible. You may (or may not) wish to make further, less essential, comments and suggestions in numbered format at the end of the report. 2

3 Report on Replication of a Published Empirical Accounting Research Paper Prepare a report on a replication of either a published empirical accounting research paper of your choice or Dechow and Dichev (TAR 2002, The Quality of Accruals and Earnings: The Role of Accrual Estimation Errors. ) The report should discuss problems encountered in the replication and compare the results obtained with the original results in the paper. A critique of the paper based on the knowledge obtained in the replication process should be included in the report. The reports will be presented to the class. Grades Your grade for the class will be determined according to the following scale: Class Discussions 15% Presentation of Papers 20% Assignments 20% Referee Report 15% Replication Report/Presentation 30% 3

4 Course Schedule and Reading List Session 1 (Week of June 11): Introduction and Overview 1. **Friedman, M., The Methodology of Positive Economics, Essays in Positive Economics. (Chicago: University of Chicago Press): **Davis, G., Writing the Doctoral Dissertation: A Systematic Approach, Decision Line, March 2000: **Roberts, H., Dissertations with Fewer Tears. 4. **Chow, C W., and P. D. Harrison Identifying meaningful and significant topics for research and publication: a sharing of experiences and insights by influential accounting authors. Journal of Accounting Education 20, no. 3: **Kinney, W.R., Empirical Accounting Research Design for Ph. D students. The Accounting Review 61: **Frankel, R.M., M.F. Johnson, and K.K. Nelson, The Relation between Auditors Fees for Non-audit Services and Earnings Management, The Accounting Review 77: **Kinney, W.R. and R. Libby, Discussion of the Relation between Auditors Fees for Nonaudit Services and Earnings Management, The Accounting Review 77: Session 2 (Week of June 18): What is the Role of Accounting 1. **Ball, R., What Is the Actual Economic Role of Financial Reporting? Accounting Horizons 22(4): **Ball, R., 2013 Accounting Informs Investors and Earnings Management is Rife: Two Questionable Beliefs. Accounting Horizons 27(4): **Ball, R. and P. Brown An empirical evaluation of accounting income numbers. Journal of Accounting Research 6 (2): **Beaver, W The information content of annual earnings announcements. Journal of Accounting Research 6 (3): **Bamber, L., T. Christensen, and K. Gaver Do we really know what we think we know? A case study of seminal research and its subsequent overgeneralization. Accounting, Organizations, and Society 25 (2):

5 1. Holthausen, R. W., and R. L. Watts. The relevance of the value-relevance literature for financial accounting standard setting. Journal of Accounting and Economics 31, Focus on Section 4, page Brown, P Invited remarks: Ball and Brown [1968]. Journal of Accounting Research 27 (Supplement): This paper provides Philip Brown s perspective on his seminal paper. 3. Ball, R. and P. Brown Ball and Brown (1968): A Retrospective, The Accounting Review 89: Session 3 (Week of June 18): Accruals and Earnings Quality 1. **Dechow, P., 1994, Accounting Earnings and Cash Flows as Measures of Firm Performance: The Role of Accounting Accruals, Journal of Accounting and Economics 18: **Sloan, R., 1996, Do Stock Prices Fully Reflect Information in Accruals and Cash Flows about Future Earnings? The Accounting Review 71: ** Dechow, P. and I. Dichev, 2002, The Quality of Accruals and Earnings: The Role of Accrual Estimation Errors, The Accounting Review 77: **Dichev, I., J. Graham, C. Harvey, and S. Rajgopal, 2013, Earnings Quality: Evidence from the Field, Journal of Accounting and Economics 56: Dechow. P., W. Ge, and C. Schrand, Understanding Earnings Quality: A Review of the Proxies, their Determinants, and their Consequences, Journal of Accounting and Economics 50: DeFond, M., Earnings Quality Research: Advances, Challenges, and Future Research, Journal of Accounting and Economics 50: Session 4 (Week of June 25): Earnings Management and Non-GAAP Earnings 1. **Stein, J., 1989, Efficient Capital Markets, Inefficient Firms: A Model of Myopic Corporate Behavior, Quarterly Journal of Economics 104(4): **Dechow, P., R. Sloan, and A. Sweeney, Detecting Earnings Management, The Accounting Review 70(2): ** Burgstahler, D. and I. Dichev, Earnings Management to Avoid Earnings Decreases and Losses. Journal of Accounting and Economics 24:

6 4. ** Bradshaw and Sloan, GAAP versus the Street: An Empirical Assessment of Two Alternative Definitions of Earnings, Journal of Accounting Research 40: ** Kolev, Marquartdt and McVay, SEC Scrutiny and the Evolution of Non-GAAP Earnings. The Accounting Review 83(1): Healy, P. and J. Wahlen, A Review of Earnings Management Literature and its Implications for Standard Setting, Accounting Horizons 13(4): Dechow, P. and D. Skinner Earnings Management: Reconciling the Views of Accounting Academics, Practitioners, and Regulators, Accounting Horizons 14(2): Collins, D. and P. Hribar, Errors in Estimating Accruals: Implications for Empirical Research, Journal of Accounting Research 40(1): **Kothari, S.P., A. Leone, and C. Wasley, Performance-matched Discretionary Accruals Measures, Journal of Accounting and Economics 39: Ball, R. and L. Shivakumar, Earnings Quality at Initial Public Offerings, Journal of Accounting and Economics 45: Roychowdury, S., Earnings Management through Real Activities Manipulation, Journal of Accounting and Economics 42: Bergstresser, D. and T. Philippon, CEO Incentives and Earnings Management, Journal of Financial Economics 80: Bergstresser, D., M. Desai, and J. Rauh, Earnings Manipulations, Pension Assumptions, and Managerial Investment Decisions, Quarterly Journal of Economics 121: Dechow, P., W. Ge, C. Larson, and R. Sloan, Predicting Material Accounting Restatements, Contemporary Accounting Research 28(1): Black, Ciesielski, Christensen and Whipple, Non-GAAP Reporting: Evidence from Academia and Current Practice, Journal of Business Finance and Accounting 45(3): Bhattacharya, Black, Christensen and Larson, Assessing the Relative Informative-ness and Permanence of Pro Forma Earnings and GAAP Operating Earnings, Journal of Accounting and Economics 36: Doyle, Jennings, and Soliman, Do Managers Define non-gaap Earnings to Meet or Beat Analyst Forecasts, Journal of Accounting and Economics 56:

7 Session 5 (Week of June 25): Disclosure, Information Asymmetry and Liquidity 1. ** Leuz, C. and P. Wysocki The Economics of Disclosure and Financial Reporting Regulation: Evidence and Suggestions for Future Research. Journal of Accounting Research 54: (Read sections 2 and 3) 2. **Lang, M. and R. Lundholm, Cross-sectional Determinants of Analysts Ratings of Corporate Disclosures, Journal of Accounting Research 31: **Leuz, C. and R. Verrecchia, The Economic Consequences of Increased Disclosure, Journal of Accounting Research 38: **Bens, D., P. Berger, and S. Monahan, Discretionary Disclosure in Financial Reporting: An Examination Comparing Internal Firm Data to Externally Reported Segment Data, The Accounting Review 86 (2): $$Dyreng, Hoopes, Langetieg, and Wilde, Strategic Subsidiary Disclosure, Working Paper. 1. Akerloff, G. 1970: The Market for Lemons: Quality Uncertainty and the Market Mechanism. Quarterly Journal of Economics 84(3): Grossman, S. J The Informational Role of Warranties and Private Disclosure about Product Quality. Journal of Law and Economics 24 (3): Healy, P. and K. Palepu, Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature. Journal of Accounting and Economics 32: Graham J., C. Harvey, and S. Rajgopal, The Economic Implications of Corporate Financial Reporting, Journal of Accounting and Economics 40: Beyer, A., D. Cohen, T. Lys, and B. Walther, The Financial Reporting Environment: Review of the Recent Literature. Journal of Accounting and Economics 50 (2-3): Berger, P., Challenges and Opportunities in Disclosure Research A Discussion of The Financial Reporting Environment: Review of the Recent Literature. Journal of Accounting and Economics 51: Lang M. and M. Maffett, Transparency and Liquidity Uncertainty in Crisis Periods. Journal of Accounting and Economics 52: Files, R., E. P. Swanson, and S. Tse, Stealth disclosure of accounting restatements, The Accounting Review 84 (5):

8 Session 6 (Week of July 2): Disclosure and Securities Regulation 1. ** Leuz, C. and P. Wysocki The Economics of Disclosure and Financial Reporting Regulation: Evidence and Suggestions for Future Research. Journal of Accounting Research 54: (Read section 4) 2. **Bushee, B. and C. Leuz, Economic Consequences of SEC Disclosure Regulation: Evidence from the OTCBB, Journal of Accounting and Economics 39: **Iliv, P., The Effect of SOX Section 404: Costs, Earnings Quality, and Stock Prices, Journal of Finance 65: **Bhattacharya, Cho and Kim, Leveling the Playing Field between Large and Small Institutions: Evidence from the SEC s XBRL Mandate. The Accounting Review, Forthcoming. 1. Ross, S., The Economics of Information and the Disclosure Regulation Debate, in Issues in Regulation, Franklin Edwards (ed.), New York, McGraw Hill. 2. Shleifer, A., Understanding Regulation, European Financial Management 11: Files, R., SEC Enforcement: Does Forthright Disclosure and Cooperation Really Matter, Journal of Accounting and Economics 53: Session 7 (Week of July 9): More Regulation Studies 1. ** Coffee. J., Market Failure and the Economic Case for a Mandatory Disclosure System, Virginia Law Review 70: ** Hochberg, Y. V., P. Sapienza, and A. Vissing-Jørgensen, A Lobbying Approach to Evaluating the Sarbanes-Oxley Act of Journal of Accounting Research 47(2): ** Wang, I Private Earnings Guidance and Its Implications for Disclosure Regulation. The Accounting Review 82 (5): ** Cohen, D. A., A. Dey, and T. Z. Lys, Real and Accrual Based Earnings Management in the Pre and Post Sarbanes Oxley Periods. The Accounting Review 83 (3): Stulz, R Securities Laws, Disclosure, and National Capital Markets in the Age of Financial Globalization, Journal of Accounting Research 47: Kanodia and Sapra A Real Effects Perspective to Accounting Measurement and Disclosure: Implications and Insights for Future Research. Journal of Accounting Research 54:

9 Session 8 (Week of July 9): Contracting and Corporate Governance 1. **Jensen, M. and W. Meckling, Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure, Journal of Financial Economics 3-4: (Read pages , ) 2. **Bebchuk, L. and J. Fried, Executive Compensation as an Agency Problem, Journal of Economic Perspectives 17 (3): **Core, J., R. Halthausen, and D. Larcker, Corporate Governance, CEO Compensation, and Firm Performance, Journal of Financial Economics 51: **Frydman, C. and R. Saks, Executive Compensation: A New View from a Long-Term Perspectives, , Review of Financial Studies 23: $$Guest, Kothari and Prozen, High Non-GAAP Earnings Predict Abnormally High CEO Pay, Working Paper. 1. Coase, R., The Nature of the Firm, Economica 4: Holmstrom, B., Moral Hazard and Observability, Bell Journal of Economics 10: Fama, E., Agency Problems and the Theory of the Firm, Journal of Political Economy 88: Armstrong, C., W. Guay, and J. Weber, The Role of Information and Financial Reporting in Corporate Governance and Debt Contracting, Journal of Accounting and Economics 50: Brickley, J. and J. Zimmerman, Corporate Governance Myths: Comments on Armstrong, Guay, and Weber, Journal of Accounting and Economics 50: Kaplan, S. and J. Rauh, Wall Street and Main Street: What Contributes to the Rise in the Highest Incomes? Review of Financial Studies 23: Session 9 (Week of July 16): Getting to Know the Data SAS and WRDS Hailey Ballew will lead a session on SAS and WRDS. 9

10 Session 10 (Week of July 23): Global Capital Market Research: Cross-Listing, the Bonding Hypothesis, and IFRS 1. **Leuz, C. and P. Wysocki, Economic Consequences of Financial Reporting and Disclosure, Working Paper (on SSRN). (Read sections 5 and 6) 2. **Doidge, C., A. Karolyi, and R. Stulz, Why are Foreign Firms Listed in the US Worth More? Journal of Financial Economics 71: **Siegel, J., Can Foreign Firms Bond Themselves Effectively by Renting U.S. Securities Laws? Journal of Financial Economics 75: **Daske, H., L. Hail, C. Luez, and R. Verdi, Mandatory IFRS Reporting Around the World: Early Evidence on the Economic Consequences, Journal of Accounting Research 46: Coffee, J., Racing towards the Top? The Impact of Cross-Listings and Stock Market Competition on International Corporate Governance, Columbia Law Review 102(7): Karolyi, A., The World of Cross-Listings and Cross-Listings of the World: Challenging Conventional Wisdom, Review of Finance 10: Gerakos, J., M. Lang, and M. Maffett, Post-Listing Performance and Private Sector Regulation: The Experience of the AIM, Journal of Accounting and Economics 56: Barth, M., W. Landsman, and M. Lang, International Accounting Standards and Accounting Quality, Journal of Accounting Research 46: Daske, H., L. Hail, C. Luez, and R. Verdi, Adopting a Label: Heterogeneity in the Economic Consequences around IAS/IFRS Adoptions, Journal of Accounting Research 51: Bruggemann, U., H. Joerg-Markus, and T. Sellhorn, Intended and Unintended Consequences of Mandatory IFRS Adoption: A Review of Extant Evidence and Suggestions for Future Research, European Accounting Review 22: De George, Li and Shivakumar, A Review of the IFRS Adoption Literature. Review of Accounting Studies 21(3): Session 11 (Week of July 23): Archival Auditing Research 1. **DeAngelo, L., Auditor independence, low-balling and disclosure regulation, Journal of Accounting and Economics 3: **DeFond, M. and C. Lennox, The Effect of SOX on Small Auditor Exits and Audit Quality, Journal of Accounting and Economics 52:

11 3. **Lennox, C. and J. Pittman, Voluntary Audits versus Mandatory Audits, The Accounting Review 86: **Schroeder, The Impact of Audit Completeness and Quality on Earnings Announcement GAAP Disclosures, The Accounting Review 91: **Nagy Playing Peekaboo with Constitutional Law: The PCAOB and its Public/Private Status. Notre Dame Law Review 80: DeFond, M. and J. Zhang, A Review of Archival Auditing Research, Journal of Accounting and Economics 58: Donovan, Frankel, Lee, Martin, and Seo, Issues Raised by Studying DeFond and Zhang: What should Audit Researchers Do? Journal of Accounting and Economics 58: Lennox, C., Audit Quality and Executive Officers' Affiliations with CPA Firms, Journal of Accounting and Economics 39: Lennox, C. and B. Li, The Consequences of Protecting Audit Partners Personal Assets from the Threat of Liability, Journal of Accounting and Economics 54: Lennox, C. and J. Pittman, Auditing the Auditors: Evidence on the Recent Reforms to the External Monitoring of Audit Firms, Journal of Accounting and Economics 49: Session 12 (Autumn 2018 TBA): Intermediaries Analysts and Media 1. **Bradshaw, M.T., Analysts Forecasts: What do We Know after Decades of Work? Working Paper. 2. **Brown, L.D., A.C. Call, M.B. Clement, and N.Y. Sharp Inside the Black Box of Sell- Side Financial Analysts, Journal of Accounting Research 50 (1): ** Brown, L.D., A.C. Call, M.B. Clement, and N.Y. Sharp The Activities of Buy-Side Analysts and the Determinants of Their Stock Recommendations, Journal of Accounting and Economics 62 (1): **Fang, L. and J. Peress, Media Coverage and the Cross-section of Stock Returns. Journal of Finance 64(5): **Bushee, B.J., J.E. Core, W. Guay, and S.J.W. Hamm, The role of the business press as an information intermediary. Journal of Accounting Research, Vol. 48, No. 1, March, **Guest, N., Do Journalists Help Investors Analyze Firms Earnings News? Working Paper. 11

12 1. Schipper, K., Commentary on analysts forecasts, Accounting Horizons 5 (4): Ramnath, S., S. Rock, and P. Shane, The Financial Analyst Forecasting Literature: A Taxonomy with Suggestions for Further Research. International Journal of Forecasting, 24 (1): O Brien, P., Analysts' Forecasts as Earnings Expectations, Journal of Accounting and Economics 10: Gu, Z. and J. Wu, Earnings Skewness and Analyst Forecast Bias, Journal of Accounting and Economics 35: Asquith, P., M. Mikhail, and A. Au, Information Content of Equity Analyst Reports. Journal of Financial Economics, 75(2): Womack, K., Do Brokerage Analysts Recommendations Have Investment Value? The Journal of Finance 51 (1): **Cutler, D.M., Poterba J.M. and L.H. Summers, What moves stock prices? Journal of Portfolio Management, Vol. 15, Engelberg, J.E., and A.P. Parsons, The causal impact of media in financial markets. Journal of Finance, Vol. 66, Tetlock, P.C., Giving content to investor sentiment: the role of media in the stock market. The Journal of Finance, Vol. 62, No. 3, Tetlock, P.C., Does public financial news resolve asymmetric information? Review of Financial Studies 23 (9), J. Core, W. Guay and D. Larcker, The power of the pen and executive compensation, Journal of Financial Economics 88, 1-25 (2008). Session 13 (Autumn 2018 TBA): Credit Rating Agencies and Institutional Investors 1. Partnoy The Siskel and Ebert of Financial Markets? Two Thumbs Down for the Credit Rating Agencies, Washington University Law Review Quarterly 77(3): Kraft Do Rating Agencies Cater? Evidence from Rating-Based Contracts, Journal of Accounting and Economics, 59: Jiang, J., M. Stanford and Y. Xie, Does It Matter Who Pays for Bond Ratings? Historical Evidence, Journal of Financial Economics, 105(3):

13 4. Basu, Naughton, and Wang, Exogenous Credit Rating Changes and the Provision of Voluntary Disclosure, Working Paper. 5. Bushee, B., The Influence of Institutional Investors on Myopic R&D Investment Behavior. The Accounting Review 73: Parrino, R., Sias, R.W., and L. T. Starks Voting With Their Feet: Institutional Ownership Changes Around Forced CEO Turnover, Journal of Financial Economics 68, Morgan, Rating Banks: Risk and Uncertainty in an Opaque Industry, The American Economic Review 92: Bonsall, The Impact of Issuer-Pay on Corporate Bond Rating Properties: Evidence from Moody s and S&P s Initial Adoptions, Journal of Accounting and Economics 57: Akins, Financial Reporting Quality and Uncertainty about Credit Risk Among Rating Agencies, The Accounting Review, Forthcoming. 4. Bushee and Noe, Corporate Disclosure Practices, Institutional Investors, and Stock Return Volatility, Journal of Accounting Research: Hartzell and Starks, Institutional Investors and Executive Compensation, Journal of Finance 58: Appel, Gormerly and Keim, Passive Investors, Not Passive Owners, Journal of Financial Economics 121: Brav, Jiang, Partnoy, and Thomas, Hedge Fund Activism, Corporate Governance, and Firm Performance, Journal of Finance 63: Session 14 (Autumn 2018 TBA): Student Presentations of Replication Report 13

14 Schedule for Student Presentations Date Presenter Paper * You are free to make bilateral trades of presentation assignments as long as I am informed no later than the Friday prior to the first of the traded presentations. 14