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The Relationship Of Returns To Earnings And Cash Flows Before And After Restatement
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Book Synopsis The Relationship of Returns to Earnings and Cash Flows Before and After Restatement by : Evan M. Shough
Download or read book The Relationship of Returns to Earnings and Cash Flows Before and After Restatement written by Evan M. Shough and published by . This book was released on 2008 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: Restatements create significant problems and uncertainties for the general investors. The goal of this paper is to provide a deeper understanding of how investors use financial statements information to help in their capital allocation decisions. In particular, our study contributes to the body of research on restatements by examining whether investors place more (less) emphasis on cash flows (accruals) after companies restate and how long that relationship may last. We show that after companies restate the association between returns and cash flows increases and the association between returns and earnings decreases. This relation exists for a period of at least one year before the association reverts back to pre-restatement levels. The overall result is consistent with the notion that restatement creates uncertainty and investors question whether future earnings numbers are reliable.
Book Synopsis Nonlinearity in the Returns-earnings and Returns-cash Flows Relations by : Kirsten Lynn Anderson
Download or read book Nonlinearity in the Returns-earnings and Returns-cash Flows Relations written by Kirsten Lynn Anderson and published by . This book was released on 1997 with total page 162 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: This study analyzes the relations between returns and earnings and returns and cash flows. The purpose is to determine how accounting information is associated with firm performance (market returns). These relations are studied over both short (one and five years) and long (ten years) measurement intervals. Models with varying degrees of distributional restrictions are employed to determine the nature of these relations over each interval. These are OLS, arctan (nonlinear), and a semiparametric (single index) model. Within each measurement interval, firms are partitioned into quartiles based on the length of the firm's operating cycle. The operating cycle measures how long it takes a firm to convert cash outflows to cash inflows from operations. It also measures the approximate length of time that it takes for changes in operations to result in changes in firm profitability. Nonlinearities likely occur in the returns-earnings relation in part because of the timing of recognition differences in the accrual system. Information is likely recognized by the market before it is in accounting. This differential in recognition results in different valuation coefficients on different components of accounting earnings. Certain components of earnings may have already been recognized by the market so a lower coefficient results. It is likely that extreme earnings contain a higher proportion of these types of components so nonlinearities result in the tails of the earnings distribution. Since changes in operations for firms with shorter operating cycles likely impact the firm's profitability more quickly, I expect the returns-earnings relation to become linear more quickly for these firms. I hypothesize and results show that the returns-earnings relation is nonlinear over the shorter measurement intervals and become linear as the measurement interval is lengthened for firms with shorter operating cycles. The returns-cash flows relation is also nonlinear for most operating cycle partitions over shorter windows and approximates linearity for most operating cycle partitions over longer intervals. On average, earnings explain a higher proportion of returns than do cash flows for all measurement intervals. This result is even more pronounced when well-specified models are employed.
Book Synopsis The Relationship Between Systematic Operating Cash Flow Risk and Market Returns to Securities by : Merle Wayne Hopkins
Download or read book The Relationship Between Systematic Operating Cash Flow Risk and Market Returns to Securities written by Merle Wayne Hopkins and published by . This book was released on 1982 with total page 230 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Earnings, Cashflows and Returns by : Peta Stevenson-Clarke
Download or read book Earnings, Cashflows and Returns written by Peta Stevenson-Clarke and published by . This book was released on 2000 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The relation between stock returns, earnings and cashflows is of importance because it directly addresses the issue of whether accounting data provide value relevant information. The empirical evidence to date, however, has documented low explanatory power for earnings and inconclusive incremental information content for cashflows. This research re-evaluates the incremental information content debate using Australian data. Our research is motivated by: recent innovations in research design, including the specification of nonlinear functional relations between accounting variables and prices, and the fact that differences in firm size characteristics may influence the relative information content of the accounting variables. We observe that: (i) a nonlinear functional relation provides greater explanatory power for both earnings and cash flows; (ii) the results are consistent with more transitory earnings components for smaller firms; and (iii) contrary to received theory, cashflows add greater incremental explanatory power for large firms.
Book Synopsis Creative Cash Flow Reporting by : Charles W. Mulford
Download or read book Creative Cash Flow Reporting written by Charles W. Mulford and published by John Wiley & Sons. This book was released on 2005-01-20 with total page 438 pages. Available in PDF, EPUB and Kindle. Book excerpt: Successful methodology for identifying earnings-related reporting indiscretions Creative Cash Flow Reporting and Analysis capitalizes on current concerns with misleading financial reporting on misleading financial reporting. It identifies the common steps used to yield misleading cash flow amounts, demonstrates how to adjust the cash flow statement for more effective analysis, and how to use adjusted operating cash flow to uncover earnings that have been misreported using aggressive or fraudulent accounting practices. Charles W. Mulford, PhD, CPA (Atlanta, GA), is the coauthor of three books, including the bestselling The Financial Numbers Game: Identifying Creative Accounting Practices. Eugene E. Comiskey, PhD, CPA, CMA (Atlanta, GA), is the coauthor of the bestselling The Financial Numbers Game: Identifying Creative Accounting Practices.
Book Synopsis The Role of Earnings, Cash Flows, and Other Accounting Variables in Explaining Long-run Returns by : John Hathorn
Download or read book The Role of Earnings, Cash Flows, and Other Accounting Variables in Explaining Long-run Returns written by John Hathorn and published by . This book was released on 2000 with total page 218 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Valuation and Contracting Roles of Restated Earnings by : Maef Woods
Download or read book The Valuation and Contracting Roles of Restated Earnings written by Maef Woods and published by . This book was released on 2009 with total page 90 pages. Available in PDF, EPUB and Kindle. Book excerpt: Between January 1, 2002, and September 30, 2005, 1,084 public companies restated previously issued financial statements. This represents 16 percent of the average number of listed companies, as compared to almost 8 percent of listed companies that made restatements between 1997 and 2001 (GAO 2006b, 4). Because they involve correcting financial statements previously filed with the U.S. Securities and Exchange Commission (SEC), restatements may reflect abuse of the flexibility that exists within generally accepted accounting principles (GAAP) and thus have "raised questions about the credibility of accounting practices and the quality of corporate financial disclosure and oversight in the United States" (GAO 2002, 1). Not surprisingly, academic research on restatements has grown in recent years. However, most attention has been focused on effects relative to restatement announcements. In contrast, this study examines the timeframe during which the errors or misapplication of GAAP originally occurred. Specifically, this study explores the relationship between earnings and returns and that between earnings and chief executive officers' (CEOs') cash compensation over the period for which earnings were initially misstated. Using data hand-collected from the original and amended documents filed with the U.S. Securities and Exchange Commission (SEC), after some minor adjustments such as excluding restatements related to purchased in-process research and development, no difference is found in the strength of the association between returns and earnings as originally reported versus as restated. However, decomposing the originally reported earnings into the restated (GAAP-compliant) component and restatement/error (GAAP-non-compliant) component suggests that market participants find both components to be value relevant when profits are originally reported but only the restated (GAAP-compliant) component to be value relevant when losses are originally reported. Similar results are found when analyzing the relation between earnings and CEOs' cash compensation. When firms initially report profits, both the GAAP-compliant and GAAP-non-compliant components are positively associated with CEOs' cash compensation. Although other explanations are possible, this result is consistent with the market "tolerating" misstatements by profitable firms. Another possible explanation points towards the contracting role of accounting earnings and shareholders' implicit sanction for deviation from GAAP. When firms initially report losses, the GAAP-compliant component is negatively associated with CEOs' cash compensation and the GAAP-non-compliant component is not significant. This suggests that the GAAP-non-compliant component does not play a role in contracting when losses are initially reported. Whether the market tolerates some misstatements from profit-making firms, or efficient contracting requires such deviations, are subjects of future research.
Book Synopsis The Informational Role and Value Relevance of Earnings, Cash Flows, and Accruals by : David J. Ashton
Download or read book The Informational Role and Value Relevance of Earnings, Cash Flows, and Accruals written by David J. Ashton and published by . This book was released on 2016 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we establish a theoretical relationship between earnings components and future stock returns. It shows the informational role of earnings, cash flows and accruals in predicting future stock returns and the key role played by the earnings response coefficient. It also suggests that the 'accrual anomaly' can be explained rationally. Accounting fundamentals jointly determine the covariance risk between uncertain future cash flows and the discount factor: accruals are encompassed as long as there exists differential persistence between cash flows and accruals after controlling for aggregate earnings. In particular, it is the deviation of (scaled) accruals from their long run mean rate that is vital in explaining the 'accrual anomaly'. Consequently, Sloan (1996) and similar results should not be interpreted as an accrual-based anomaly, instead they document important evidence of the possible fair pricing of accruals.
Book Synopsis Earnings Quality by : Jennifer Francis
Download or read book Earnings Quality written by Jennifer Francis and published by Now Publishers Inc. This book was released on 2008 with total page 97 pages. Available in PDF, EPUB and Kindle. Book excerpt: This review lays out a research perspective on earnings quality. We provide an overview of alternative definitions and measures of earnings quality and a discussion of research design choices encountered in earnings quality research. Throughout, we focus on a capital markets setting, as opposed, for example, to a contracting or stewardship setting. Our reason for this choice stems from the view that the capital market uses of accounting information are fundamental, in the sense of providing a basis for other uses, such as stewardship. Because resource allocations are ex ante decisions while contracting/stewardship assessments are ex post evaluations of outcomes, evidence on whether, how and to what degree earnings quality influences capital market resource allocation decisions is fundamental to understanding why and how accounting matters to investors and others, including those charged with stewardship responsibilities. Demonstrating a link between earnings quality and, for example, the costs of equity and debt capital implies a basic economic role in capital allocation decisions for accounting information; this role has only recently been documented in the accounting literature. We focus on how the precision of financial information in capturing one or more underlying valuation-relevant constructs affects the assessment and use of that information by capital market participants. We emphasize that the choice of constructs to be measured is typically contextual. Our main focus is on the precision of earnings, which we view as a summary indicator of the overall quality of financial reporting. Our intent in discussing research that evaluates the capital market effects of earnings quality is both to stimulate further research in this area and to encourage research on related topics, including, for example, the role of earnings quality in contracting and stewardship.
Book Synopsis The Usefulness of Earnings and Cash Flows in Valuing Security Returns by : Melita Stephanou
Download or read book The Usefulness of Earnings and Cash Flows in Valuing Security Returns written by Melita Stephanou and published by . This book was released on 2005 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In this dissertation, I proposed to examine and test empirically six major hypotheses that relate to the role of financial information, namely earnings and cash flows, in three major capital markets, two Anglo-Saxon, the UK and the USA and one code law country, France. A theoretical framework is developed to set the groundwork for building up my research hypotheses. I hypothesize that the homogeneity across firms may not hold, due to firm-specific, industry-specific, and country specific differences across firms. The dataset consists of 36,695 USA, 4,234 UK and 1,181 French firm-year observations over the period 1990-98. Multivariate statistical regression analysis is undertaken to test the major research hypotheses. The major conclusions drawn from the empirical results are summarized as follows. First, results indicate that indeed both earnings and cash flows are taken into consideration by investors in their investment decisions. Second, given cash flows, results show that earnings are always very important to investors and financial analysts for investment purposes; given earnings though results show that cash flows are more important to investors in the Anglo-Saxon countries, possibly due to the lower importance that investors place on the manipulated earnings in these less conservative countries. As far as France is concerned, results reveal that investors place much more attention to earnings and less attention to cash flows. Third, results show that the value relevance of earnings and cash flows is industry specific. Fourth, evidence shows that investors pay more attention to longer-run earnings and cash flows rather than to shorter-run financial information. Fifth, when earnings are transitory (not stable), investors pay more attention to cash flows and less attention to earnings, a result indicating that investors penalize firms with unstable earnings. Sixth, results show that the value relevance of earnings and cash flows is country specific. Specifically, results indicate that earnings are valued more in France and less in the Anglo-Saxon countries, due to the fact that the financial Saxon countries is much more liberal (less conservative) and managers may manipulate easier financial information. Moreover, as hypothesized, results show that cash flows are the most (least) value relevant in the USA and the UK (France). In summary, the evidence provided in this dissertation supports that indeed there are substantial differences in the way investors and financial analysts perceive financial information such as earnings and cash flows in the UK, France and the USA. The results of this dissertation should be of great importance to the major stakeholders such as investors, creditors, financial analysts, especially after the latest financial scandals and collapses of giant organizations worldwide. Furthermore, these results support that fundamental analysis does play a very important role in the capital markets and it should be taken more seriously into consideration by the stakeholders for investing, credit, financing and valuation analysis purposes.
Book Synopsis Cash Flow Return on Investment and Stock Returns by : Maksym Gerasymchuk
Download or read book Cash Flow Return on Investment and Stock Returns written by Maksym Gerasymchuk and published by . This book was released on 2015 with total page 82 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The End of Accounting and the Path Forward for Investors and Managers by : Baruch Lev
Download or read book The End of Accounting and the Path Forward for Investors and Managers written by Baruch Lev and published by John Wiley & Sons. This book was released on 2016-06-14 with total page 268 pages. Available in PDF, EPUB and Kindle. Book excerpt: An innovative new valuation framework with truly useful economic indicators The End of Accounting and the Path Forward for Investors and Managers shows how the ubiquitous financial reports have become useless in capital market decisions and lays out an actionable alternative. Based on a comprehensive, large-sample empirical analysis, this book reports financial documents' continuous deterioration in relevance to investors' decisions. An enlightening discussion details the reasons why accounting is losing relevance in today's market, backed by numerous examples with real-world impact. Beyond simply identifying the problem, this report offers a solution—the Value Creation Report—and demonstrates its utility in key industries. New indicators focus on strategy and execution to identify and evaluate a company's true value-creating resources for a more up-to-date approach to critical investment decision-making. While entire industries have come to rely on financial reports for vital information, these documents are flawed and insufficient when it comes to the way investors and lenders work in the current economic climate. This book demonstrates an alternative, giving you a new framework for more informed decision making. Discover a new, comprehensive system of economic indicators Focus on strategic, value-creating resources in company valuation Learn how traditional financial documents are quickly losing their utility Find a path forward with actionable, up-to-date information Major corporate decisions, such as restructuring and M&A, are predicated on financial indicators of profitability and asset/liabilities values. These documents move mountains, so what happens if they're based on faulty indicators that fail to show the true value of the company? The End of Accounting and the Path Forward for Investors and Managers shows you the reality and offers a new blueprint for more accurate valuation.
Book Synopsis The Analysis and Use of Financial Statements by : Gerald I. White
Download or read book The Analysis and Use of Financial Statements written by Gerald I. White and published by John Wiley & Sons. This book was released on 2002-12-30 with total page 786 pages. Available in PDF, EPUB and Kindle. Book excerpt: Accounting Standards (US and International) have been updated to reflect the latest pronouncements. * An increased international focus with more coverage of IASC and non-US GAAPs and more non-US examples.
Book Synopsis Principles of Accounting Volume 1 - Financial Accounting by : Mitchell Franklin
Download or read book Principles of Accounting Volume 1 - Financial Accounting written by Mitchell Franklin and published by . This book was released on 2019-04-11 with total page 1056 pages. Available in PDF, EPUB and Kindle. Book excerpt: The text and images in this book are in grayscale. A hardback color version is available. Search for ISBN 9781680922929. Principles of Accounting is designed to meet the scope and sequence requirements of a two-semester accounting course that covers the fundamentals of financial and managerial accounting. This book is specifically designed to appeal to both accounting and non-accounting majors, exposing students to the core concepts of accounting in familiar ways to build a strong foundation that can be applied across business fields. Each chapter opens with a relatable real-life scenario for today's college student. Thoughtfully designed examples are presented throughout each chapter, allowing students to build on emerging accounting knowledge. Concepts are further reinforced through applicable connections to more detailed business processes. Students are immersed in the "why" as well as the "how" aspects of accounting in order to reinforce concepts and promote comprehension over rote memorization.
Author :Peter Ove Christensen Publisher :Springer Science & Business Media ISBN 13 :0387265996 Total Pages :675 pages Book Rating :4.3/5 (872 download)
Book Synopsis Economics of Accounting by : Peter Ove Christensen
Download or read book Economics of Accounting written by Peter Ove Christensen and published by Springer Science & Business Media. This book was released on 2006-03-30 with total page 675 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book provides an integrated, technical exposition of key concepts in agency theory, with particular emphasis on analyses of the economic consequences of the characteristics of contractible performance measures, such as accounting reports. It provides a succinct source for learning the fundamentals of the economics of incentives. It will appeal to accounting researchers as well as those in other disciplines who are interested in the economics of management incentives.
Book Synopsis The Business Tax Return Handbook by : Jack Zuckerman
Download or read book The Business Tax Return Handbook written by Jack Zuckerman and published by American Bar Association. This book was released on 2004 with total page 180 pages. Available in PDF, EPUB and Kindle. Book excerpt: This is a practical, line-by-line guide that can be used as a complete introduction to the family law aspects of business tax returns or as as quick reference for lawyers who want to concentrate on particular areas of buisness taxation.
Book Synopsis Practitioner's Complete Guide to M&As, with Website by : David T. Emott
Download or read book Practitioner's Complete Guide to M&As, with Website written by David T. Emott and published by John Wiley & Sons. This book was released on 2017-12-04 with total page 432 pages. Available in PDF, EPUB and Kindle. Book excerpt: The ultimate guide to the ins and out of mergers and acquisitions Practitioner's Complete Guide to M&As provides the practical tricks of the trade on M&As: what they need to know, what they have to know, and what they need to do. Numerous examples and forms are included illustrating concepts in discussion. Written in a straight-talking style A highly, practical application-oriented guide to mergers and acquisitions Covers strategy development; deal flow and target identification; due diligence; valuation and offers; tax structuring; negotiation; and integration and value creation" Presents information using bullet points rather than lengthy narrative for ease of reading Numerous exhibits, forms, and examples are included This practical guide takes you through every step of the M&A process, providing all the necessary tools that both the first-time M&A player as well as the seasoned practitioner need to complete a smart transaction.
