ACCT 902,
Spring 2000
Course Objectives
1.
To
familiarize you with the empirical research in accounting.
2.
To
provide an understanding of the methodology which underlies the literature.
3.
To
gain an understanding of the research process and the key elements of
appropriate research design.
4.
To
enable you to critically evaluate existing research.
5.
To
enable you to identify interesting future research topics.
Reading List
1. Accounting information and security
prices
Ball, Ray and Philip Brown,
1968, An empirical evaluation of accounting income numbers, Journal of
Accounting Research, 159-178.
Beaver, William H., 1968,
The information content of annual earnings announcements, Journal of Accounting
Research, Supplement, 67-92.
2. Accounting information and security
prices: Economic and econometric issues
Beaver, William H., Richard
A. Lambert and Dale Morse, 1980, The information content of security prices,
Journal of Accounting & Economics 2, 3-28.
Kormendi, Roger C. and
Robert C. Lipe, 1987, Earnings innovations, earnings persistence, and stock
returns, Journal of Business 60, 323-345.
Collins, Daniel W. and S.P.
Kothari, 1989, An analysis of the intertemporal and cross-sectional
determinants of earnings response coefficients, Journal of Accounting &
Economics 11, 143-181.
***Background Reading***
Lev, Baruch, 1989, On the usefulness of earnings: Lessons and directions from two decades of empirical research,
Supplement to the Journal of Accounting Research, 153-192.
*** Background Reading*** Bernard, V.,
Capital markets research in accounting during the 1980's: A critical review.
***Background Reading***
Kothari, S.P., 1992, Price-earnings regressions in the presence of prices
leading earnings: Earnings level versus change specifications and alternative
deflators, Journal of Accounting and Economics 15, 173-202.
Easton, Peter D., Trevor S. Harris and
James A. Ohlson, 1989, Accounting earnings can explain most of security
returns: The case of long event windows, Journal of Accounting and Economics
15, 119-142.
Kothari, S.P. and Richard G.
Sloan, 1992, Information in prices about future earnings: Implications for
earnings response coefficients, Journal of Accounting and Economics 15, 143-171.
Collins, Daniel W., S.P.
Kothari, Jay Shanken, and Richard G. Sloan, 1994, Lack of timeliness and noise
as explanations for the low contemporaneous return-earnings association,
Journal of Accounting and Economics 18, 289-324.
Kothari, S.P. and Jerold L.
Zimmerman, 1995, Price and return models, Journal of Accounting and Economics
20, 155-192.
Brown, L., P. Griffin, R.
Hagerman, and M. Zmijewski, Security analyst superiority relative to univariate
time-series models in forecasting quarterly earnings, Journal of Accounting and
Economics 9, 61-87.
Nonlinearities in the return-earnings relation:
Freeman, Robert N. and Senyo
Tse, 1992, A nonlinear model of security price responses to unexpected
earnings, Journal of Accounting Research 30, 185-209.
Das, Somnath and Baruch Lev, 1994, Nonlinearity in the
returns-earnings relation: Tests of alternative specifications, Contemporary
Accounting Research 11, 353-379.
Hayn, Carla, 1995, The
information content of losses, Journal of Accounting & Economics 20,
125-153.
Basu, Sudipta, 1998, The
conservatism principle and the asymmetric timeliness of earnings, forthcoming
in the Journal of Accounting & Economics.
Core, J. and C. Schrand,
1999, The effect of accounting-based covenants on equity valuation, Journal of
Accounting and Economics 27, 1-34.
4. Alternative accounting measures of firm performance
***Background Reading***
Wilson, P., 1987, The incremental information content of the accrual and funds
components of earnings after controlling for earnings, The Accounting Review
62, 293-322.
Dechow, Patricia M., 1994,
Accounting earnings and cash flows as measures of firm performance: The role of
accounting accruals, Journal of Accounting and Economics 18, 3-42.
Biddle, Gary, R. Bowen and
J. Wallace, 1997, Does EVA beat earnings? Evidence on associations with stock
returns and firm values, Journal of Accounting and Economics 24, 301-336.
3. Accounting data
as market value measures and accounting-based valuation
Ohlson, James A., 1995,
Earnings, book values, and dividends in equity valuation, Contemporary
Accounting Research 11, 661-687.
Bernard, Victor L., 1995,
The Feltham-Ohlson framework: Implications for empiricists, Contemporary
Accounting Research 11, 733-747.
Lundholm, Russell J., 1995,
A tutorial on the Ohlson and Feltham/Ohlson models: Answers to some frequently
asked questions, Contemporary Accounting Research 11, 749-761.
***Background Reading***
Feltham, Gerald A. and James A. Ohlson, 1995, Valuation and clean surplus
accounting for operating and financial activities, Contemporary Accounting
Research 11, 689-731.
Core, J., W. Guay, and S.P.
Kothari, 2000, The Treasury Stock Method Understates the Economic Dilution of
Employee Stock Options in EPS, Working paper.
Dechow, Patricia M., Amy P.
Hutton, and Richard G. Sloan, 1999, An empirical assessment of the residual
income valuation model, Journal of Accounting & Economics 26, 1-34.
5. Market efficiency research related to accounting
Bernard, Victor L. and Jacob
Thomas, 1990, Evidence that stock prices do not fully reflect the implications
of current earnings for future earnings, Journal of Accounting and Economics
13, 305-340.
Ball, R. and E. Bartov,
1996, How naďve is the stock market's use of earnings information?, Journal of
Accounting and Economics 21, 319-337.
Abarbanell, Jeffery S. and
Brian J. Bushee, 1998, Abnormal returns to a fundamental analysis strategy, The
Accounting Review 73, 19-45.
Bernard, V, J. Thomas, and
J. Wahlen, 1997, Accounting-based stock price anomalies: Separating market
inefficiencies from risk, Contemporary Accounting Research 14, 89-136.
Kraft, A., 2000,
Accounting-based and market-based trading strategies, working paper, University
of Rochester.
Sloan, Richard G., 1996, Do
stock prices fully reflect information in accruals and cash flows about future
earnings? The Accounting Review 71, 289-315.
***Background*** Holthausen,
Robert and David Larcker, 1992, The prediction of stock returns using financial
statement information, Journal of Accounting and Economics 15, 373-411.
***Background*** Bernard,
Victor L. and Jacob Thomas, 1989, Post-earnings-announcement drift: Delayed
price response or risk premium, Journal of Accounting Research 27, Suppl.,1-36.
***Background*** Ball, Ray,
1992, The earnings-price anomaly, Journal of Accounting and Economics 15,
319-345.
***Background reading*** Ou,
Jane and Stephen Penman, 1989, Financial statement analysis and the prediction
of stock returns, Journal of Accounting and Economics 11, 295-329.
***Background Reading***
Frankel, Richard and Charles M. C. Lee, 1997, Accounting Valuation, Market
Expectations, and Cross-sectional Stock Returns, forthcoming in the Journal of
Accounting & Economics.
6. Accounting
choice and contracting theory
Watts, R. and J. Zimmerman,
1978, Towards a positive theory of the determination of accounting standards,
Accounting Review 53, 112-134.
Watts, R. and J. Zimmerman,
1990, Positive Accounting Theory: A Ten-Year Perspective, Accounting Review 65,
131-156.
Holthausen, R. 1990,
Accounting method choice: Opportunistic behavior, efficient contracting, and
information perspectives, Journal of Accounting and Economics 12, 207-218.
Healy, P., and K. Palepu,
1990, Effectiveness of accounting-based dividend covenants, Journal of
Accounting and Economics.
Press, E., and J. Weintrop,
1990, Accounting-based constraints in public and private debt agreements,
Journal of Accounting and Economics 12, 65-95.
***Background Reading***
Watts, Ross L. and Jerold L. Zimmerman, 1986, Chapter 8: The contracting
process, in Positive Accounting Theory (Prentice Hall, NJ).
***Background*** Jensen,
M.C., and W.H. Meckling, 1976, Theory of the firm: managerial behavior agency
costs, and ownership structure, Journal of Financial Economics 3, 305-360.
***Background Reading***
DeAngelo, Linda E., 1988, Managerial competition, information costs, and
corporate governance: The use of accounting performance measures in proxy
contests, Journal of Accounting & Economics 10, 3-36.
***Background reading***
Watts, Ross L. and Jerold L. Zimmerman, 1986, Chapter 9: Compensation plans,
debt contracts, and accounting procedures, in Positive Accounting Theory
(Prentice Hall, NJ).
***Background reading***
Watts, Ross L. and Jerold L. Zimmerman, 1986, Chapter 10: Accounting and the
political process, in Positive Accounting Theory (Prentice Hall, NJ).
***Background Reading***
Healy, P and J. Wahlen, 1998, A review of the earnings management literature
and its implications for standard setting, Working paper.
***Background reading***
Healy, Paul, 1985, The impact of bonus schemes on the selection of accounting
principles, Journal of Accounting & Economics 7, 85-107.
***Background reading***
Jones, Jennifer J., 1991, Earnings management during import relief
investigations, Journal of Accounting Research 29, 193-228.
***Background reading***
Petroni, Kathy R., 1992, Optimistic reporting within the property-casualty
insurance industry, Journal of Accounting & Economics 15, 485-508.
***Background reading***
DeFond, Mark L. and Jim Jimbalvo, 1994, Debt covenant violation and
manipulation of accruals, Journal of Accounting & Economics 17,
145-176.
***Background reading***
Sweeney, Amy P., 1994, Debt-covenant violations and managers' accounting-choice
and production-investment decisions, Journal of Accounting & Economics 17,
281-308.
DeAngelo, Linda E., 1994,
DeAngelo, Harry, and Douglas Skinner, 1994, Accounting choice in troubled
companies, Journal of Accounting & Economics 17, 113-143.
Holthausen, R., D. Larcker,
and R. Sloan, 1995, Annual Bonus Schemes and the Manipulation of Earnings,
Journal of Accounting and Economics, 29-74.
Dechow, Patricia, Richard G.
Sloan, and Amy P. Sweeney, 1994, Detecting earnings management, The Accounting
Review 70, 193-225.
Guay, Wayne R., S.P. Kothari, Ross L. Watts, 1996, A
market-based evaluation of discretionary-accrual models, forthcoming in the
Journal of Accounting Research.
Dechow, P., J. Sabino, and
R. Sloan, 1998, Implications of Nondiscretionary Accruals for Earnings
Management and Market-Based Research, Working paper.
7. Earnings Management,
Market Efficiency, and Specification issues
Teoh, Siew Hong, T. J. Wong,
and Gita R. Rao, 1998, Earnings management and the underperformance of seasoned
equity offerings, Journal of Financial Economics 50, 63-99.
***Background*** Teoh, Siew
Hong, Ivo Welch, and T. J. Wong, 1998, Earnings management and the long-run
market performance of initial public offerings, Journal of Finance 53,
1935-1974.
Kothari, S.P. and Jerold B.
Warner, 1997, Measuring long-horizon security price performance, Journal of
Financial Economics 43, 301-339.
Barber, Brad M. and John D. Lyon,
Detecting long-run abnormal stock returns: The empirical power and
specification of test statistics, Journal of Financial Economics 43,
341-372.
Kothari, S.P., J. Sabino, and T. Zach,
1999, Implications of data restrictions on performance measurement and tests of
rational pricing, working paper, MIT.
***Background
Reading*** Verrecchia, R., 1983, Discretionary Disclosure, Journal of Accounting and Economics 5,179-94.
*** Background Reading***
Diamond, D. W. and R. E. Verrecchia, 1991, Disclosure, Liquidity, and the Cost
of Capital, The Journal of Finance
46, 1325-1355.
Healy, P. and K. Palepu,
1993, The Effect of Firm's Financial Disclosure Strategies on Stock Prices, Accounting Horizons 1, 1-11.
Botosan, C, 1997, The Impact
of Annual Report Disclosure Level on Investor Base and the Cost of Capital, The Accounting Review 72, 323-350
Skinner, D.J., 1994, Why
firms voluntarily disclose bad news, Journal
of Accounting Research 32, 38-60.
Skinner, D.J., 1997,
Earnings disclosures and stockholder lawsuits, Journal of Accounting and
Economics 23, 249-282.
Lang, M., and R. Lundholm,
1993, Cross-sectional Determinants of Analysts Ratings of Corporate
Disclosures, Journal of Accounting
Research 31, 246-271.
Lang, M., and R. Lundholm,
1996, Corporate disclosure policy and analyst behavior, Accounting Review 71, 467-492.
Leuz, C., and R. Verrecchia,
1999, The economic consequences of increased disclosure, working paper,
University of Pennsylvania.
Lambert, R. and D. Larcker, 1987, An Analysis of the
Use of Accounting and Market Measures of Performance in Executive Compensation
Contracts, Journal of Accounting Research
25 Supplement, 129-149.
Sloan, R., 1993, Accounting Earnings and Top Executive Compensation, Journal of Accounting and Economics 16, 55-100.
Core, J, W. Guay, and R.
Verrecchia, 2000, Are performance measures other than price important to CEO
incentives, Working paper, University of Pennsylvania.
Yermack, D., 1995, Do
corporations award CEO stock options effectively?, Journal of Financial
Economics 39, 237-269.
Core,
J. and W. Guay, 1999, The Use of Equity Grants to Manage Optimal Equity
Incentive Levels, Journal of Accounting
& Economics, forthcoming.
10. Real options and accounting
information
Plummer, C.E. and S. Tse,
1999. The effect of limited liability on the informativeness of earnings:
Evidence from the stock and bond markets. Contemporary
Accounting Research 16: 541-574.
Berger, P., E. Ofek and I.
Swary, 1996. Investor valuation of the abandonment option. Journal of Financial Economics 42: 257-287.
Wysocki, P., 1999. Real
options and the informativeness of segment disclosures. Working paper,
University of Michigan.
11. Analysts forecasts
Klein, A. 1990.
A direct test of the cognitive bias theory of share price reversals.
Journal of Accounting and Economics 13: 155 - 166.
***Background Reading***
Abarbanell, J. and V. Bernard.
1992. Tests of analysts’
overreaction/underreaction to earnings information as an explanation for
anomalous stock price behavior. Journal of Finance 47: 1181 - 1207.
Easterwood, J. and S.
Nutt. 1999. Inefficiency in analysts’ earnings forecasts: systematic
misreaction or systematic optimism? Journal of Finance 54: 1777 - 1797.
Matsumoto, D. 1999.
Managements’ incentives to guide analysts’ forecasts. Working Paper. Harvard University.
***Background Reading***
Fried, D. and D. Givoly. 1982. Financial analysts’ forecasts of earnings: a
better surrogate for market expectations.
Journal of Accounting and
Economics 4: 85 - 107.
***Background Reading***
Brown, L., P. Griffin, R. Hagerman, and M. Zmijewski. 1987. Security analyst
superiority relative to univariate time-series models in forecasting quarterly
earnings. Journal of Accounting and Economics 9: 61-87.
***Background Reading***
O’Brien, P. 1988. Analysts’ forecasts as earnings
expectations. Journal of Accounting and Economics 10: 53 - 83.
***Background Reading***
DeBondt, W. and R. Thaler. 1990. Do security analysts overreact? American
Economic Review 80: 52-57.
***Background Reading***
Lys, T. and S. Sohn. 1990. The association between revisions of
financial analysts earnings forecasts and security-price changes. Journal
of Accounting and Economics 13: 341 - 364.
***Background Reading***
Abarbanell, J. 1991. Do analysts’ earnings forecasts incorporate
information in prior stock price changes?
Journal of Accounting and
Economics 14: 147 - 166.
***Background Reading***
Francis, J. and D. Philbrick. 1993.
Analysts’ decisions as products of a multi-task environment. Journal
of Accounting Research 31: 216 - 230.
***Background Reading***
McNichols, M. and P. O’Brien.
1997. Self-selection and analyst
coverage. Journal of Accounting Research 35: 167 - 199.
***Background Reading***
Keane, M. and D. Runkle. 1998.
Are financial analysts’ forecasts of corporate profits rational? Journal
of Political Economy 106: 768 - 805.
***Background Reading***
Brown, L. 1999. Managerial behavior and the bias in
analysts’ earnings forecasts. Working
paper. Georgia State University.
***Background Reading***
Richardson, S., S. Teoh, and P. Wysocki.
1999. Tracking analysts’
forecasts over the annual earnings horizon: are analysts’ forecasts optimistic
or pessimistic? Working Paper. University of Michigan.
***Background Reading***
Abarbanell, J. and R. Lehavy.
2000. Biased forecasts or biased
earnings? The role of earnings
management in explaining apparent optimism and inefficiency in analysts’
earnings forecasts. Working Paper. University of North Carolina.