This paper investigates the value relevance of fair value accounting for non-financial tangible and intangible assets in the United States by examining the association of asset recognitions and revaluations accompanying business combinations with future performance. Asset recognitions and revaluations are measured as components of acquisition premia generated in business combinations. Future performance is measured as subsequent-period changes in operating income and changes in operating cash flows. The paper addresses three related research questions. First, to what extent are the components of acquisition premium generated in a business combination associated with the stock price of the combined firm? Second, do the components of acquisition premium reflect changes in future performance, where performance is measured as operating income and operating cash flows? And, third, does the accounting treatment in business combinations result in differential associations of the components of acquisition premium with stock prices or changes in future performance? I find that, consistent with prior research, acquisition premia generated in business combinations are positively associated with the market values of equity of the combined firms. Also, I find acquisition premia generated in purchase transactions are positively associated with changes in future operating income and cash flows from operations. However, acquisition premia generated in pooling transactions are not associated with changes in future performance. I conclude that the value relevance of fair value accounting for non-financial assets depends in part on the context in which it is valued.

Auditors may initially generate and test a small or a large number of hypotheses when performing various tasks. However, little is known about the relative efficiencies of testing a different number of hypotheses. This study uses an analytical review framework to examine the impact of testing different hypothesis set sizes on auditors' decision accuracy and information search. Professional auditors were given information which indicated a fluctuation in a client's financial statements. The auditors were divided into four groups and asked to either generate a specific number of hypotheses (one, three, or six) that may explain the deviations, or to test any number desired (no-restriction group). They then analyzed a computerized detailed information set which provided data that could rule out all but a specific error seeded in the financial statements. The auditors either decided that one of the hypothesized causes explain the deviation, or continued generating and testing additional hypotheses. The specific variables examined were the time taken to perform the task, decision accuracy, and the amount and type of information searched. The results indicated that auditors testing three hypotheses at a time spent less time on the decision task than subjects in the other groups. In addition, the three hypotheses group was as accurate as the one hypothesis group, and more accurate than the six hypotheses and the no-restriction groups. As compared to the three hypotheses group, the one hypothesis group spent significantly more time on the evaluation of each hypothesis, and on the generation of subsequent hypotheses. To minimize their effort, auditors chose to test the smallest total number of hypotheses in the single hypothesis group, which would likely have reduced their decision accuracy. The six hypotheses group spent more time generating the initial set of hypotheses, and considered the largest total number of hypotheses. However, these auditors spent the same amount of time actually evaluating information as the one and three hypothesis size groups and therefore they may have failed to conclusively test the large hypothesis size. The lack of constraints on the hypothesis set size did not benefit the time efficiency or the accuracy of the no-restriction group. These results suggest that, in tasks similar to the one investigated here, a moderate hypothesis set size (e.g., three hypotheses size) appears to enhance the time efficiency of hypothesis testing, while modestly improving its accuracy. Implications for audit judgment and decision making research are discussed.

The phenomenon of expectations management has received considerable attention from the popular press, accounting regulators and accounting researchers over the past number of years. Both anecdotal and academic evidence are consistent with managers actively taking actions to dampen financial analysts' earnings expectations to achieve positive earnings surprises at the earnings announcement. This study extends the existing literature on expectations management by investigating management's public earnings guidance as a mechanism to influence analysts' expectations, and market participants' reactions to the public guidance in the post-Regulation FD era. Using a sample of 1,073 firm-quarters that started with negative forecast errors initially but achieved positive earnings surprises at the earnings announcement, I find that 58.4% of the firm-quarters issued pessimistic guidance to dampen analysts' expectations, while 40.4% of the firm-quarters kept silent. The evidence is twofold: first it presents direct evidence of expectations management in the post-Regulation FD period. Second it suggests that prior proxies of expectations management based on downward forecast revision may misclassify silent firms as guidance firms, and thus overestimate the prevalence of expectations management. In addition, I find expectations management is decreasing in my sample period. I find that firms provide both quantitative and qualitative, both earnings-related and nonearnings-related disclosures to guide analysts' expectations. Further, firms tend to use a combination of multiple guidance forms instead of a single, specific form to dampen analysts' estimates. I also find that high-tech firms, firms with lower forecast dispersion and higher analyst optimism are more likely to engage in expectations guidance activities. The evidence on analysts' reactions to expectations management suggests that the majority of the analysts revised their forecasts downward immediately (in terms of days rather than weeks) after the issuance of a pessimistic public guidance, and the magnitude of the analysts' downward revision is significantly greater for the guidance firms than for the non-guidance firms. The results of investors' reactions to expectations management indicate that firms are "punished" by investors for issuing pessimistic guidance to achieve positive earnings surprises. The average three-day cumulative abnormal return around the guidance date is -10.2%, significantly larger than the average three-day cumulative abnormal return of 1.7% around the earnings announcement. Furthermore, using a matched-sample design, I find that the combined investors' reactions to the pessimistic guidance and the subsequent earnings announcement is more negative for firms that beat analysts' forecasts through management's involvement than for firms that do not guide analysts' forecasts and thus miss the expectations.

Brainstorming sessions are now a requirement on each audit per Statement on Auditing Standards (SAS) No. 99, Consideration of Fraud in a Financial Statement Audit, but concerns have been raised about their effectiveness in helping auditors better detect fraud. Standard setters recognize the potential for partners of the audit team to dampen the effectiveness of brainstorming by their influence on the brainstorming session, particularly when they stress efficiency over effectiveness. Additionally, audit team interaction has been shown to improve auditors' judgments, but interaction among individuals brainstorming has been shown to diminish the overall number of ideas generated. In an experiment, I test partner influence on a brainstorming session and the effects of this brainstorming session on auditor fraud judgments. I find that partners influence the amount of time spent brainstorming by the audit team. The results also indicate that, although brainstorming among the audit team does reduce the number of unique fraud ideas identified, it increases auditors' fraud risk assessments and questioning mind, potentially improving their ability to assess the risk of fraud. / A Dissertation submitted to the Department of Accounting in partial fulfillment of the requirements for the degree of Doctor of Philosophy. / Spring Semester, 2004. / March 26, 2004. / Risk Assessments, Accountability, Audit teams, Brainstorming, Fraud, Professional Skepticism / Includes bibliographical references. / Jane L. Reimers, Professor Co-Directing Dissertation; M. G. Fennema, Professor Co-Directing Dissertation; Neil H. Charness, Committee Member; Gregory J. Gerard, Committee Member; William A. Hillison, Committee Member.

This study develops and tests a model of manager reporting credibility in an earnings guidance setting. I use two experiments in which I manipulate forthcomingness, investors' status (i.e. current vs. prospective investors), reputation, and news valence to examine their influence on investors' assessments of management's long-term reporting credibility. In the first experiment I examine the influence of forthcomingness and investors' status on management's reporting credibility. I find that prospective investors exhibit an incremental sensitivity to forthcoming disclosure compared to current investors. Additionally, I examine investing experience as a covariate and find that this incremental sensitivity is not driven by investing experience. I also find that the long-term impact of forthcomingness on credibility is partially mediated by investors' affective reactions to forthcomingness. In the second experiment I examine the influence of reputation and news valence on prospective investors' assessments of management's reporting credibility. The results suggest that initially managers who report negative news are rated as having lower reporting credibility than those who report positive news. However, with additional trading periods only forthcomingness reliably predicts changes in investors' assessments of management reporting credibility. Moreover, I find that prospective investors exhibit an increased willingness to rely on subsequent disclosure and this willingness to rely is positively associated with their credibility assessments regarding management's reporting credibility. I also find that both the benefits (increases) and risks (decreases) to managers' reporting credibility are magnified when earnings news negative. Overall, the results suggest that forthcomingness has a positive impact on long-term investor assessments of manager reporting credibility and this effect is greater for prospective investors over multiple periods. / A Dissertation submitted to the Department of Accounting in partial fulfillment of the requirements for the degree of Doctor of Philosophy. / Summer Semester, 2012. / May 14, 2012. / Credibility, Forthcomingness, Investor, Prospective, Reputation, Status / Includes bibliographical references. / Gregory J. Gerard, Professor Directing Dissertation; Colleen Kelley, University Representative; Allen Blay, Committee Member; M. G. Fennema, Committee Member; Jeff Paterson, Committee Member.

Conventional wisdom, as well as recent research (Hong and Yu 2009), suggest that trading activity and returns decrease during the summer months, possibly due to decreased market participation by net-buying noise traders. I extend previous research by specifically testing for differences in returns in the period surrounding both summer and non-summer earnings announcements. I document lower abnormal returns surrounding summer earnings announcements compared to non-summer announcements. My results suggest that this difference in abnormal returns is greater in the online-trading period-- an era characterized by increased noise trading. However, I do not find this difference between summer and non-summer announcement-period returns to be related to a firm's analyst following, market-to-book ratio, or the summer vs. non-summer difference in a firm's announcement-period trading volume. In addition, I do not find evidence that the summer vs. non-summer difference in announcement-period returns is affected by the level of unexpected earnings revealed in the earnings announcement. / A Dissertation submitted to the Department of Accounting in partial fulfillment of the requirements for the degree of Doctor of Philosophy. / Fall Semester, 2011. / September 15, 2011. / earnings announcements / Includes bibliographical references. / Richard Morton, Professor Directing Dissertation; Thomas Zuehlke, University Representative; Bruce Billings, Committee Member; Tim Zhang, Committee Member.

Although prior research has established the importance of opportunity costs and identified factors influencing their inclusion in decisional analyses, researchers have overlooked several factors likely to be present in an actual managerial setting. In an experiment, I investigate how two situational factors, vagueness of opportunity cost presentation and stage of project completion, affect individuals' tendency to attend to opportunity costs. I also investigate how attending to opportunity costs affects project continuance judgments and decisions. The two situational factors are examined across two groups of participants with varying levels of management accounting experience. I find that vagueness of opportunity cost presentation and a nearly complete project decrease inexperienced participants' attention to opportunity costs. Experience moderates the effect of these factors as experienced participants attend to opportunity costs despite presence of the two situational factors. As well, the tendency to continue a project is influenced by both the number of opportunity costs attended to and decision-maker experience. / A Dissertation submitted to the Department of Accounting in partial fulfillment of the requirements for the degree of Doctor of Philosophy. / Summer Semester, 2007. / June 8, 2007. / Management Accounting Experience, Completion Effect, Project Completion Stage, Vagueness, Opportunity Costs / Includes bibliographical references. / M.G. Fennema, Professor Directing Dissertation; Neil Charness, Outside Committee Member; Gregory J. Gerard, Committee Member; Douglas E. Stevens, Committee Member.

I examine whether Chief Executive Officers (CEOs) manage earnings per share (EPS) through share repurchases to meet or exceed EPS thresholds for bonus awards. The bonus thresholds are firm-specific, fixed reporting targets that are known by CEOs on an ex ante basis, and the benefits of meeting or exceeding their firms' benchmarks are economically significant to CEOs. Utilizing CEO bonus payment parameters for a large sample of firms, I find that repurchases are more likely to occur and are larger when firms tie CEO bonuses to EPS performance. Share repurchases are also positively associated with the probability of the CEO receiving a bonus and the magnitude of the bonus when firms link CEO bonuses to EPS. When EPS absent any repurchase is below but close to the bonus threshold, firms are even more likely to conduct share repurchases. In the three-year post-repurchase period, while firms that do not tie CEO bonuses to EPS experience significant and positive abnormal returns, there is no evidence of post-repurchase abnormal returns from firms that tie CEO bonuses to EPS. Because bonus contracts are constructed so that CEOs receive bonuses only if the reported EPS meets or exceeds the bonus threshold, these findings suggest that tying CEO bonuses to EPS may motivate CEOs to make repurchasing decisions as a means of meeting or exceeding an important accounting benchmark opportunistically rather than as a means of adding to firm value. / A Dissertation submitted to the Department of Accounting in partial fulfillment of the requirements for the degree of Doctor of Philosophy. / Summer Semester, 2010. / May 24, 2010. / Share Repurchase, CEO Bonus / Includes bibliographical references. / Bruce Billings, Professor Co-Directing Dissertation; Richard Morton, Professor Co-Directing Dissertation; Thomas Zuehlke, University Representative; Jeffrey Paterson, Committee Member.

Management accounting involves the communication of information within an organization to facilitate planning, coordination, resource allocation, and performance evaluation. As such, the budgeting process is a core component of management accounting. In decentralized organizations, however, upper management must rely on the budget information of better informed local managers. Agency theory predicts that information asymmetry in a principal-agent type setting will lead to a moral hazard in which the agent reports information opportunistically. This prediction, however, is based on the traditional assumption that both parties in the relationship are self-interested and only motivated by wealth and leisure. Contrary to the assumptions of agency theory, the findings from Evans, Hannan, Krishnan, and Moser (2001) suggest that managers are willing to sacrifice wealth for preferences for honesty or equitable distributions. I extend this literature by examining the effects of reciprocity, self-awareness, and individual characteristics on honesty in managerial reporting. In particular, I conduct an experimental study that manipulates two contextual factors that are likely present in the participative budgeting process: a hiring choice that triggers reciprocity, and a certification requirement that triggers self-awareness. In addition, I measure two individual characteristics, social value orientation and moral disposition, to examine their effects on honesty in managerial reporting. I find that when upper management endogenously chooses to hire the local manager, the local manager reciprocates the hiring choice by reporting more honestly. Contrary to expectations, I do not find support for a budget report certification requirement leading to increased levels of honesty in managerial reporting. However, I find that managers are not homogeneous in their reporting decisions. Specifically, cooperative social value orientation types provide more honest reports when they are required to certify the budget report or when they are endogenously hired by upper management. However, I find the level of honesty does not incrementally increase when cooperative social value orientation types are endogenously hired by upper management and are required to certify the budget report. In contrast, individualistic and competitive social value orientation types provide more honest reports when they are endogenously hired by upper management and the level of honesty incrementally increases when the local manager is also required to certify the budget report. However, I find no support for the certification requirement alone increasing the level of honesty exhibited by individualistic and competitive social value orientation types. I also find that the moral disposition of the local manager is an important determinant of honesty in managerial reporting, but only for cooperative social value orientation types. / A Dissertation submitted to the Department of Accounting in partial fulfillment of the requirements for the degree of Doctor of Philosophy. / Summer Semester, 2010. / June 10, 2010. / Honesty, Participatory Budgeting, Reciprocity, Self-Awareness, Social Value Orientation, Moral Disposition / Includes bibliographical references. / Douglas E. Stevens, Professor Directing Dissertation; Timothy C. Salmon, University Representative; Gregory J. Gerard, Committee Member; Allen D. Blay, Committee Member.

abstract: This study examines how short selling threats affect firms’ non-generally accepted accounting principles (non-GAAP) reporting quality. From 2005 to 2007, the SEC implemented a Pilot Program under Regulation SHO, in which one-third of the Russell 3000 index stocks were randomly chosen as pilot stocks and exempted from short-sale price tests. As a result, short selling threats increased considerably for pilot stocks. Using difference-in-differences tests, I find that pilot firms respond to the increased short selling threats by reducing the use of low-quality non-GAAP exclusions, resulting in an improvement in the quality of overall non-GAAP exclusions. Further tests show that this effect of short selling threats is more pronounced for smaller firms, firms with lower institutional ownership, firms with lower analyst coverage, and firms with lower ratios of fundamental value to market value. These findings suggest short sellers play an important monitoring role in disciplining managers, as evidenced by the non-GAAP reporting choices of managers. / Dissertation/Thesis / Doctoral Dissertation Accountancy 2020