A growing number of studies suggest that accounting information risk, primarily idiosyncratic in nature, can be diversified away in the capital market. In this dissertation, I show that accounting information risk, proxied by accruals quality, is priced even if it is entirely idiosyncratic. In particular, building on a model from the ambiguity literature, I demonstrate that (1) in an under-diversified market, idiosyncratic information risk is priced even if it is diversifiable, and (2) in a well-diversified market, idiosyncratic information risk is priced when information is subject to managers' discretion and thus ambiguous. The empirical results corroborate the predictions from the model. Specifically, although an association is observed between (unambiguous if risky) innate accruals quality and cost of capital, the association can be largely mitigated through diversification. However, diversification has little impact on the association between (ambiguous) discretionary accruals quality and cost of capital. Taken together, these findings strengthen our understanding of the fundamental role of accounting information as a basis for capital allocation.

Abstract One of the major features of financial reporting is conservatism. Accounting conservatism is traditionally defined by the adage “anticipate no profit, but anticipate all losses.” Accounting conservatism is manifested in two general but distinct ways. First, conservatism can be unconditional, meaning that the book value of net assets is understated due to predetermined accounting practices (e.g. immediate expensing of research and development expenditures as incurred). Second, conservatism can be conditional, meaning that the book value of assets is written down under sufficiently adverse circumstances, but not up under favorable circumstances (e.g. goodwill impairment rules). This dissertation focuses only on conditional conservatism. The purpose of this dissertation is to increase our understanding of conditional conservatism through three inter-related essays. These essays seek to answer the following research questions: (1) Are standard measures of conditional conservatism affected by the asymmetry in cash flows? (2) How does “bad news” contribute to the persistence of accruals and cash flows? (3) Do firms manage fair value based goodwill write-offs under Statement of Financial Accounting Standards No. 142 (SFAS 142)? (4) What are the economic consequences of SFAS 142 goodwill write-offs? Collectively, the empirical results of this dissertation further our understanding of the determinants and implications of conditional conservatism. The first essay demonstrates that the asymmetry in cash flows biases standard measures of conditional conservatism. The second and third essays are one of the first to assess conservatism using an individual accrual account, namely, SFAS 142 goodwill write-offs. The second essay examines the reliability of goodwill write-offs, while the third essay provides evidence on the economic consequences of goodwill write-offs. The findings of these two essays are important for the debate on whether fair value measurements in financial statements are appropriate.

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Despite countless efforts to elucidate market participants" understanding of the implications of earnings quality, empirical accounting research has rendered two distinct perspectives. The first perspective considers market participants naïve users of accounting information who fail to grasp the implications of earnings quality resulting in temporary security mispricing. The second perspective suggests that market participants scrutinize earnings reports carefully and subsequently discern and price the quality of earnings. The purpose of my research is to help clarify the ambiguity surrounding market participants" pricing of earnings quality using one clearly observable indicator of low-quality earnings, accounting restatements. This study examines the effect pre-restatement earnings quality has on short-window returns and analyst forecast revisions and dispersion following restatement announcements using a cross-section of 719 publicly traded firms that announced restatements between 1997 and 2004. Accrual and book-tax difference metrics are used to proxy for earnings quality. The metrics are examined separately and collectively to ascertain their individual and incremental effects in modeling the market reaction. Further analyses investigate the effects that various levels of investor sophistication have on the market reaction. Results indicate that the market reaction to restatement announcements is significantly influenced by pre-restatement earnings quality. Specifically, both the accrual and book-tax difference measures of earnings quality are significantly and negatively related to the market reaction. Further analysis indicates the predictive power of the model is improved by including both the accrual and book-tax difference proxies. This finding suggests the information in book-tax differences may provide market participants with signals from which to assess earnings quality that are distinct from those contained in accruals. Basic results for analyst forecast dispersion and revisions are not conclusive. Results of the interactions between each earnings quality proxy and level of investor sophistication are significant only for the accrual based measure of earnings quality. This suggests that sophisticated investors are more attuned to the implication of accrual based measures of earnings quality than book-tax difference measures. / Ph. D.

This research aims to detect and measure earnings management using a newly modified version of the standard Jones model (Jones, 1991). The standard model is extended to include a measure of discretionary accruals as an additional regressor instead of using the residuals. The variable used to measure discretionary accruals is a composite variable that consists of two components, one that represents the incentive and the other represents the tool of manipulation. The model is applied to detect earnings management in loss reversal companies for listed companies in Jordan and examine the market reaction to the loss reversal. The model is also applied on loss reversal companies for listed companies in the UK and the US. In chapter three, the new model is applied on listed companies in Amman Stock Exchange (ASE). The ASE is structured into two markets: the first market and the second market. Companies are motivated to be listed or remain listed in the first market since it only lists profitable companies. Companies reporting losses more frequently are listed in the second market. Results provide evidence of earnings management for companies listed in the first market. Companies that report a loss in a previous period manipulate in the following period to report profits. As a result of loss reversal, they preserve their place in the first market and avoid dropping back to the second market. This research conducts statistical simulation tests to compare the extended Jones model with the standard model. Results show that the extended model detects earnings management better than the standard one. This new model also separates discretionary accruals from measurement error (i.e. residuals) and makes it possible to accurately measure the whole amount of manipulation. Chapter four examines the investor reaction to the manipulation taking place in the first market. Results show that the market is pricing the discretionary accruals (the manipulation) as a component of net income, although they result only from earnings management. In chapter five, the model is applied on loss reversal firms listed in the UK and in the US. Results show that the companies manipulate to reverse losses and the manipulation depends on to the presence of R&D activities and the changing level in these activities.

Sob a teoria de agência e o contexto de gerenciamento de resultados, o objetivo do trabalho foi estudar a relação entre o gerenciamento de resultados (GR) e o custo da dívida (Ki) das empresas brasileiras de capital aberto, no período de 1996 a 2007. Para isso, foram levantadas duas hipóteses de pesquisa quanto à possível relação entre GR e Ki: H1- as variáveis são inter-relacionadas; e H2- a relação é unidirecional, em que o Ki é influenciado positivamente pelo GR. Os pressupostos levantados, por meio da literatura existente, para a formulação da primeira hipótese são de que, almejando melhores condições contratuais, como o custo da dívida, o custo atual ou passado motiva a empresa a gerenciar o resultado corrente para obter melhores condições de custo futuro ou corrente. Dessa forma, as empresas, intencionalmente, procurariam gerenciar seus resultados, motivadas pelo custo da dívida. Todavia, há suporte teórico para que a relação entre essas variáveis seja unidirecional, com o gerenciamento de resultados influenciando o custo da dívida, sustentando a segunda hipótese. Um por exemplo disso é o gerenciamento de resultados, que é percebido como fator de assimetria de informação pelos credores, os quais, ao identificarem o gerenciamento, exigirão um prêmio maior pelo risco da falta de informação, elevando o custo da dívida das empresas. Assim, para testar as hipóteses do trabalho, a proxy de GR foi definida com o uso do modelo para cálculo dos accruals discricionários proposto por Kang e Sivaramakrishnan (1995) e a variável representativa do custo da dívida foi a relação entre a despesa financeira e o passivo oneroso total. A análise inicial foi feita utilizando-se o índice de correlação de Spearman e análise de média, por meio do teste não-paramétrico U de Mann-Whitney. Em seguida, utilizou-se o teste de especificação de Hausman para análise de simultaneidade, seguido da análise de regressão com dados dispostos em painel com correção de Newey-West, correção por cluster - ambas nas situações em que havia heterocedasticidade e correlação serial-, e estimador MQ2E. Os testes de correlação e de média apontaram para uma relação positiva entre GR e Ki, mas o teste de simultaneidade não indicou haver inter-relação entre as variáveis. Os resultados das regressões em painel indicaram que o Ki, atual ou passado, não influencia o GR, mas apontam para uma relação positiva, em que quanto maior o gerenciamento de resultados, maior o custo da dívida, ou seja, este é influenciado por aquele. Desse modo, os resultados permitem rejeitar a hipótese 1, mas confirmam a segunda hipótese. A princípio, tais resultados indicam que não há uma inter-relação entre GR e Ki e que as empresas não gerenciam com a intenção de impactar no custo da dívida, mas que o gerenciamento de resultados pode ter outras motivações para as empresas brasileiras. Todavia pode ser percebido pelos credores como maneira de reduzir a transparência das demonstrações contábeis, levando-os a cobrar maiores taxas de empresas com gerenciamento de resultados, gerando maior custo da dívida para as companhias. / Under the theory of agency and the context of earnings management, the objective of this research was to study the relationship between the earnings management (EM) and the cost of debt (Ki) of Brazilian open-capital companies, from 1996 to 2007. For this, two hypotheses of research have been raised as to the possible relationship between GR and Ki: H1: the variables are interrelated and H2: the relation is unidirectional where Ki is influenced positively by the GR. The hypothesis raised, by means of existing literature, to elaborate the first hypothesis are that, longing for better contractual conditions, such as the cost of the debt, the current or past costs motivate the company to manage the current result to get better conditions for future or current costs. Therefore, the companies, intentionally, would manage their results, motivated by the cost of debt. However, there is theoretical support that relations between these variables are unidirectional, with the earnings management influencing the cost of debt, supporting the second hypothesis. For example, the earnings management is perceived as a factor of asymmetric information by the creditors, who will demand a bigger prize for the risk regarding the lack of information, which raises the cost of debt of the companies. Thus, to test the hypotheses of this research, the proxy of GR was defined with the use of the model for calculation of discretionary accruals considered by Kang and Sivaramakrishnan (1995) and the representative variable of the cost of debt was the relationship between the financial expense and the total financial liability. The initial analysis was made using the index of correlation of Spearman and analysis of average, by means of non-parametric test U of Mann-Whitney. After that the test of specification of Hausman was used, for analysis of simultaneity, followed by the analysis of regression with data disposed on panel corrected by Newey-West, correction by cluster - both under the condition where there were heteroskedasticity and serial correlation, and estimator MQ2E. The average and correlation tests pointed out a positive relation between GR and Ki, but the concurrence test did not indicate to have interrelation between the variables. The results of the regressions in the panel indicated that the Ki, current or past, does not influence the GR, but point a positive relationship, where the bigger the earnings management, greater is the cost of debt, that is, this is influenced by management. Then, the results allow rejecting the first hypothesis, confirming the second hypothesis. Such results indicate that there is not an interrelation between GR and Ki and that the companies do not manage with the intention of impacting the cost of the debt, but that the earnings management can have other motivations for the Brazilian companies, however it can be perceived, by the creditors, as a way to reduce the transparency of the accounting demonstrations, leading to charge greater fees from companies with earnings management, generating bigger cost of debt for the companies.

Os investidores institucionais, tais como os fundos de pensão, são entidades que administram recursos de numerosos grupos de pessoas, e que, por isso, tendem a gerir grandes carteiras de investimento e a ter incentivos para se tornar bem informados. Por isso, espera-se que eles sejam bons representantes da classe de investidores sofisticados, ou bem informados, e que o aumento de sua presença no mercado de capitais melhore a velocidade do ajuste do preço, contribuindo para evitar ineficiências do mercado, como, por exemplo, a anomalia dos accruals (Sloan, 1996), que é um atraso na revisão dos preços diante da informação sobre a magnitude dos accruals do lucro. Assim, o objetivo deste estudo é analisar, em diversos países, o impacto da participação de investidores institucionais sobre a anomalia dos accruals. São formuladas quatro hipóteses: (i) a proporção de informações sobre o desempenho futuro da empresa refletida no preço de sua ação é positivamente relacionada com o percentual de participação societária dos investidores institucionais; (ii) quanto maior for o percentual da participação societária de investidores institucionais, maior será a qualidade do lucro; (iii) quanto maior for a value relevance do lucro, maior será a anomalia dos accruals; e (iv) quanto maior for a participação societária dos investidores institucionais, menor será a anomalia dos accruals. Para se atingir os objetivos, a bibliografia sobre investidores institucionais, investidores sofisticados e anomalia dos accruals é analisada e cotejada com a literatura sobre value relevance e qualidade do lucro, em especial com o de Dechow e Dichev (2002). A pesquisa empírica utiliza dados de empresas não financeiras listadas nas bolsas de valores da Alemanha, do Brasil, da Espanha, dos Estados Unidos, da França, da Holanda, da Itália, do Reino Unido e da Suíça, e cobre o período de 2004 a 2013. A amostra contempla entre 2.314 e 4.076 empresas, totalizando entre 15.902 e 20.174 observações, a depender do modelo estimado. São realizadas regressões com dados em painel, uma abordagem de equações aparentemente não relacionadas (Seemingly Unrelated Regression - SUR) e a aplicação do teste de Mishkin (1983). Constata-se que nos Estados Unidos e na Itália os investidores institucionais são mais bem informados que os demais, e que na Alemanha, nos Estados Unidos, na França e no Reino Unido eles exercem um papel de monitoramento, pressionando por lucros de qualidade superior. Não se constata, porém, relação positiva entre value relevance do lucro e anomalia dos accruals, nem entre participação de investidores institucionais e esta anomalia. O estudo enriquece a discussão sobre o mercado ser eficiente a longo prazo, mas apresentar anomalias no curto prazo; enfatiza a importância de o investidor ser capaz de converter informações em previsão e avaliação; discute o vínculo entre o papel de monitoramento dos investidores institucionais e a qualidade do lucro; e avalia a relação entre a atuação destes investidores e o prices lead earnings. / In view of the massive resources they manage, institutional investors (such as pension funds and insurers) tend to have large investment portfolios and equally large incentives to be well informed. It is therefore reasonable to see institutional investors as representatives of the class of sophisticated investors. The presence of institutional investors on the capital market is positively associated with the speed with which prices adjust to information, helping avoid market inefficiencies, such as accrual anomaly (a delay in price adjustment in relation to the available information on accruals). The objective of this article was to evaluate the impact of institutional investitor participation on accrual anomaly in different countries. To do so, we formulated four hypotheses: (i) the proportion of information on the future performance of a company reflected in its stock price is positively associated with the percentage of equity held by institutional investors; (ii) the greater the percentage of equity held by institutional investors, the greater the earnings quality; (iii) the higher the value relevance, the greater the accrual anomaly; and (iv) the greater the percentage of equity held by institutional investors, the smaller the accrual anomaly. We reviewed the literature on institutional investors, sophisticated investors and accrual anomaly and compared our findings with the literature on value relevance and earnings quality, especially Dechow and Dichev (2002). Our empirical research was based on data on nonfinancial firms listed on the stock exchanges of Brazil, France, Germany, Holland, Italy, the U.K., the U.S. and Switzerland, covering the period 2004-2013. The final sample consisted of 2,314 to 4,076 firms, with a total of 15,902 to 20,174 observations, depending on the model estimated. Panel regressions were performed using the seemingly unrelated regression (SUR) approach and the Mishkin test. In the U.S. and Italy, institutional investors were found to be better informed than other investors. In France, Germany, the U.K. and the U.S., institutional investors played a strong monitoring role, pressuring firms to report earnings with higher quality. However, no positive association was found between the value relevance of earnings and accrual anomaly, nor between institutional investitor participation and accrual anomaly. The study sheds light on the question of long-term market efficiency and short-term anomalies, emphasizes the importance of investors being able to convert information into predictions and estimates, discusses the connection between institutional investor monitoring and earnings quality, and evaluates the relation between the presence of institutional investors and price lead earnings.

Made available in DSpace on 2015-03-05T19:14:41Z (GMT). No. of bitstreams: 0 Previous issue date: 24 / Nenhuma / O objetivo deste estudo foi verificar se as formas de remuneração dos executivos das Companhias Latino-Americanas influenciam o gerenciamento de resultados contábeis. Realizou-se uma análise empírica de 48 empresas, de 4 diferentes países latino-americanos em um período de 5 anos (entre 2002 e 2006), perfazendo um total de 240 observações. Para verificar a ocorrência de gerenciamento de resultados nas companhias latino-americanas, foi adotado o modelo Kang e Sivaramakrishnan (1995). Os testes estatísticos utilizados foram: U Mann-Whitney e Teste Wald. Os resultados do estudo indicaram indícios de maior nível de gerenciamento de resultados nas empresas que fornecem remuneração não fixa aos seus executivos. / The objective of this study was to determine whether the forms of compensation for executives of companies Latin American influence earnings management. There was an empirical analysis of 48 companies, of 4 different Latin American countries in a period of 5 years (between 2002 and 2006), which totaled of 240 observations. To check the occurrence of earnings management in Latin American companies, the model adopted was Kang and Sivaramakrishnan (1995). The statistical tests used to the validity of regressions were: Mann-Whitney U test and Wald. The findings the study showed signs of greater level of earnings management in companies that ofter variable pay to their executives.