M.Comm.

A research report submitted to the Faculty of Commerce, Law and Management, University of the Witwatersrand, in partial fulfilment of the requirements for the degree of Master of Management in Finance and Investment, June 2016 / This study examines long-term performance of publicly-listed South African acquiring firms that participated in Merger and Acquisition transactions. In an effort to close the gap in South African literature of long-term M&A performance, the study used key financial ratios in calculating the change of financial position before and after each M&A transaction or in other words, before and after the 2007 recession. The sample included 10 acquiring companies that performed 18 acquisitions during the period, 2007 and 2009. Subsequently, accounting performance in the form of Profitability, Efficiency, Liquidity, Leverage/Solvency and Investment ratios, were then analysed three years before and after each M&A transaction. Furthermore, the Paired Comparison Test was used to test for significant differences in ratios, between pre- and post-M&A performance of each acquirer. The results suggest that overall, Mergers and Acquisitions do not significantly improve financial performance of South African acquirers after each M&A transaction. / GR2018

Thesis. 1975. M.S.--Massachusetts Institute of Technology. Alfred P. Sloan School of Management. / Bibliography: leaves 83-86. / M.S.

Accounting information is an integral part of the information set used by investors. However, accrual based accounting earnings are susceptible to earnings management. Investors are concerned about earnings management since earnings management can distort reported earnings and they may make decisions that they otherwise would not have made. The purpose of this thesis is to examine the impact of earnings management on the informativeness of reported earnings about firm value and analysts' forecasts. Chapter 2 develops an earnings management model and examines the impact of earnings management on income smoothing and the earnings response coefficient. Chapter 3 critically reviews the existing discretionary accrual models and discusses the measurements of earnings management and income smoothing, which are used in the subsequent empirical chapters. Chapter 4 empirically examines the impact of earnings management on the earnings response coefficient after controlling either for the smoothness of pre-managed earnings or for the smoothness of reported earnings. Firms are further decomposed into income smoothing and variance-increasing earnings management firms and the same analyses are repeated. Chapter 5 examines the impact of smoothness of reported earnings and earnings management on the equilibrium demand for analysts' services and the properties of analysts' forecasts. This thesis contributes to our understanding of the impact of earnings management on firm value and analysts' forecasts by providing empirical evidence consistent with the hypothesis that the financial market and analysts are aware of the nature of a firm's discretionary accrual policy, and use their beliefs about the firm's discretionary accrual policy in assessing firm value and deciding whether to follow the firm.

Accounting information is an integral part of the information set used by investors. However, accrual based accounting earnings are susceptible to earnings management. Investors are concerned about earnings management since earnings management can distort reported earnings and they may make decisions that they otherwise would not have made. The purpose of this thesis is to examine the impact of earnings management on the informativeness of reported earnings about firm value and analysts' forecasts. Chapter 2 develops an earnings management model and examines the impact of earnings management on income smoothing and the earnings response coefficient. Chapter 3 critically reviews the existing discretionary accrual models and discusses the measurements of earnings management and income smoothing, which are used in the subsequent empirical chapters. Chapter 4 empirically examines the impact of earnings management on the earnings response coefficient after controlling either for the smoothness of pre-managed earnings or for the smoothness of reported earnings. Firms are further decomposed into income smoothing and variance-increasing earnings management firms and the same analyses are repeated. Chapter 5 examines the impact of smoothness of reported earnings and earnings management on the equilibrium demand for analysts' services and the properties of analysts' forecasts. This thesis contributes to our understanding of the impact of earnings management on firm value and analysts' forecasts by providing empirical evidence consistent with the hypothesis that the financial market and analysts are aware of the nature of a firm's discretionary accrual policy, and use their beliefs about the firm's discretionary accrual policy in assessing firm value and deciding whether to follow the firm. / Business, Sauder School of / Graduate

This paper studies the impact of financial reporting scrutiny on (private) debt contracting in the presence of two capital market frictions: a cash-diversion problem and an asset-substitution problem. When cash flow realizations are not verifiable, firms have an incentive to divert cash by manipulating their accounting reports. When firms' project choices are not verifiable, post financing, they may have an incentive to choose riskier projects than desired by their financiers. While earlier work has mostly examined these two frictions independently, they are intricately linked: to address the cash-diversion problem, an optimal contract resembles a debt contract, which in turn causes the asset-substitution problem. Holding the scrutiny of financial reporting fixed, I show that the emergence of the asset-substitution problem, instead of compounding the existing inefficiencies from the cash-diversion problem, may lead to improved investment efficiency and more socially efficient risk-taking. On the other hand, increased reporting scrutiny may undermine investment efficiency (i.e., decrease banks' lending) and adversely affect firms' risk shifting from a social welfare perspective.

The focus of the study is on financial reporting for non-U.S. firms registered with the Securities Exchange Commission (SEC) but using International Accounting Standards (IAS). This study addresses two issues, (1) whether the comparability of financial reporting among firms using IAS in credit and equity financing jurisdictions increases over time and (2) the associated capital market implications. The motivation for the study is the SEC's ongoing assessment of IAS for possible use by non-U.S. registrants for listing and capital raising in the U.S. Previous research on variations in financial reporting practices has revealed distinctly different types of financial reporting depending on country of origin. Moreover, some research suggests that such differences in financial reporting tend to persist in spite of harmonization efforts of accounting standards. This study suggests that there may be a systematic difference between credit and equity firms' financial reporting that is manifested by the fact that credit firms' adjustments to U.S. GAAP are greater than the adjustments made by equity firms. This systematic difference has had the following capital market consequences for credit firms, (1) a decreasing strength of association between accounting earnings and share prices post-1994, (2) an increased bid-ask spread post-1994, and (3) a decreased trading volume post-1994. This may be an indication that on the average firms reporting under IAS fail to meet an important part of the SEC's second assessment criterion with respect to high quality and full disclosure, namely comparability. In addition, it seems that the revisions made by International Accounting Standards Board (IASB) have not resulted in more congruent financial reporting among firms reporting under IAS over time.

This research examines whether firms managed earnings in the year they adopted SFAS 109, Accounting for Income Taxes (or its predecessor SFAS 96), by combining the choice to adopt SFAS 109 with other accounting choices in an interdependent rather than independent manner. Prior literature generally analyzes only one specific accounting choice, assuming that the decision is independent of other accounting procedure choices. However, it is unlikely that managers act in this manner. When attempting to achieve certain income goals, managers have numerous accounting tools available to them including the choice of accounting procedures and the exercise of judgment as to accrual amounts. This study investigates five choices consisting of: (1) the adoption of SFAS 109/96; (2) the adoption of SFAS 106; (3) the reporting of a restructuring of operations and/or a write-down of assets; (4) the reporting of asset sales; and (5) the choice of discretionary accruals. The study adopts both a portfolio and joint decision approach. The portfolio approach combines the earnings effects of the five choices into a single dependent variable and tests income smoothing, big bath, and debt hypotheses. The joint decision approach utilizes simultaneous equation methodology to investigate the interdependence of the five choices and the independent variables. The portfolio approach findings provide evidence that firms used the combined effect of the five accounting choices to smooth income in the year they adopted FAS 109/96. The results also provide support for the debt hypothesis but do not support the big bath hypothesis. The joint decision approach findings provide evidence that firms jointly determined at least two of the five accounting choices. The strong support for the income smoothing hypothesis under the portfolio approach combined with the joint significance of the individual accounting choices in the simultaneous equations suggests that firms use a multitude of accounting choices to manage earnings and that some of those decisions are made jointly, not independently.

Thesis. 1978. M.S.--Massachusetts Institute of Technology. Alfred P. Sloan School of Management. / MICROFICHE COPY AVAILABLE IN ARCHIVES AND DEWEY. / Bibliography: leaves 73-74. / M.S.

The objective of this study is to evaluate the incremental information content of the Annual Report to Shareholders (ARS) and the 10-K. The study defines incremental information content as that set of data that has not been previously released to the public, which is contained in the ARS or 10-K, that gives rise to a resetting of equilibrium security prices. The results of the study have two implications. First, a finding of the existence of incremental information content in either the ARS or the 10-K provides evidence that investors may use the incremental data contained in either report to improve their estimates of firms' systematic risk components (Beta). Second, the results of the study may provide feedback value to accounting policymakers for evaluating their prior beliefs concerning the wealth effects of their accounting policy decisions. The study employs the familiar Market Model for generating unexpected returns. Further, the ordinary least squares regression method is used to derive regression parameters (including Beta) for the Market Model. This procedure has been accomplished for the 312 ARS and 159 10-K sample firms for reporting years ending in 1975, 1976 and 1977. The Quandt log-likelihood ratio and the Chow test have been employed to block the two study samples on the basis of stable regression parameters and to determine which weeks in the study period Beta-shifts have occurred for firms in the Non-Stationary ARS and 10-K groups. Two procedures have been employed in the study. The first procedure has been employed to determine if an unusual concentration of Beta-shifts has occurred in conjunction with the release of either report. The second procedure has been employed to detect the existence of any unusual unexpected return activity associated with the release of the ARS or the 10-K. Using the procedures described above, the study concludes that neither the release of the ARS nor the release of the 10-K affects investors' assessments of firms' systematic risk components or return distributions. Thus, the evidence the dissertation provides does not support an hypothesis that either report possesses incremental information content. Finally, the study concludes that the ARS and the 10-K fail to influence investors assessments and that policymakers must rely on their value judgments concerning their prior beliefs for the wealth effects of the ARS and 10-K.