This paper extends the scope of Earnings per share ("EPS") studies by incorporating Bushman et al. (2004)'s conceptual framework of corporate transparency to illustrate how the disclosure requirement of an accounting rule governing EPS could have far-reaching effects on the information environment in US. Informed participants are having a keener edger over average investors in using EPS as a guide to investment value. EPS signals a summary measure of firm performance to market participants. The market reactions to EPS and change in per share earnings provide a distinct opportunity to gauge the informativeness of earnings. The information role will nevertheless derail whenever there is an equity change. The accounting rule stipulates the use of a theoretical construct, the weighted average number of shares, in the denominator for EPS, which the average investor is unable to interpret as the number of shares at the reporting date is the actual, not average number of shares. Relative to the actual-share EPS, the average-share EPS will either inflate or deflate the per share earnings. The informed investors, who can substitute actual number of shares for the theoretical construct, are hence bestowed by the accounting rule an information advantage over the average investors. Earnings response coefficient is significant with denominator of EPS substituted while the explanatory power of theoretical-denominator EPS abates when it is contemporary with the denominator substituted EPS. Financial analysts' expertise in the provision of idiosyncratic information to the market has been compromised by the average-share EPS, which is reflected heretofore in proforma earnings forecasts errors. Proforma earnings use a numerator different from accounting rules and to further temper the denominator with the actual number of shares will make pro-forma EPS forecast unintelligible to users. The unintended consequence of inflating or deflating the per share earnings misleads average investors in their decision-making process. Analysts should not issue proforma earnings forecast while researchers should abstain from using theoretical-denominator EPS for sample firms with equity change as their policy prescriptions may further aggravate the problem. A simple remedy to change the accounting rule, SFAS No. 128 is eminently anticipated, if not warranted.

This dissertation is a collection of three empirical essays on Albania and Iran. In December of 1990, the communist system in Albania came to an abrupt end. The collapse of communism led to a number of macroeconomic reforms that, among other things, brought dramatic changes in the Albanian labor market. This study uses data from the first nationally representative household survey to examine one outcome of a decade-long transition in Albania, the earnings gap between men and women. The average gender earnings gap is calculated at 31 percent, but it is found to be as high as 50 percent in the upper parts of the distribution. The traditional Oaxaca-Blinder method and a recent method that combines quantile regression with the bootstrap are applied to decompose the gender gap into a portion attributable to differences in characteristics and a portion explained by returns to characteristics. Results show that differences in human capital characteristics do not explain any of the existing gap. Furthermore, a large proportion of the gap can be attributed to segregation in occupations and industries. Simulations of female counterfactual wages show that the gender gap is significantly reduced for the entire distribution, and disappears in the higher quantiles of the distribution when occupation and industry are controlled for. The next two essays analyze welfare and female labor force participation in post-Revolution Iran. The Islamic Revolution of 1979 and a number of subsequent macro shocks dealt a huge blow to Iran's economy. In this paper we ask the question of how families and individuals have fared through these tumultuous times. Conventional measures of change in welfare, such as average consumption or GDP per capita, do not accurately reflect the experience of individual cohorts. We utilize annual surveys of expenditures and income conducted between 1984 and 2004 and decompose changes in average earnings and expenditures into cohort, age, and period effects. The estimated period effects accurately reflect the fluctuations in the economy noticeable in the macro data, and the life cycle earnings and expenditures profiles show a typical inverted U-shape. The cohort effects, which compare the position of life cycle profiles of different cohorts, and are of most interest to us, show a rising trend for cohorts born before the 1950s (about 30 years or older at the time of the Revolution). They also indicate that younger cohorts, those born after 1965 and therefore entered adult life after the Revolution, seem to have lost out. We discuss possible reasons for the asymmetrical lifetime experience of the two sets of cohorts. We believe that the disruptions caused by the Revolution itself and the subsequent eight year war with Iraq (1980-88) may have caused lifetime losses for the cohorts who came of age in the early 1980s. The purpose of the third essay is to understand changes in the labor force participation rate of women in Iran after the Islamic Revolution of 1979. Studies consistently show that like other countries in the Middle East and North Africa, Iran has experienced only a modest improvement in female labor force participation rates, despite having gone through the fertility transition and significant improvements in education of women. Utilizing 21 consecutive household surveys from 1984-2004, we decompose changes in the participation rate into age, cohort, and period effects. We find some evidence that the Islamic Revolution of 1979 did indeed have a negative impact on the cohorts that were in their teens or early 20s at that time. However, viewed from a cohort perspective, the evidence shows that women born after 1965 have continuously increased their participation. This is in contrast to the evidence that has been observed by others who have compared cross-section averages over time. / Ph. D.

This paper investigates the potential procyclical effects of fair value accounting (FVA). If FVA adjustments result in increased accounting profits with the recognition of transitory gains through a firm's profit and loss (P&L), and if management incorrectly assesses the persistence of the unrealised gains, these increased profits may be paid out as dividends. This has the potential to increase leverage and risk for these firms, thereby also possibly amplifying economic cycles. A study by Goncharov and Van Triest (2011:59) on Russian firms found that FVA adjustments are persistent in future earnings; however, no empirical evidence was found to support an increase in dividends in response to unrealised FVA gains. By contrast, when the setting is limited to South African banks only, De Jager (2015:157) found that South African banks have paid the full amount of any unrealised transitory gains as dividends. This study focuses on the effects of FVA adjustments on dividend policy for South African firms, as represented by the firms included in the FTSE/JSE Top 40 Index. This furthers De Jager's (2015) study by extending the investigation of the dividend relevance of FVA adjustments from the major South African banks, to South African large firms in general. The results of a panel regression of the net profit of these firms reveal that unrealised FVA adjustments do have a persistent influence on future earnings, indicating that these adjustments contain both transitory and persistent elements. A further panel regression of the annual dividends declared by these firms indicates that dividend payments do include a portion of unrealised FVA gains, as expected by the persistent nature of a portion of these unrealised FVA gains.

No description available.

My dissertation consists of two essays on CFOs' promotion-based tournament incentives and performance-based equity incentives. The first essay examines the joint implications of CFOs' tournament incentives and equity incentives for firms' risk-taking. With the pay gap between the CEO and the CFO as the proxy for the CFO's tournament incentives, I find that the relationship between a firm's risk taking and the CFO's tournament incentives is non-monotonic. In particular, I show that below a certain level, increase in pay gap is associated with increase in firm risk taking (e.g., higher leverage, lower cash holding balance and higher R&D intensity). However, after reaching a certain level, the CEO-CFO pay gap negatively impacts risk-taking, as increase in pay gap is associated with lower leverage, higher cash holding balance and lower R&D intensity. With the CFO's pay-performance sensitivity as the proxy for the CFO's equity incentives, I find that the CFO's equity incentives negatively impact firm's R&D intensity, but have no significant impact on broader financial decisions such as capital structure and cash policy. Collectively, my findings indicate that CFO incentives play an important role in firm's risk-taking behaviors, and the effect of the CFO's tournament incentives is more pronounced. The second essay studies the impact of tournament incentives and equity incentives for CFOs on firms' earnings management, including accrual-based earnings management (e.g., total accruals, abnormal accruals) and real activities manipulation (e.g., abnormal discretionary expenditures, abnormal production costs). Measuring the CFO's tournament incentives as the pay gap between the CEO and the CFO, I show that the CFO's tournament incentives positively influence total accruals and abnormal accruals. Meanwhile, the CFO's equity incentives, measured as the CFO's pay-performance sensitivity, are found positively related to real activities manipulation proxies and total accruals. My findings show a consistent pattern before and after the passage of SOX (Sarbanes-Oxley Act of 2002), but the incentives' effects on earnings management have become less significant in the post-SOX period. Overall, the CFOs' tournament and equity incentives both play an important role in earnings management, but their relative importance lies in different earnings management techniques.

Enligt god redovisningssed ska redovisning ge en rättvisande bild av den finansiella ställningen hos ett företag. Earnings management är ett samlingsnamn på olika metoder för företagsledningen att manipulera resultatet för att uppnå en önskad effekt. Detta är då ett fenomen som kan utgöra ett hot mot detta och missleda intressenter till att ta felaktiga beslut samt leda till ekonomisk osäkerhet i samhället. Det blir då vitalt att undersöka och kartlägga huruvida förekomsten är utbredd i svenska privata bolag och om det finns en skillnad beroende på vart företagen är placerat.   Denna studie avser att mäta earnings management i måttet diskretionära periodiseringar. Detta mått framtas ur den beprövade modifierade Jones modellen med justering för prestation. Måttet räknas ut i en metod baserad på förändringar i balansräkningen, där kassaflödet från löpande verksamheten spelar en stor roll. I den statistiska modellen kommer även tidigare studerade variabler finnas med för att se hur studien förhåller sig till dessa.   Vårt resultat visar att det finns en skillnad i förekomsten av earnings management hos företagens redovisning, beroende på vart det är placerat. Detta innebär att den geografiska faktorn har en påverkan på kvaliteten av företagens finansiella rapporter i svenska privata bolag. Vi finner att förekomsten av earnings management är mer utbredd bland företag som är placerade i storstadskommuner än företag i landsbygdskommuner. Detta resultat går delvis i linje med den tidigare forskningen som är begränsad och limiterad till noterade bolag.   Denna studies forskningsbidrag består av att ge en ökad förståelse till de geografiska skillnaderna i Sverige och hur de påverkar redovisning och revision. Detta är av intresse för en rad intressenter såsom investerare och reglerare. Tidigare studier har studerat earnings management och geografiska skillnader men detta är den första i vår vetskap som studerar detta i Europa och närmare bestämt Sverige. Sverige är ett land där det finns ett ökat intresse för investeraringar på landsbygden som befinner sig i en expansionsfas. Vi hoppas att denna studie kan ge framtida forskare inspiration till att undersöka fler skillnader mellan stad och landsbygd fast inom andra företagsekonomiska områden och med andra metoder.

No description available.

The purpose of this research is to examine whether managers of troubled firms engage in income-increasing earnings management for capital market purposes to maintain a listing on the NASDAQ National Market. Troubled firms are defined as those firms whose share price has fallen below the specified dollar-per-share minimum mandated by the market. The two hypotheses attempt to answer two separate, but interrelated questions: First, do managers of troubled firms engage in earnings management more in periods of distress than in periods of non-distress? And second, do managers of troubled firms engage in earnings management more than similar firms not in jeopardy of delisting? Both a time-series and cross-sectional approach is used to answer these questions. The initial grouping consisted of all NASDAQ National Market firms with a share price of $1 or below at some point during the period from March 1997 through September 2002. The final sample consisted of 215 firms for the time-series analysis and 495 firms for the cross-sectional analysis. Two accrual expectation models were used, including the Jones (1991) and the modified Jones Model (Dechow, Sloan, and Sweeney, 1995). The results were unable to confirm that managers engage in this behavior, and similar to the results of DeAngelo, DeAngelo, and Skinner (1994), the findings suggest that managers' accounting choices primarily reflect their firms' financial difficulties, rather than attempts to inflate income through discretionary accruals. After controlling for reverse stock splits, dividend reductions, going-concern issues/bankruptcy, and changes in management, the models found significantly negative abnormal accruals. The dissertation concludes with a discussion of possible interpretations for the findings. / Ph. D.

This study examines an aspect of earnings management that I refer to as audit management. I define audit management as a client's strategic use of techniques (e.g., baiting tactics) to prevent auditors from discovering earnings management during the audit. Specifically, I examine whether two baiting tactics, diversionary statements and distracting errors, affect an auditor's ability to uncover an accounting error used to manage earnings. Auditors performed analytical review on financial statements that contained an earnings management error (i.e., an intentional error that results in the client meeting an earnings target). I manipulated whether management provided a diversionary statement that explicitly identified risk in other areas of the audit, and whether management seeded easier, distracting errors into those other areas, both of which were designed to lure the auditor away from the earnings management error. I found that when auditors were intentionally directed to error free accounts they were unlikely to uncover an earnings management error elsewhere in the financial statements. On the other hand, auditors were most accurate in identifying earnings management when they were directed to audit areas that contained distracting errors. These results suggest that managers can use certain baiting tactics to strategically manage the outcome of the audit, but that, in some circumstances, baiting tactics may actually make auditors more likely to uncover managed earnings.

This thesis investigates the relationship between product market competition and zero leverage behavior within firms, aiming to uncover how these dynamics interact. Additionally, it explores whether firms characterized by higher earnings volatility exhibit a more pronounced positive relationship between product market competition and the likelihood of adopting a zero-leverage strategy. To carry out this investigation, we employed product market competition data (Fluidity) from the Hoberg-Phillips Data Library and financial data from the Compustat (North America) database, spanning from 1989 to 2019. As product market competition intensifies, the probability of firms adopting a zero leverage policy increases. Furthermore, our research illuminates that the positive impact of heightened product market competition on the likelihood of zero leverage policies is accentuated in firms characterized by elevated levels of earnings volatility. This finding corroborates our initial hypothesis, substantiating the notion that increased competition significantly influences a company's earnings volatility. We also strengthened our analysis with insights from existing literature, underscoring how heightened earnings volatility intensifies the propensity to embrace a zero leverage policy. This study contributes insights to the literature, notably as the first to employ the interaction term between product market competition and earnings volatility in exploring these financial dynamics.