This study examines factors that influence managers’ choice to recognize goodwill impairment under Statement of Financial Accounting Standards No. 142 (SFAS 142). The debate surrounding SFAS 142’s effectiveness centered on whether the managerial discretion allowed by the standard could lead to biased decisions in managers’ determination of goodwill impairment. I use a conditional logistic regression to compare 130 firms that did recognize the existing impairment losses (write-off firms) to a control sample of 130 matching firms that did not recognize the existing impairment losses (no write-off firms). I find that the likelihood of recognizing the existing impairment losses significantly decreases when the managers have sizable holdings of in-the-money stock options. On the other hand, the likelihood of recognizing the existing impairment losses significantly increases when firms have stronger corporate governance, as measured by percentage of outside directors, percentage of outside directors’ ownership, number of busy directors, and separation of CEO and Chair titles. Additionally, I find that during the period leading up to the SFAS 142 write-off, there have been more favorable changes in corporate governance structures of the writeoff firms, compared to that of no write-off firms. These favorable changes in governance structures occurred to a greater extent in firms that have delayed the recognition of existing impairment losses to the sample period compared to the firms that have been recognizing the write-offs on a timely basis. These results are consistent with the notion that favorable changes in corporate governance induce firms to take SFAS 142 impairment losses, which managers have avoided taking in the prior period. Overall, the results imply that managerial incentives do affect the implementation of standards that expand managerial discretion and highlight the importance of corporate boards in the monitoring of discretion allowed by such standards.

Thesis (D.B.A.)--Boston University / PLEASE NOTE: Boston University Libraries did not receive an Authorization To Manage form for this thesis or dissertation. It is therefore not openly accessible, though it may be available by request. If you are the author or principal advisor of this work and would like to request open access for it, please contact us at open-help@bu.edu. Thank you. / This study has three parts. The first part focuses at the business segment definition of SFAS No. 131. One of the expected improvements of SFAS No. 131 was to provide business segment information that corresponds to internal organizational structure. I provide an empirical test of whether segment information prepared under SFAS No. 131 discloses the internal organizational structure of a company. The results show that segment information provided in financial reports under SFAS No. 131 is consistent with the internal organizational structures [TRUNCATED] / 2031-01-02

La contabilizzazione delle operazioni di M&A è radicalmente mutata nel corso degli ultimi dieci anni, nel contesto statunitense come in quello europeo. A seguito di tali cambiamenti l’ammontare di goodwill (avviamento) iscritto nei bilanci di molte società si è incrementato. Questo studio si propone in primo luogo di far luce sulla reliability di tali valori analizzando le cause della svalutazione del goodwill, a partire dall’ipotesi essa sia causata in molti casi dal pagamento di un prezzo eccessivo da parte dell’impresa acquirente, piuttosto che essere la conseguenza di eventi successivi all’operazione. L’analisi, in secondo luogo, ha lo scopo valutare se l’impairment test del goodwill, reso obbligatorio dallo SFAS 142 raggiunga l’obiettivo di individuare in modo tempestivo le perdite durevoli di valore del goodwill acquisito e, dunque, di evitare che rimangano iscritti in bilancio come assets valori che di fatto non lo sono. Lo studio ha considerato un campione di 929 acquisizioni concluse nel periodo 1999-2007 che hanno coinvolto società statunitensi quotate ed è stato condotto sviluppando un modello predittivo basato su alcune misure indicanti potenziale overpayment da parte dell’acquirente alla data di acquisizione. I risultati mostrano in primo luogo come alcuni indicatori di overpayment, come la percentuale del prezzo pagata in azioni dell’impresa acquirente e un ammontare elevato di goodwill rispetto al prezzo di acquisto, diano un contributo significativo nella stima di future svalutazioni del goodwill. Un risultato piuttosto preoccupante, poiché segnala una almeno parziale incapacità da parte degli attuali Principi Contabili (SFAS 141) di garantire che alla data di acquisizione il valore attribuito a tale asset sia effettivamente fondato sulle sinergie e sul valore di “going-concern” del target (“core goodwill”), escludendo elementi ad esso estranei, come l’ overpayment da parte dell’acquirente. Per quanto attiene al secondo obiettivo, i risultati mostrano che il lasso temporale tra la data di acquisizione e il momento della svalutazione è in media di due - tre anni, a differenza di quanto accadeva precedentemente all’entrata in vigore dello SFAS 142, quando tale distanza temporale è stata stimata essere tra i quattro e i cinque anni. Tale risultato pertanto suggerisce che l’impairment test (almeno) annuale ha ottenuto l’effetto di migliorare la tempestività dell’individuazione di eventuali perdite durevoli di valore, contribuendo a bilanciare l’effetto sopra descritto che potenzialmente si ingenera alla data di acquisizione. / The purpose of this study is to shed light on the reliability of accounting goodwill numbers by examining whether the root cause of many goodwill impairment losses is the overpayment for the target at the time of the original acquisition, rather than the deterioration of goodwill values caused by events occurred after acquisition. A second related objective is to assess whether the annual impairment test of the acquired goodwill introduced by SFAS 142 improved the ability of accounting standards to timely capture situations in which the amount of goodwill is overstated and should thus be written down. I tested these hypotheses over a sample of 929 acquisitions completed by US listed companies over the nine-year period from 1999 to 2007. To assess whether the occurrence of a goodwill impairment loss can be predicted based on overpayment indicators, I developed a prediction model of goodwill impairment losses using some indicators measured at the acquisition date that signal potential overpayment by the acquiring firm. First, I found that certain measures, such as the percentage of stock in the consideration and the amount of purchase price assigned to goodwill, in fact represent powerful indicators of the occurrence of a subsequent goodwill impairment. This result is troubling as it suggests that SFAS 141 provisions are at least partially unable to avoid that components other than “core goodwill” being included in the amount recognized as goodwill, casting some doubt on the credibility of prominent goodwill amounts included in the financial statements of many corporations. I also found that the recognition of goodwill impairments lags behind the acquisition time by an average of two to three years. Compared with findings of earlier studies this result indicates that SFAS 142 requirements for annual impairment tests in fact improved the timeliness of recognizing goodwill write-offs, eventually helping to mitigate the failure of SFAS 141.

<p>Syftet med denna uppsats är att undersöka om svenska koncerners resultat och nyckeltal påverkats av den standardändring som infördes i USA från och med årsskiftet 2001/2002, SFAS 142. Detta för att kunna generalisera resultatet till den svenska marknaden i och med att IFRS 3 implementeras under 2005. Vår undersökning, som genomförts med en jämförande ekonomisk utvärderingsmetod, visar att samtliga undersökta koncerner redovisar ett synbart högre resultat och en urskiljbar högre vinst per aktie. Vi kan konstatera att vid såväl ett positivt som ett negativt resultat är standardändringen gynnsam för koncernerna. Ju större goodwillposten är desto större förbättring av vinst per aktie på grund av den uteblivna avskrivningen.</p>

<p>Reglerna kring verkligt värde i IFRS i dag finns i många olika standarder och är ofta inte konsekventa. Definitionerna på verkligt värde varierar beroende på vad som ska värderas och det finns inte heller någon enhetlig beskrivning för hur värderingarna ska genomföras. I den amerikanska motsvarigheten till IFRS finns en standard som behandlar alla typer av värderingar till verkligt värde, SFAS 157. Där gäller definitionen för alla typer av tillgångar och skulder och en hierarki har skapats för att lätt kunna avgöra hur värderingarna ska ske.</p><p>I november 2006 publicerade IASB ett förslag som innebär en stor förändring av hur verkligt värde ska redovisas enligt IFRS. IASB vill nämligen införa en enda standard för verkigt värde som ska baseras på SFAS 157. Intressenter erbjöds att kommentera förslaget och jag har valt att undersöka hur dessa förändringar uppfattas. Syftet med uppsatsen är att undersöka för- och nackdelar med att basera verkligt värde i IFRS på SFAS 157. Studien har ett deduktivt angreppssätt och har genomförts med en kvalitativ metod. Sex banker eller bankföreningar som besvarat de frågor IASB ställt kring det nya förslaget valdes som respondenter och datainsamlingen utfördes genom att sammanställa svaren kring ett antal utvalda punkter.</p><p>Undersökningen visade att fördelarna med att basera IFRS på SFAS 157 bland annat är att reglerna kommer att bli mer konsekventa och jämförbarheten kommer att öka. Några nackdelar är att den amerikanska standarden endast tillåter värderingar baserade på försäljningspriset och att hierarkin för värderingar till verkligt värde skapar en subjektivitet som kan leda till missbedömningar och bedrägerier.</p>

Syftet med denna uppsats är att undersöka om svenska koncerners resultat och nyckeltal påverkats av den standardändring som infördes i USA från och med årsskiftet 2001/2002, SFAS 142. Detta för att kunna generalisera resultatet till den svenska marknaden i och med att IFRS 3 implementeras under 2005. Vår undersökning, som genomförts med en jämförande ekonomisk utvärderingsmetod, visar att samtliga undersökta koncerner redovisar ett synbart högre resultat och en urskiljbar högre vinst per aktie. Vi kan konstatera att vid såväl ett positivt som ett negativt resultat är standardändringen gynnsam för koncernerna. Ju större goodwillposten är desto större förbättring av vinst per aktie på grund av den uteblivna avskrivningen.

Reglerna kring verkligt värde i IFRS i dag finns i många olika standarder och är ofta inte konsekventa. Definitionerna på verkligt värde varierar beroende på vad som ska värderas och det finns inte heller någon enhetlig beskrivning för hur värderingarna ska genomföras. I den amerikanska motsvarigheten till IFRS finns en standard som behandlar alla typer av värderingar till verkligt värde, SFAS 157. Där gäller definitionen för alla typer av tillgångar och skulder och en hierarki har skapats för att lätt kunna avgöra hur värderingarna ska ske. I november 2006 publicerade IASB ett förslag som innebär en stor förändring av hur verkligt värde ska redovisas enligt IFRS. IASB vill nämligen införa en enda standard för verkigt värde som ska baseras på SFAS 157. Intressenter erbjöds att kommentera förslaget och jag har valt att undersöka hur dessa förändringar uppfattas. Syftet med uppsatsen är att undersöka för- och nackdelar med att basera verkligt värde i IFRS på SFAS 157. Studien har ett deduktivt angreppssätt och har genomförts med en kvalitativ metod. Sex banker eller bankföreningar som besvarat de frågor IASB ställt kring det nya förslaget valdes som respondenter och datainsamlingen utfördes genom att sammanställa svaren kring ett antal utvalda punkter. Undersökningen visade att fördelarna med att basera IFRS på SFAS 157 bland annat är att reglerna kommer att bli mer konsekventa och jämförbarheten kommer att öka. Några nackdelar är att den amerikanska standarden endast tillåter värderingar baserade på försäljningspriset och att hierarkin för värderingar till verkligt värde skapar en subjektivitet som kan leda till missbedömningar och bedrägerier.

abstract: This dissertation analyzes the reliability of reported employee stock option (ESO) expense, the determination of expected life of ESOs, motivations to manipulate ESO expense, and the impact of noise in ESO expense on subsequent stock price returns. Based on unique data, this is the first paper to measure average historical ESO life for all employees of a broad set of firms. I find average life has a mean of 4.12 years. Average life is reduced by 0.38 years per 10 percentage point increase in volatility, and industry effects explain an additional 7% of the variation. Reported expected life increases 0.37 years per year of historical life and an additional 0.16 years per year of age of the outstanding options. Deviations of reported volatility and life from benchmarks have positive correlations with deviations from own reporting history. Using stated assumptions rather than benchmark assumptions drops (increases) ESO expense by 8.3% (17.6%) for the 25th (75th) percentile firm. The change in earnings per share decreases (increases) by $0.019 ($0.007) for the 25th (75th) percentile firm. Tests for motivations to manipulate stock option expense downward have mixed results. Absolute values of deviations from benchmarks have a positive relationship with subsequent stock price volatility suggesting noise in reported stock option expense results in stock price noise. Deviations from benchmarks and subsequent cumulative abnormal returns have statistically significant results but are difficult to interpret. / Dissertation/Thesis / Ph.D. Business Administration 2011

The objective of this research is to test the expensing of stock options as part of CEO compensation to earnings quality. Agency theory posits a conflict between the CEO's own self-interest and that of the owners who seek to maximize the long term value of their investment. To avoid this conflict compensation should align and bond these parties. Data was retrieved from Compustat, ExecuComp and Corporate Governance databases spanning the years of 2000 through 2009. The Dechow and Dichev (2002) earnings quality model using the change in working capital and error terms taken as the residuals was utilized. All hypotheses used earnings quality as a proxy for management choices and as the predictive power of accruals. The first hypothesis indicated granting of CEO stock options has a positive association to earnings quality. The second hypothesis tests the implementation of SFAS 123 (R) by expensing stock options and the association to earnings quality. The third and final hypothesis utilized the number of BOD members as to compare the association between expensing stock options as part of CEO compensation and earnings quality. Empirical support for all three hypotheses was found and consistent with expectations established by other research using earnings quality methodologies. Both the granting and expensing of stock options as part of CEO compensation has an association to earnings quality. There exists a stronger association between expensing stock options and earnings quality when firms have a larger number of BOD members. Support for agency theory was discovered because all three hypotheses were supported. This study was limited to U.S. firms that were publicly traded on major U.S. exchanges and only CEO compensation. Other executive compensation was not included. These limitations provide opportunities for future research. Knowledge was gained by exploring the earnings quality measures for evidence of bonding and alignment theory. This study extends the research in earnings quality by examining the relationship of granting and expensing of stock options as per SFAS 123 (R). It also contributes to the work in SFAS 123 (R) by testing four years before and after 2005, when implementation occurred.

This dissertation investigates the economic consequences from hedge accounting signals and risk management disclosure. I first examine the product market consequences to these accounting signals and related disclosure in Chapter 1, then stock market reactions to disclosure requirements in Chapter 2. Chapter 1 examines potential entrants’ strategic entry decisions in response to incumbents’ accounting information and related disclosure. I predict that potential entrants are more likely to enter markets in which the incumbents’ accounting information suggests higher future production costs that are specific to the incumbents themselves. I further hypothesize that the relation is stronger when the accounting signals are accompanied by more disclosure. Using detailed U.S. airline industry data and hedge accounting disclosure under SFAS 133, I find that potential entrants are more likely to enter routes in which the incumbents’ lower accumulated other comprehensive income from fuel hedges suggests their higher future production costs. This entry pattern is stronger when incumbents have more transparent annual report disclosure regarding their fuel hedge programs. The entry pattern is also stronger after a systematic increase in risk management disclosure requirements following the (exogenous) adoption of SFAS 161. Chapter 2 analyzes stock returns of U.S. airlines around events leading up to the adoption of SFAS 161. SFAS 161 enhanced the disclosure requirements for derivatives and hedging activities. I find that U.S. airlines experienced statistically significant positive returns around the key events leading up to the adoption of SFAS 161. I then examine the cross-sectional variation of the returns around these events. Regression results provide initial support for the real effects theory that greater disclosure requirements could distort firms’ hedging and production decisions and lead to suboptimal behavior. In summary, this dissertation provides evidence that competitors use hedge accounting signals and related disclosure in making product market decisions. Meanwhile, additional risk-management disclosures may also distort firms’ hedging and production behavior, leading to suboptimal decisions. This dissertation sheds light on the ongoing projects by the FASB and the IASB on hedge accounting and disclosure and informs the regulators that costs and benefits should be weighted in hedge accounting policy setting.