Begoña Giner

Lobbying on Accounting Standards: Evidence from IFRS 2 on Share-Based Payments

Lobbying is an essential part of the International Accounting Standards Board (IASB) standard-setting process. There is still much to learn, however, about key aspects of the roles played and arguments employed by various constituents when lobbying practices do occur. This paper focuses on the regulation of share-based payments. As these transactions were under-regulated before International Financial Reporting Standard (IFRS) 2, we expect that the strong debate that occurred during the 1990s resulted in conflicting opinions when this standard was under discussion. To analyse lobbying behaviour and assess its influence on the IASBs decision-making, we conducted a content analysis of 539 letters addressing the documents issued by the G4+1 and the IASB preceding IFRS 2. Consistent with the rational-choice model, our analysis of lobbying activity shows that preparers constituted the most active group, particularly when the IASB started the project, whereas participation of standard-setters increased at the end, which is more consistent with institutional theory. A common strategy was to provide arguments merely on points of disagreement. Preparers and consultants constituted the only groups using economic-consequences arguments to disagree, but later enlisted conceptual arguments as well. The IASB considered only conceptual arguments, and no interested party had a dominant influence.

The value relevance of earnings disaggregation provided in the Spanish profit and loss account

This study analyses the value relevance of the different components of the earnings figure that appear in the Spanish profit and loss account in order to determine the preferred level of disaggregation by investors. It is considered that the disaggregation may help to evaluate the earnings quality; that is, its predictive ability about future earnings. We use a valuation model based on Ohlson (1995), which models firm value as a function of book value of equity and earnings, adding the earnings components to determine whether they provide incremental price-relevant information beyond aggregate earnings. In addition, we allow the parameters to vary under some firm-specific circumstances. Our results support the usefulness of the earnings decomposition for valuation purposes, resting primarily on the disclosure of the corporation tax, particularly for either small companies, or with a high-risk profile or with low persistence of earnings. It seems that neither financial profit nor extraordinary earnings have additional information content over the bottom-line figure, which is consistent with the IASCs position on ordinary versus extraordinary items.

An empirical assessment of the Feltham-Ohlson models considering the sign of abnormal earnings

Abstract This paper provides an empirical assessment of the Feltham-Ohlson models, distinguishing between firms with positive and negative abnormal earnings. Abnormal earnings persistence and conservatism parameters differ for these two groups; this implies different earnings prediction models and valuation functions for both profit-making and loss-making firms. The analysis refers to the period 1991-1999 and uses a sample of Spanish firms quoted on the Madrid S.E. The results suggest that our contextual approach is more useful than the non-contextual one to predict future abnormal earnings and explain current prices. Although the Ohlson (1995) model is accurate in forecasting future abnormal earnings and stock prices, the results improve when firms with negative abnormal earnings are valued using a temporary model and firms with positive abnormal earnings using a more permanent one. The Feltham and Ohlson (1995) model generates the lowest forecast errors in the prediction of positive abnormal earnings, but it produces the least accurate results in forecasting prices.

Valuation Implications of Capital Structure: A Contextual Approach

In this paper, the Ohlson (1995) valuation model is used to analyse the informative value of firm capital structure, decomposing the book value of equity in its two main components (i.e., total assets and liabilities) in order to test whether investors price them in a different way. We adopt a contextual approach and analyse the value relevance of debt taking into account the signalling and ‘optimal’ financial structure theories as well as the relationship between the cost of debt and return on investment. The sample used comprises all the non-financial Spanish firms listed in the Madrid Stock Exchange during the period 1991–7. Our results seem to support the ‘optimal’ capital structure theory since departures of the debt-to-equity ratio from its ‘optimal’ (or target) level are negatively perceived by the market. The debt valuation parameter is higher (lower) for those firms with a cost of debt above (below) return on investment. In addition, and consistent with the signalling theory, debt seems to be a positive signal for firms facing good prospects. This effect is strongly significant for those cases in which return on investment exceeds the cost of debt.

Accounting for Emission Trading Schemes: A Still Open Debate

Abstract Emission allowances form the common trading currency introduced by the European Emission Trading Scheme to cover the emission of greenhouse gases. This initiative forces companies to internalise environmental expenses, so that it has an impact on accounting practices. The aim of this note is to discuss some alternative views on how to record this economic transaction, which could help the International Accounting Standards Board to find an accepted proposal. Adopting a common approach would always be preferable to the current situation characterised by total discretion. Indeed relying on the business model as proposed by the Autorité des Normes Comptables and the European Financial Reporting Advisory Group allows more discretion than imposing a solution based on the basic idea of the system: allowances are a trading currency.

National Standard-Setters’ Lobbying: An Analysis of its Role in the IFRS 2 Due Process

As the IASB’s due process sustains, the national standard-setters play a key role in the development of IFRS. There is still much to learn, however, about their lobbying practices, which arguments they use and when they do it. This chapter focuses on the accounting of share-based payments that were under-regulated before IFRS 2. To analyze lobbying behavior of this relevant group of stakeholders, we conduct a content analysis of the 27 comment letters addressing the documents issued by the G4+1 and the IASB that preceded IFRS 2. Consistent with institutional theory, our analysis of lobbying activity by national standard-setters shows that participation increased at the end of the process, and they supported the IASB’s final proposals although they were not as much supportive at the beginning.

The Influence of Conditional Conservatism on Ownership Dispersion: An International Analysis

ABSTRACT We study the influence of conditional accounting conservatism on domestic investor diversification decisions. We argue that a conservative accounting system that promotes the dissemination of bad news and which constrains managers from engaging in opportunistic activities reduces the need for investors to concentrate their ownership, and consequently helps investors to diversify their investments. Through a country-level analysis we show that increased domestic conditional conservatism and higher domestic diversification opportunities lead to higher levels of domestic ownership diversification. Our results are robust to alternative estimates of conditional conservatism, and indicate that conditionally conservative accounting systems improve risk sharing. These results suggest that the accounting system, and in particular accounting conservatism, is part of the institutional settings embedded in the infrastructures of capital markets.

Determinantes de la discrecionalidad directiva en la elección del método contable de las participaciones en negocios conjuntos

RESUMEN Este trabajo analiza los motivos que subyacen a la elección contable para registrar las participaciones en un tipo concreto de negocio conjunto: la sociedad multigrupo. Dadas las características de los métodos alternativos, integración proporcional vs. puesta en equivalencia, la elección contable no afecta al resultado sino a la cantidad de información y con ello a los ratios financieros. El análisis se refiere a cincuenta y una empresas españolas cotizadas que llevaron a cabo 893 elecciones en el periodo de vigencia de las NFCAC (1991–2004). Estas normas daban libertad para elegir un procedimiento u otro sin exigir consistencia. Los resultados del análisis logistico evidencian que los factores interdependencia entre las actividades del partícipe y la SM y especificidad de los activos, así como tamaño influyen de forma positiva en la adopción de la integración proporcional; mientras que el endeudamiento tiene el impacto contrario en la decisión. Por su parte la estructura accionarial guarda una relación no lineal con la elección contable.

The Predictive Ability of Financial Information for Future Earnings: A European Perspective

ABSTRACT The objective of this paper is to analyse cross-national differences in the predictive ability of financial information (accounting and market data) for future earnings. We adopt a European perspective in our analysis by focusing on four representative European countries (France, Germany, Spain and the UK) in order to assess whether the institutional and accounting differences among them result in inter-country differences in the predictive value of financial information. In particular, we consider that differences in the extent of conservatism, due to country characteristics, such as the legal system (code-law vs common-law), the way companies finance their operations, and the relationship between accounting and taxation, are likely to influence the measurement of accounting variables and, as a result, affect their predictive ability about future earnings. Furthermore, cross-national differences in the disclosure requirements of the respective stock exchanges, as well as accounting conservatism, are likely to result in differences in the forecasting value of security prices. In this regard, and due to inter-country differences in accounting conservatism, the forecasting ability of stock prices in the event of “good news” about the firm is likely to differ across countries. Our results confirm that there are indeed differences in the predictive ability of both accounting and market data across European countries, which is an indirect test of the economic consequences of different accounting measurement rules, an aspect that has received little attention by researchers to date.

On the ‘Review of Structure and Effectiveness of the IFRS Foundation’: the EAA’s Financial Reporting Standards Committee’s View

Abstract In July 2015 the International Financial Reporting Standards (IFRS) Foundation launched its third five year review of its structure and effectiveness of the organisation. In a public call, the Trustees solicited stakeholders’ input on the relevance of IFRS Standards with respect to broadening the IFRS scope and to the impact of new technology, on the consistent application of IFRS and on the governance and funding of the International Accounting Standards Board and the IFRS Foundation. The European Accounting Association (EAA)’s Financial Reporting Standards Committee responded to this request for views by submitting a comment letter based on research-informed opinions. This article provides an overview of this Review of Structure and Effectiveness of the IFRS Foundation and the EAA’s opinions in response to this Review.