Douglas K. Schneider

Market Perception of Goodwill: Some Empirical Evidence

Abstract Accounting and reporting for goodwill has been on the agenda of the Financial Accounting Standards Board, the International Accounting Standards Committee, the UKs Accounting Standards Board, and the US Congress. Goodwill has also been the subject of Securities Exchange Commission rulings directed at specific companies. The attention directed towards goodwill would suggest that it is a material asset for a large number of firms. This article analyses the market perception of goodwill as an asset in the determination of the firms valuation. Also explored is whether the market values goodwill to the same degree as it values other assets. The results of this study found that the market perceives goodwill as an asset and incorporates the information in the valuation of a firm. The findings of this study could be of importance to those involved in and affected by standard-setting deliberations involving goodwill.

Earnings impact of applying international accounting standard 32 to convertible debt: Some evidence for U.S. firms

Abstract The International Accounting Standards Committee (IASC) recently issued a new accounting standard, International Accounting Standard (IAS) 32, Financial Instruments: Disclosures and Presentations. The new standard calls for issuers of convertible debt to record separate debt and equity components at the date of issuance. In contrast, current U.S. accounting rules for issuers of convertible debt. Accounting Principles Board Opinion No. 14 (APBO 14), Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants, require the “entirely debt until conversion” approach. U.S. issuers of convertible debt are not governed by IAS 32. However, the issuance of IAS 32 shows obvious international consensus for the separate components approach. In addition, there is substantial support among U.S. academic accountants for the components approach used in IAS 32. This article explains and analyzes the potential financial reporting impact of IAS 32 if it were applied to a sample of U.S. issuers of convertible debt. The results of this study show that reclassification of a portion of convertible debt proceeds to equity has the potential to materially increase interest expense and decrease earnings. This study provides important insights which should be of interest to the financial reporting community in the U.S. and internationally.

The Market Perception of Convertible Debt Versus Straight Debt: some Empirical Evidence from U.S. Firms and Non‐U.S. Firms Listed in the U.S.

Accounting for convertible debt has long been a source of controversy in the accounting profession in the U.S. Current U.S. accounting rules require classifying convertible debt at date of issuance as “entirely debt” until conversion, despite numerous studies that assert that convertible debt is not “entirely debt”, but is a blend of debt and equity. Convertible debt has taken on international interest because of the issuance of International Accounting Standard (IAS) 32, Financial Instruments; Disclosure and Presentation, which prescribes reporting separate debt and equity components for convertible debt. This study examines convertible debt issued by U.S. firms and non-U.S. firms listed in the U.S. using a levels approach. Specifically, convertible debt is compared to straight debt and contrary to ex ante expectation, convertible debt was not found to be perceived as being significantly different than straight debt for U.S. firms for any years and is statistically different in only two of the six years tested for non-U.S. firms. The validity of this studys findings is underscored by its research design, which compares convertible debt and straight debt issued by the same firms. The findings suggest that investors regard reported amounts of convertible debt similar to straight debt in their assessment of firm value.

Financial challenges in higher education: community college leadership style and ranking

ABSTRACT A large number of new community college presidents will be hired in the next 5 years due to vacancies. New leaders must be prepared to lead their institutions through the challenges facing community colleges. Forty-one community college presidents in North Carolina participated in our research (70.7% response rate). We found that community college presidents’ perceptions of their management styles all fall within the “team management” orientation according to the Blake and Mouton Managerial Grid (Blake & Mouton, 1964). We then examined the financial management challenges faced by community college presidents and found empirical evidence regarding how community college presidents rank six of the most critical financial challenges identified in the literature. Presidents’ rankings of the six most critical financial challenges showed that the three most pressing concerns are maintaining student access during times of increasing educational costs, managing enrollment during times of decreasing state funding, and lowering costs without damaging academic quality.

Do firms have a tax incentive for stock buybacks? An empirical examination

This study examines whether there is a tax incentive for firms to engage in stock buybacks. Using methods previously established by Manzon (1994) and Scholes and Wolfson (1989), the results show that firms with high marginal tax rates are more likely to announce stock buybacks than firms with low marginal tax rates. Additionally, firms that announce stock buybacks have lower debt-equity ratios than firms that do not announce buybacks. Tax considerations do not appear to be a factor in the acquisition technique used, open market or tender offer. However, the tax motive and limited investment alternatives appear to be the major explanatory variables in the stock buyback decision.

The best tax strategies for M&A

Companies are taking a new look at the best tax strategies for M&A because a proposed FASB rule could make mergers a lot more expensive.

FPCPS: Introduction to an innovative financial instrument

The controversy over FASBs derivatives standard shows that companies are eager to use a variety of new financial instruments. The authors explain the structure of —and reporting for—another innovative financial instrument, future priced convertible preferred stock (FPCPS). For some firms, it provides a means of raising capital not accorded by more conventional financial instruments. But there are risks that must be controlled. ©1999 John Wiley & Sons, Inc.

The common stock equivalency of liquid yield option notes: Some surprising results

Surprisingly, few liquid yield option notes (LYONs) meet the SFAS 85 definition of a common stock equivalent. That has important reporting implications on primary earnings per share. Current accounting standards may not do an adequate job of identifying the common stock equivalency status of LYONs.