Grace Pownall

Voluntary Disclosure Choice And Earnings Information-Transfer

The purpose of this paper is to assess the relation between the incidence of earnings information transfer and managerial decisions to disclose earnings forecasts. We investigate whether forecasting firms receive lower magnitude earnings information transfers than nonforecasting firms. Previous studies suggest that annual earnings are not a timely disclosure medium (e.g., Ball and Brown [1968]) and that interim disclosures like quarterly announcements and management forecasts have information content for prices.1 Other studies document the existence of intraindustry information transfers associated with quarterly earnings2 and management forecasts.3 Collectively, this evidence suggests that investors condition their beliefs about a firms earnings prospects on

Shareholder‐ Versus Stakeholder‐Focused Japanese Companies: Firm Characteristics and Accounting Valuation*

Recent research has found that the value-relevance of accounting variables depends not only on whether a countrys accounting rules are code-law oriented or common-law oriented, but also on the reporting incentives created by the legal and business environment in which a firm operates. Therefore, for example, the earnings of firms in some countries with common-law oriented rules but with code-law incentives have more code-law-type characteristics. We further this research by examining whether this is true for firms facing the same accounting regime and institutional environment but different stakeholder-related incentives. We find significant stakeholder-related incentives across 23 Japanese firms listed in the United States and 23 Japanese firms not listed in the United States that are matched by industry and size. Although these firms face the same institutional environment and the same accounting regime, consistent with the differences in stakeholder-related incentives, the earnings and book values of the firms listed in the more shareholder-oriented U.S. markets have significantly more explanatory power for market value than those for firms not cross-listed in the United States. These findings are unaffected by whether the reports are based on consolidated or parent-only accounting or whether they are based on U.S. or Japanese GAAP, emphasizing the potential influence of reporting incentives at all levels on the effect of standardization, conversion, or harmonization of accounting methods globally.

Deviations from the Mandatory Adoption of IFRS in the European Union: Implementation, Enforcement, Incentives, and Compliance: Mandatory Adoption of IFRS in the EU

In this paper, we evaluate the common assertion that EU firms began using IFRS by 2005 when the EU formally adopted IFRS. We find that although the incidence of firms using local (or some other) GAAP has declined between 2005 and 2009, it is still nontrivial. For instance, by 2009 the incidence of non-IFRS financial statements was still in excess of 17% (42% of which were fully consolidated). We estimate a model of the non-adoption of IFRS as a function of proxies for EU-wide and country-specific implementation of the IFRS regulation, countryspecific enforcement mechanisms, and firm-specific reporting incentives. We find that being traded in EU-regulated markets, preparing fully consolidated financial statements, and having a more diversified corporate structure are positively associated with the likelihood of using IFRS, and using US GAAP in the preceding year is significantly negatively associated with adopting IFRS. We find little evidence that country-specific enforcement is associated with IFRS adoption during our time period. Finally, we find that several reporting incentives proxies are associated with adopting IFRS, such as being large and closely-held with wider analyst following. We interpret our results to mean that many EU firms do not use IFRS; that firms exploited definitions, exemptions, and deferrals in the regulation to avoid adopting IFRS; and that firms responded to their reporting incentives in making the decision to adopt IFRS.

Relaxing the Reconciliation Requirement in Non-U.S. Firms' SEC Filings: Firm Incentives and Changes in Earnings Informativeness, and Earnings Attributes

We investigate the changes in earnings information content and earnings attributes, for non-U.S. firms listed in U.S. equity markets, following the 2007 relaxation of the SEC requirement to reconcile IFRS earnings and stockholders’ equity to U.S. GAAP in annual regulatory filings. We analyze a sample of non-U.S. firms listed on U.S. exchanges that use IFRS, domestic GAAP, or U.S. GAAP from 2005 to 2008. Prior literature finds no changes in informativeness following the regulation for IFRS-using firms. However, when we partition the IFRS-using firms into two groups based on managers’ incentives to provide informative disclosures, we find that those firms with incentives to be more informative had significant increases in the information content of their earnings. Furthermore, we do not find any decrease in information content of earnings for firms without such incentives. We also document that this change in earnings informativeness was contemporaneous with a change in earnings attributes.

Voluntary Disclosure of the Components of Revenue Growth

In this study we examine the valuation implications for different sources of growth. Specifically, we investigate whether supplemental information provided by firms to assist financial statement users in understanding the sources of growth is reflected in a premium to those firms. We examine a unique sample of firms that voluntarily choose to provide detail about their levels of organic revenue growth. Results indicate that firms that are larger, with lower research and development expenditures, and with higher intangible assets are those more likely to provide detailed disclosures about revenue growth components, all characteristics consistent with incentives to provide additional transparency regarding revenue growth. In regressions of returns on earnings disaggregated into revenue growth and costs, we find evidence that there is indeed a valuation premium to organic growth relative to non-organic growth. These findings are consistent with investors viewing the organic growth component of revenues as more persistent than the non-organic component of growth. Consistent with this interpretation, we document significant persistence of organic revenue across periods and a notable lack of such persistence for non-organic revenue growth.