Karl A. Muller

The market valuation of IAS versus US-GAAP accounting measures using Form 20-F reconciliations

We investigate the market valuation of earnings and book value amounts prepared under International Accounting Standards (IAS) and U.S.-GAAP to provide evidence on the debate between the U.S. SEC and the NYSE on whether foreign firms should be allowed to list in the U.S. using IAS. Our sample consists of foreign firms that adopted IAS in their primary accounts with a reconciliation to U.S.-GAAP in their Form 20-F filing. Using both price and return valuation models, we find evidence that the U.S.-GAAP earnings reconciliation adjustment is associated with market value and stock returns after controlling for IAS amounts. In addition, we find evidence that U.S.-GAAP amounts are valued differently than IAS amounts and are more highly associated with market values and security returns than IAS amounts.

The reliability of investment property fair value estimates

Abstract We investigate the reliability of mandatory annual fair value estimates for UK investment property. We find that appraisal estimates understate actual selling prices and are considerably less biased and more accurate measures of selling price than respective historical costs. Investigations of managerial discretion over fair value reporting reveal that managers select among permissible accounting methods to report higher earnings, time asset sales to smooth reported earnings changes, smooth reported net asset changes and boost fair values prior to raising new debt. Finally, we find that the reliability of appraisal estimates increases when monitored by external appraisers and Big 6 auditors.

An Examination of the Voluntary Recognition of Acquired Brand Names in the United Kingdom

This study examines U.K. companies? motives for capitalizing brand name estimates and the proprietary nature of brand name estimates. Results indicate that companies? decisions to capitalize acquired brand names was influenced by the impact that the immediate write-off of goodwill to equity would have had on the London Stock Exchange?s mandatory shareholder approval requirement for future transactions. In addition, results indicate that brand estimates are valued by the market as representing fair values, and that brand names exhibit a differential association with market values than goodwill, suggesting that the disclosure of brand estimates reveals proprietary information to potential competitors.

Hiding in Plain Sight: Can Disclosure Enhance Insiders’ Trade Returns?

Can voluntary disclosure be used to enhance insiders’ strategic trade while providing legal cover? We investigate this question in the context of 10b5-1 trading plans. Prior literature suggests that insiders lose strategic trade value if their planned trades are disclosed. But disclosure might enhance strategic trade because courts can only consider publicly available evidence from defendants at the motion to dismiss phase of trial. This practice can enhance legal protection for firms that disclose planned trades, especially those disclosing detailed information. Consistent with increased legal protection, we find that voluntary disclosure of planned trades increases with firm litigation risk and potential gains to insiders’ trades. We also find that insider sales and abnormal returns are higher for disclosed plans, especially those that articulate specific plan details. This suggests that voluntary disclosure, which is conventionally thought to reduce information asymmetries, can create legal cover for opportunistic insider trading.