Kenneth J. Hunsader

Earnings management and the stock market response to the Sarbanes-Oxley Act based on a measure of competitive strategy

Purpose - Conventional wisdom implies that firms manage earnings to maximize the wealth of the manager, the value of the firm and/or the amount of information in the market. The purpose of this paper is to offer an additional explanation. Design/methodology/approach - Using companies from the Standard & Poors 500 index and an annual report disclosure ranking, the authors employ a standard Findings - The authors show that earnings management is a tool used by firms based on the level of competitive strategy within the industry. It was found that firms competing as strategic substitutes are more likely to actively engage in earnings management through discretionary accruals when the informational environment permits. It was also found that substitute firms suffer greater negative wealth effects than complement firms in response to the Sarbanes-Oxley Act. Originality/value - This is one of the first empirical articles to examine how competitive strategy affects earnings management and the stock market response to the Sarbanes-Oxley Act of 2002.

The oil industry's response to new avenues in futures trading

We examine the Cumulative Abnormal Returns (CARs) of petroleum, airline and investment banking firms to the announcement and initiation of trading for two new oil-related assets in 2006: West Texas Intermediate crude futures contracts traded via the Intercontinental Exchange and the American Stock Exchanges (AMEX) US Oil exchange traded fund (USO). In general, we find few significant changes, but the changes we find are marginally positive reactions related to the two new contracts. We also find evidence that firms which utilize derivatives benefit less than firms which do not. However, firms which trade derivatives (nonhedgers) have greater returns than nontraders (hedgers).