Larry L. DuCharme

Earnings management, stock issues, and shareholder lawsuits

Abstract Abnormal accounting accruals are unusually high around stock offers, especially high for firms whose offers subsequently attract lawsuits. Accruals tend to reverse after stock offers and are negatively related to post-offer stock returns. Reversals are more pronounced and stock returns are lower for sued firms than for those that are not sued. The incidence of lawsuits involving stock offers and settlement amounts are significantly positively related to abnormal accruals around the offer and significantly negatively related to post-offer stock returns. Our results support the view that some firms opportunistically manipulate earnings upward before stock issues rendering themselves vulnerable to litigation.

Feasibility and Safety of Vagal Stimulation In Monkey Model

Summary: The feasibility, safety, and preliminary effects of chronic vagal stimulation were studied in an alumina‐gel monkey model. Pilot studies to perfect the equipment, determine stimulation thresholds, and insure the comfort and safety of the animals preceded this study. Four monkeys were equipped with an indwelling, 2‐electrode cuff (titanium bands spaced 7 mm apart; silicone encased; 1.5 cm total length) in contact around the right vagus nerve; avoidance of the cardiac branch was confirmed by electrocardiograms. After postsurgical recovery, the intact and awake animals received constant‐current stimulation (5 mA; 83 Hz, 143 Hz, or 50–250 Hz randomly; 0.5‐ms pulse width) at the onset of every spontaneous seizure for the duration of the seizure or every 3 h for 40 s if stimulation had not occurred in the preceding hour. Stimulation periods of 2–6 weeks, with differing levels of stimulation, were preceded and followed by at least a 2‐week baseline period of no stimulation. During the stimulation periods, the seizure rate decreased to zero in two monkeys and the interseizure intervals became invariable in the remaining two monkeys. These effects carried over temporarily into the poststimulation baseline periods. Vagal stimulation had no consistent effects on seizure severity or EEG interictal spikes. Histological studies of six vagus nerves were unable to separate electrode cuff damage from any direct effects stimulation may have had on the nerves. Although it appears that chronic vagal stimulation is feasible and that epileptogenic processes are influenced, the safety and efficacy of the procedure are still in question.

Earnings Management: IPO Valuation and Subsequent Performance:

We examine the role of earnings management by issuers prior to making initial public offerings (IPOs). Our results indicate that pre-IPO abnormal accruals are positively related to initial firm value. Entrepreneurs may seek to increase their offering proceeds, temporarily deceiving investors by opportunistically manipulating earnings through accruals management before going public. This would imply a negative relationship between abnormal accruals around the offer date and subsequent firm performance. Confirming earlier studies, we find that abnormal accruals during the offer year are significantly negatively related to subsequent firm stock returns. In addition, we find that abnormal accruals in the preceding year are also significantly negatively related to subsequent performance. Moreover, this result persists even for returns that are risk-adjusted using the multifactor CAPM of Eckbo, Masulis, and Norli (2000). Thus, it appears that aggressive pre-IPO earnings management both increases IPO proceeds and decreases subsequent returns to investors.

Efficacy of Standard Anticonvulsants in Monkey Model with Spontaneous Motor Seizures

Monkeys were rendered chronically epileptic by injection of alumina gel into the pre‐ and postcentral gyrus. To test the validity of this primate model, the effects of diphenylhydan‐toin (DPH), phenobarbital, and primidone on spontaneous seizures were evaluated for 8 months with a Latin‐Square experimental design. All three drugs were effective, the frequency of seizures being reduced by at least one‐half during 6 weeks with treatment as compared with 6 weeks without. In most monkeys the frequency and severity of seizures were correlated to the number of interictal spikes in the EEG, and were inversely related to the level of drug in plasma. During withdrawal of phenobarbital and primidone, epileptic activity increased over that during control periods. Side effects were minimal with all three drugs. Patterns of behavior, although they differed from one monkey to the next, exhibited trends specific to each drug but particularly DPH. The seizures of some animals seemed to be related to the sleep‐waking cycle.

Cerebellar stimulation in alumina-gel monkey model: inverse relationship between clinical seizures and EEG interictal bursts.

Summary: The efficacy of cerebellar stimulation was addressed in a chronic monkey model (N= 12) of spontaneous focal motor and secondarily generalized seizures using 24 hr seizure frequency monitoring and all‐night EEG recording. The anterior cerebellar vermis was stimulated employing parameters similar to those used in man, 10 Hz, 1 msec pulses, 10 min on, 10 off, at an average current of 2.0 mA. Six weeks pre‐ and post‐base‐line periods were compared to a stimulation period of the same length. The results contribute to a clarification of conflicting findings of previous researchers by revealing an inverse relationship between seizure frequency and interictal EEG bursts during the weeks of stimulation. Seizure frequency increased significantly and interictal bursts decreased. Both of these effects (especially the former) were evident in the post‐stimulation period, but for different reasons than hypothesized for the period of stimulation. Whereas the therapeutic value of cerebellar stimulation on seizures may be in question, its utilization in the study of mechanisms of epilepsy may be warranted.

Efficacy testing of valproic acid compared to ethosuximide in monkey model: II. Seizure, EEG, and diurnal variations.

The efficacy of valproic acid (VPA) compared t o ethosuximide (ESM) was tested in an alumina‐gel monkey model (N= 12) in‐ strumented with indwelling catheters (for drug infusion and blood sampling) and an EEG plug (for sleep staging and spike recording). The results indicated that VPA was effective in the plasma level range 50‐ 150μg/ml in terms of seizure frequency, duration, and severity, as well as EEG sharp activity. However, focal seizures were not attenuated until the higher plasma concentrations were reached. At the lower plasma levels there was an immediate but transitory effect of VPA on seizure frequency which lasted 2 days only, and a more permanent decrease in seizure frequency at the higher plasma levels. Even with a constant‐rate intravenous infusion of VPA, the mean diurnal fluctuations in plasma drug levels was 36% and considerably more in some animals. EEG bursts per minute tended to correlate inversely with VPA circadian, plasma concentration increases at night and positively with ESM concentration in several monkeys. ESM exacerbated seizure frequency to some extent. The changes in seizure frequency during administration of either drug appeared not to change the basic patterns of time of occurreixe of the seizures for each animal, but rather augmented o r attenuated epileptic activity within those patterns. The findings indicate the ability of this model to quantify correlative processes in efficacy evaluation which lead to a greater understanding of mechanisms of action of antiepileptic drugs.

Prophylaxis with Diphenylhydantoin and Phenobarbital in Alumina‐Gel Monkey Model

Utilizing an alumina‐gel epileptic monkey model, with instrumentation for continuous monitoring of all overt, spontaneous motor seizures, the efficacy of pharmacologic prophylactic treatment of posttraumatic epilepsy was explored. The alumina‐gel model provides a relatively standardized brain trauma from monkey to monkey, resulting in virtually complete assurance that all animals will manifest, in time, electrical and clinical seizures if not treated. Thirteen rhesus monkeys were divided into two groups of 8 drug‐treated and 5 placebo animals, respectively. Administration of diphenylhydantoin and phenobarbital in a combined regimen commenced within 48 hr of the alumina‐gel injections. After 1 year the monkeys were withdrawn from either their drugs or placebo and followed for a subsequent 4 month period. The data for the first 12‐month period indicate that anticonvulsant treatment of potentially epileptic monkeys decreased both the frequency and severity of seizures they would have had without treatment. All animals manifested an electrical focus and overt seizures, but the drug monkeys had only partial seizures whereas the placebo monkeys exhibited secondarily generalized tonic‐clonic seizures. The follow‐up, no‐treatment data of 4 months are reported in the following paper.

Diurnal Variation of Valproic Acid Plasma Levels and Day‐Night Reversal in Monkey

Four normal monkeys each equipped with an EEG plug and two indwelling catheters for drug infusion and sampling, respectively, were administered valproic acid (VPA) before and after a 12‐hr light, 12‐hr dark phase shift. Before day‐night reversal, diurnal oscillations of VPA plasma levels under steady‐state intravenous constant‐rate infusions were 30–50%, with maximum concentrations during the dark phase of the cycle. After reversal, maximum VPA plasma concentrations tended to follow the dark phase shift. The correlation was not perfect, nor was the sleep cycle completely reversed since the animals slept less after the phase shift. Possible mechanisms of the diurnal plasma level fluctuations and the importance of oscillations of this magnitude to clinical drug regimens are discussed.

Efficacy and Toxicity of the Solvent Polyethylene Glycol 400 in Monkey Model

Summary: Several antiepileptic drugs, such as carbamazepine and clonazepam, have low bioavailability in solid form and are insoluble in an aqueous solution. Alcohol solvents are often employed as vehicles when these drugs are studied in animal models. Secondary and particularly tertiary alcohols are suspected of some anticonvulsant activity. The present research evaluated the possibility that polyethylene glycol 400 (PEG 400) might be efficacious, toxic, or both. Monkeys (N = 11) rendered epileptic by aluminum‐hydroxide were administered PEG 400 by constant rate (1 ml/hr) intravenous infusion for 3–4 weeks, preceded and followed by several weeks of baseline. At a concentration of 60%, PEG 400 significantly reduced seizure frequency, but also exhibited severe side effects. These findings suggest that experimental testing of anticonvulsants may be compromised when this or similar solvents are used chronically.

Experimental anticonvulsant cinromide in monkey model: preliminary efficacy.

Summary: Cinromide (3 bromo‐N‐ethylcinnamamide), an experimental anticonvulsant (Burroughs‐Wellcome Pharmaceutical Co.), was given a preliminary evaluation in our alumina‐gel monkey model. The parent drug has a biological half‐life in monkey of 1–2 hr and its active metabolite, 3‐bromocinnamide, a half‐life of 4–6 hr. In phase 1, 6 chronically epileptic monkeys, with focal motor and secondarily generalized tonic‐clonic seizures, received the drug in a vehicle of 65% polyethylene glycol 400 (PEG) by constant‐rate intravenous infusion followed by baseline days of saline only and PEG only. Three different concentrations of Cinromide (12, 24, and 36 mg/ml/hr) were administered, respectively, to achieve mean steady state plasma levels of approximately 5, 10, and 20 μg/ml of the metabolite (0.5 to 5.0 μg/ml of the parent drug). In phase 2, Cinromide was administered for 7 days at the middle concentration to all monkeys. Baseline periods similar to those of phase 1 were used as controls. The data tentatively suggest that Cinromide is efficacious in the monkey model at a plasma concentration range of 7–14 μg/ml of the metabolite. With the exception of one animal, no secondarily generalized seizures were exhibited during drug administration (but were evident in the baseline periods), and EEG bursting decreased significantly in several monkeys. Minimal side effects were manifested at these plasma levels but withdrawal seizures were evinced with cessation of the drug. Further evaluation of Cinromide by gastric administration in our animal model is planned.