Linda Vincent

Empirical Research on Accounting Choice

We review research from the 1990s that examines the determinants and consequences of accounting choice, structuring our analysis around the three types of market imperfections that influence managers? choices: agency costs, information asymmetries, and externalities affecting noncontracting parties. We conclude that research in the 1990s made limited progress in expanding our understanding of accounting choice because of limitations in research design and a focus on replication rather than extension of current knowledge. We discuss opportunities for future research, recommending the exploration of the economic implications of accounting choice by addressing the three different reasons why accounting matters.

An analysis of value destruction in AT&T's acquisition of NCR

Abstract AT&Ts

The Relative and Incremental Explanatory Power of Earnings and Alternative (to Earnings) Performance Measures for Returns

7.5 billion acquisition of NCR decreased the wealth of AT&T shareholders by between

The information content of funds from operations (FFO) for real estate investment trusts (REITs)

3.9 billion and

The impact of taxes on the choice of divestiture method

6.5 billion and resulted in negative synergies of

Early rates of return of 131 venture capital funds started 1978–1984

1.3 to

Causes and effects of discretionary asset write-offs

3.0 billion. We find that AT&T paid a documented

Expanded disclosures and the increased usefulness of earnings announcements

50 million and possibly as much as

Earnings and dividend informativeness when cash flow rights are separated from voting rights

500 million to satisfy pooling accounting, thus boosting EPS by roughly 17% but leaving cash flows unchanged. We conclude that AT&Ts decision to acquire NCR in what the market perceived as a value-destroying transaction was related at least in part to the 1984 consent decree with the Department of Justice that led to the break-up of AT&T.

Earnings announcements and competing information

We analyze the ability of earnings and non-earnings performance metrics to explain the variability in annual stock returns for industries where we identify, ex ante, an allegedly preferred (for valuation purposes) summary performance metric. We identify three industries where earnings before interest, taxes, depreciation, and amortization (EBITDA) and cash from operations (CFO) are preferred, and three industries where specific non-GAAP performance metrics are preferred. As a benchmark, we also examine the ability of EBITDA and CFO to explain returns for seven industries for which earnings is the preferred metric. Results for the benchmark earnings industries show that earnings dominates EBITDA and CFO in explaining returns. All other results are inconsistent with the view that perceptions of preferred metrics are reflected in actual aggregate investment behaviors.