Steven F. Cahan

Value Relevance of Mandated Comprehensive Income Disclosures

This study provides some market based evidence on the usefulness of comprehensive income disclosures in a Statement of Changes in Equity (SCE). Using a sample of listed New Zealand firms, we find no evidence that separate disclosure of the comprehensive income items provides any value relevant information above and beyond the aggregate comprehensive income figure. Likewise, in the post-SCE period, we find no evidence of an increase in the incremental value relevance of the comprehensive income items over net income. While our results are sensitive to outliers, they suggest that standards requiring disclosure of a SCE may not be necessary. Copyright Blackwell Publishers Ltd 2000.

The Investment Opportunity Set and the Voluntary Use of Outside Directors: New Zealand Evidence

Abstract This study examines whether the composition of boards of directors differs between high and low growth firms. Based on prior research, we hypothesise that firms with greater investment opportunities require more monitoring because managers in these firms have more discretion both in selecting investments and allocating resources between investments. Because outside directors can be more effective monitors than inside directors, we predict that outsiders will make up a larger proportion of the board in high growth firms than in low growth firms. Using a cross-sectional sample of 77 New Zealand firms, our results suggest that the percentage of outside directors is related to growth for two of the four measures of investment opportunities which we employ. As expected, the percentage of outside directors is also related to a composite measure of investment opportunities.

Stock Dividend Announcement Effects in an Imputation Tax Environment

A key question in asset pricing is the extent to which tax effects are passed through market prices or are capitalised in them. New Zealand stock dividends provide a useful window into this debate because of (1) the existence of both taxable and non-taxable stock dividends, and (2) the particular form of imputation tax system which allows the full pass through of corporate taxes to the investor on the proportion of profits which are distributed either as cash or taxable stock dividends. We present evidence that investors value future tax benefits associated with imputation tax credits. Copyright Blackwell Publishers Ltd 2001.

The investment opportunity set and disclosure policy choice: Some Malaysian evidence

Recently researchers have shown that certain corporate and accounting policy decisions are related to the firms portfolio of growth opportunities or its investment opportunity set (ios). This paper augments the research by examining whether the firms ios is also predictably related to disclosure policy decisions made by the firm. We hypothesize that because agency costs between managers and shareholders are an increasing function of the firms growth opportunities, managers in high growth firms will be motivated to disclose information about the firms future prospects in order to commit themselves to particular courses of action and thereby limit their future managerial discretion. Our empirical results indicate that for a sample of 67 Malaysian firms, this is supported only amongst a sample of lower growth firms.

The impact of debt on market reactions to the revaluation of noncurrent assets

Abstract This study provides evidence that noncurrent asset revaluations are differentially considered by market participants based on the level of debt in the capital structure. Contracting theory (e.g. Brown et al., Abacus 28 (1992) 36) implies that revaluations made by firms with high-debt levels may be viewed as being opportunistic, while revaluations for firms with low-debt levels may be viewed as reducing information asymmetry between the firm and capital providers. For a sample of New Zealand firm/years that excludes certain observations with extreme stock returns, we find that revaluations of fixed assets are more value-relevant for firms with low leverage than for firms with high leverage. This suggests that the value relevance of fixed asset valuations depends on managements motivation for making the revaluation. The results of the research should be considered within certain limitations such as a small sample.

Political use of income: Some experimental evidence from Capitol Hill

Abstract The political-cost hypothesis predicts that managers in firms that are good political targets will use the leeway permitted by Generally Accepted Accounting Principles (GAAP) to lower income and, thereby, reduce their political exposure. Though the political-cost hypothesis has been widely tested, past tests have assumed that politicians use accounting income when selecting targets for costly legislation and/or regulation. This article uses experimental methods to test the validity of this assumption. The article employs a factorial survey design in which vignettes describing various factors related to a legislative bill introducing new regulatory costs on an industry were sent to aides of each U.S. member of Congress. The results suggest that legislators are less likely to impose new costs on industries with low income, which is consistent with the political-cost hypothesis.