Sung S. Kwon

The informativeness of price-level adjusted accounting disclosures

Abstract The primary purpose of this study is to investigate the variability of stock prices at the release of inflation-adjusted information disclosures relating to ASR No. 190. Theory suggests that price variability at the release of information is associated with the “informativeness” of that information. The hypotheses are constructed to examine whether inflation disclosures led to certain hypothesized changes in the information environment. Several different metrics are used to measure the variability of stock returns. The empirical results, based on daily, cumulative, and ratio-based analyses using relative stock returns variability metrics, indicate that the Securities and Exchange Commissions(SEC) mandated inflation-adjusted data are associated with increased stock returns variability. In addition, this finding is shown to be robust in the post-disclosure environment. Evidence also indicates that the increased stock returns variability is applicable to medium and large firms but not for small firms. The different behavior between large-medium firms and small firms may partially explain why previous studies failed to detect information content for the inflation-adjusted data. Interindustry analysis of the information content of the inflation data is also conducted. This evidence suggests that the informativeness of inflation-adjusted information differs across industries, and that these differences are not solely attributed to varying rates of inflation. The results of this study give some insight into how market participants react to policy changes relating to inflation-adjusted accounting information and how the required disclosures affect the information environment.

Voluntary asset write-downs under SFAS 121: early adopters vis-a-vis late adopters

Previous research shows that the stock market positively values firms whose motivation is to clearly enhance productivity through streamlining their assets as part of a restructuring campaign. In this study, we examine 47 firms that voluntarily disclosed asset write-down information in either 10-K or ARS one year prior to the mandatory adoption of SFAS 121. Our study found that EARLY firms (those who adopted SFAS 121 in 1995, one year prior to the mandatory adoption) experienced a more positive market reaction than LATE firms (those who adopted SFAS 121 in 1996). Second, EARLY firms incur more capital expenditures, acquire less intangibles and exhibit lower asset turnover ratios than LATE firms. Finally, EARLY firms show higher profitability, and have a higher effective tax bracket than those of LATE firms. Overall, these findings suggest that voluntary restructuring and disclosure of such was more likely to be conducted by financially robust firms. This study adds support to the notion that the market rewards firms that restructure to improve productivity. It also seems that the market does not interpret involuntary restructuring as a positive event.

VALUE RELEVANCE OF KEY ACCOUNTING INFORMATION AND EARNINGS MANAGEMENT: HIGH-TECH VERSUS LOW-TECH FIRMS

This paper examines the value-relevance of primary accounting information and the size of earnings management concurrently for high-tech versus low-tech firms. Specifically, the results reveal that earnings and changes in earnings of high-tech firms reflect lower levels of security price reactions and associations than those of low-tech firms. In addition, consistent with evidence from prior research, greater levels of earnings management, measured by modified Jones and performance-matched discretionary accruals (proxies for earnings management), exist for high-tech firms vis-à-vis low-tech firms over the sample period. More importantly, this paper also documents that the association between cumulative adjusted returns and key financial variables, including earnings, changes in earnings, sales, and changes in sales, remains weaker for high-tech firms than for low-tech firms even after levels of earnings management have been controlled for.