ACCT920/921
(Guay)
PAPERS
Class 1 - January 11: Accounting information and security prices:
Ball, Ray and Philip Brown, 1968, An empirical evaluation of accounting income numbers, Journal of Accounting Research, 159-178.
Beaver, William H., 1968, The information content of annual earnings announcements, Journal of Accounting Research, Supplement, 67-92.
Kothari, S.P., 2001, Capital markets research in accounting, Journal of Accounting and Economics 31: 105-231.
Class 2 - January 13: Accounting information and security prices: Economic and econometric issues
Beaver, William H., Richard A. Lambert and Dale Morse, 1980, The information content of security prices, Journal of Accounting & Economics 2, 3-28.
Kormendi, Roger C. and Robert C. Lipe, 1987, Earnings innovations, earnings persistence, and stock returns, Journal of Business 60, 323-345.
Easton, Peter D., Trevor S. Harris and James A. Ohlson, 1992, Accounting earnings can explain most of security returns: The case of long event windows, Journal of Accounting and Economics 15, 119-142.
Kothari, S.P., 1992, Price-earnings regressions in the presence of prices leading earnings: Earnings level versus change specifications and alternative deflators, Journal of Accounting and Economics 15, 173-202.
Collins, Daniel W., S.P. Kothari, Jay Shanken, and Richard G. Sloan, 1994, Lack of timeliness and noise as explanations for the low contemporaneous return-earnings association, Journal of Accounting and Economics 18, 289-324.
O’Brien, P. 1988. Analysts’ forecasts as earnings expectations. Journal of Accounting and Economics 10: 53 - 83.
**Background Reading*** Collins, Daniel W. and S.P. Kothari, 1989, An analysis of the intertemporal and cross-sectional determinants of earnings response coefficients, Journal of Accounting & Economics 11, 143-181.
***Background Reading*** Lev, Baruch, 1989, On the usefulness of earnings: Lessons and directions from two decades of empirical research, Supplement to the Journal of Accounting Research, 153-192.
*** Background Reading*** Bernard, V., Capital markets research in accounting during the 1980's: A critical review.
***Background Reading*** Brown, L., P. Griffin, R. Hagerman, and M. Zmijewski, 1987, Security analyst superiority relative to univariate time-series models in forecasting quarterly earnings, Journal of Accounting and Economics 9, 61-87.
**Background Reading*** Kothari, S.P. and Richard G. Sloan, 1992, Information in prices about future earnings: Implications for earnings response coefficients, Journal of Accounting and Economics 15, 143-171.
Class 3 – February 1: Earnings, accruals and cash flows
Dechow, Patricia M., 1994, Accounting earnings and cash flows as measures of firm performance: The role of accounting accruals, Journal of Accounting and Economics 18, 3-42.
Dechow, P.M., S.P. Kothari, and R. Watts, 1998, "The relation between earnings and cash flows," Journal of Accounting and Economics 25, 133-168.
Dechow, P. and I. Dichev, 2002, “The quality of accruals and earnings: The role of accrual estimation errors,” The Accounting Review 77, 35-59.
Hribar, P., Collins, D.W., 2002. Errors in estimating accruals: Implications for empirical research, Journal of Accounting Research 40, 105-134.
***Background Reading*** Wilson, P., 1987, The incremental information content of the accrual and funds components of earnings after controlling for earnings, The Accounting Review 62, 293-322.
***Background Reading*** Ball, R., and L. Shivakumar, 2005, “The role of accruals in asymmetrically timely gain and loss recognition,” forthcoming in Journal of Accounting Research.
***Background Reading*** Guay, W., 2005, “Discussion of Ball and Shivakumar (2005): The role of accruals in asymmetrically timely gain and loss recognition,” forthcoming in Journal of Accounting Research.
Class 4 – February 6: Positive accounting theory and conservatism
Watts, R. and J. Zimmerman, 1990, Positive Accounting Theory: A Ten-Year Perspective, Accounting Review 65, 131-156.
Watts, R., 2003a, “Conservatism in accounting part i: Explanations and implications,” Accounting Horizons 17 (3), 207-221.
Watts, R., 2003b, “Conservatism in accounting part ii: Evidence and research opportunities,” Accounting Horizons 17 (4), 287-301.
Graham, J., Harvey, C. and Rajgopal, S., 2005, "The Economic Implications of Corporate Financial Reporting." Journal of Accounting and Economics.
Basu, S., 1997, “The conservatism principle and the asymmetric timeliness of earnings,” Journal of Accounting & Economics 24, 3-37.
Guay, W., Verrecchia, R., 2006, Discussion of Bushman and Piotroski (2006) and theory of conservative accounting, Journal of Accounting & Economics, forthcoming.
***Background Reading*** Watts, R. and J. Zimmerman, 1978, Towards a positive theory of the determination of accounting standards, Accounting Review 53, 112-134.
***Background Reading*** Holthausen, R. 1990, Accounting method choice: Opportunistic behavior, efficient contracting, and information perspectives, Journal of Accounting and Economics 12, 207-218.
***Background Reading*** Hayn, Carla, 1995, The information content of losses, Journal of Accounting & Economics 20, 125-153.
***Background Reading*** Freeman, Robert N. and Senyo Tse, 1992, A nonlinear model of security price responses to unexpected earnings, Journal of Accounting Research 30, 185-209.
Class 5 – February 8: Accounting-based valuation
Ohlson, James A., 1995, Earnings, book values, and dividends in equity valuation, Contemporary Accounting Research 11, 661-687.
Dechow, Patricia M., Amy P. Hutton, and Richard G. Sloan, 1999, An empirical assessment of the residual income valuation model, Journal of Accounting & Economics 26, 1-34.
Lundholm, R. and T. O'Keefe, 2001, Reconciling Value Estimates from the Discounted Cash Flow Model and the Residual Income Model, Contemporary Accounting Research, Summer.
Gebhardt, W., C. Lee, and B. Swaminathan, 2001, Toward an implied cost of capital, Journal of Accounting Research 39, 135-176.
***Background Reading*** Bernard, Victor L., 1995, The Feltham-Ohlson framework: Implications for empiricists, Contemporary Accounting Research 11, 733-747.
***Background Reading*** Lundholm, Russell J., 1995, A tutorial on the Ohlson and Feltham/Ohlson models: Answers to some frequently asked questions, Contemporary Accounting Research 11, 749-761.
***Background Reading*** Feltham, Gerald A. and James A. Ohlson, 1995, Valuation and clean surplus accounting for operating and financial activities, Contemporary Accounting Research 11, 689-731.
***Background Reading***Guay, W., S.P. Kothari, and Susan Shu, 2005, “Properties of Implied Cost of Capital Using Analysts' Forecasts,” working paper.
Class 6 – February 15 Earnings Management and Specification issues
Kothari, S.P., Leone, A., and C. Wasley, 2005, “Performance matched discretionary accrual measures,” Journal of Accounting and Economics 39 163–197.
Cheng, Q. and T. Warfield, 2005. Equity Incentives and Earnings Management, Accounting Review, April.
Teoh, Siew Hong, T. J. Wong, and Gita R. Rao, 1998, Earnings management and the underperformance of seasoned equity offerings, Journal of Financial Economics 50, 63-99.
Barber, Brad M. and John D. Lyon, 1997, Detecting long-run abnormal stock returns: The empirical power and specification of test statistics, Journal of Financial Economics 43, 341-372.
Kothari, S.P., J. Sabino, and T. Zach, 1999, Implications of survival and data trimming for tests of market efficiency, Journal of Accounting and Economics 39, 129-161.
**Background*** Dechow, Patricia, Richard G. Sloan, and Amy P. Sweeney, 1995, Detecting earnings management, The Accounting Review 70, 193-226.
***Background Reading*** Healy, P and J. Wahlen, 1999, A review of the earnings management literature and its implications for standard setting, Accounting Horizons.
***Background reading*** Healy, Paul, 1985, The impact of bonus schemes on the selection of accounting principles, Journal of Accounting & Economics 7, 85-107.
***Background reading*** Jones, Jennifer J., 1991, Earnings management during import relief investigations, Journal of Accounting Research 29, 193-228.
***Background reading*** Holthausen, R., D. Larcker, and R. Sloan, 1995, Annual Bonus Schemes and the Manipulation of Earnings, Journal of Accounting and Economics, 29-74.
***Background reading*** Guay, Wayne R., S.P. Kothari, Ross L. Watts, 1996, A market-based evaluation of discretionary-accrual models, forthcoming in the Journal of Accounting Research.
Class 7 – February 20 Market reaction and rationality regarding earnings announcements
Bernard, Victor L. and Jacob Thomas, 1990, Evidence that stock prices do not fully reflect the implications of current earnings for future earnings, Journal of Accounting and Economics 13, 305-340.
Ball, R. and E. Bartov, 1996, How naïve is the stock market's use of earnings information?, Journal of Accounting and Economics 21, 319-337.
Burgstahler, D., and I. Dichev, 1997, Earnings management to avoid earnings decreases and losses, Journal of Accounting & Economics 24, 99-126.
Skinner, D., and R. Sloan, 2002, Earnings surprises, growth expectations, and stock returns or don’t let an earnings torpedo sink your portfolio, Review of Accounting Studies 7, 289-312.
Bartov, E., D. Givoly, and C. Hayn, 2002, “The Rewards to Meeting or Beating Earnings Expectations,” Journal of Accounting and Economics 33, 173-204.
***Background Reading*** Lee, C., 2001, Market Efficiency and Accounting Research: A Discussion of 'Capital Market Research in Accounting' by S.P. Kothari, Journal of Accounting & Economics, Vol. 31, Nos. 1-3.
***Background*** Ball, Ray, 1992, The earnings-price anomaly, Journal of Accounting and Economics 15, 319-345.
***Background Reading*** Abarbanell, Jeffery S. and Brian J. Bushee, 1998, Abnormal returns to a fundamental analysis strategy, The Accounting Review 73, 19-45.
***Background*** Holthausen, Robert and David Larcker, 1992, The prediction of stock returns using financial statement information, Journal of Accounting and Economics 15, 373-411.
***Background reading*** Ou, Jane and Stephen Penman, 1989, Financial statement analysis and the prediction of stock returns, Journal of Accounting and Economics 11, 295-329.
Class 8 – March 1: Fundamental issues in corporate finance, Part I (we will not cover all of these papers in detail. Some are shorter survey-type papers and are easy reads. I will let you know which ones we will cover in more detail)
Miller, M., 1988, The Modigliani-Miller Propositions After Thirty Years, Journal of Economic Perspectives, 2, 99-120.
Myers, S., 1977. The determinants of corporate borrowing, Journal of Financial Economics 5, 147-175.
Myers, S.C., Majluf, N., 1984. Corporate Financing and investment decisions when firms have information investors do not have. Journal of Financial Economics 13, 187-221.
Myers, S., 1984, The capital structure puzzle, Journal of Finance 39, 575-592.
Barclay, M. and C. Smith, 1999, The Capital Structure Puzzle: Another Look at the Evidence, Journal of Applied Corporate Finance, 12, 8-20.
Smith, C. and R. Watts, 1992, The investment opportunity set and corporate financing, dividends, and compensation policies. Journal of Financial Economics 32, 263-292.
Frank, M, and V. Goyal, 2003, Testing the pecking order theory of capital structure, Journal of Financial Economics, 67, 217-248
Berger, P. Ofek, E.. Yermack, D., 1997, Managerial entrenchment and capital structure decisions. Journal of Finance. 52: 1411-1438.
*** Background reading*** Modigliani, F., Miller, M., 1958, The cost of capital, corporation finance and the theory of investment, American Economic Review 48, 261-297.
*** Background reading*** Syham-Sunder, L. and S. Myers, 1999, Testing static tradeoff against pecking order models of capital structure, Journal of Financial Economics 51, 219-244.
*** Background reading*** Fama, E. and K. French, 2005, Financing decisions: Who issues stock?, Journal of Financial Economics 76, 549-582.
Class 9 – March 15: Fundamental issues in corporate finance, Part II (we will not cover all of these papers in detail. Some are shorter survey-type papers and are easy reads. I will let you know which ones we will cover in more detail)
Allen, F. and R Michaely, 2002, Payout policy, North Holland Handbook of Economics.
Grullon and Michaely, 2002, Dividends, Share Repurchases and the Substitutions Hypothesis, Journal of Finance 57 (4), 1649-1684;
Jensen, M., 1986, Agency costs of free cash flow, corporate finance, and takeovers, American Economic Review 76, 323-329.
Smith, C., Stulz, R., 1985. The determinants of firm’s hedging policies. Journal of Financial and Quantitative Analysis 20, 391-405.
Demarzo, P., and D. Duffie, 1995, Corporate incentives for hedging and hedge accounting, Review of Financial Studies 8, 743-771.
Pincus, M., and S. Rajgopal, 2002, The interaction of accounting policy choice and hedging: Evidence from oil and gas firms, The Accounting Review 77, 127-160.
Barton, J., 2001, Does the use of financial derivatives affect earnings management decisions? The Accounting Review 76, 1-26.
Graham, J., Rogers, D., 2002, Do firms hedge in response to tax incentives? Journal of Finance 57, 815-839.
Class 10 – March 24: Tax Research (Jennifer Blouin)
Graham, J., 2000, How big are the tax benefits of debt? Journal of Finance 55, 1901-1941.
Graham, J., M. Lang and D. Shackelford, 2004, Employee stock options, corporate taxes and debt policy, Journal of Finance 59(4), 1585-1618.
Graham, J., 1999, Do personal taxes affect corporate financing decisions?, Journal of Public Economics 73, 147-185.
Engel, E., M. Erickson and E. Maydew, 1999, Debt-equity hybrid securities, Journal of Accounting Research 37(2), 249-274.
Shackelford, D., 1991. The market for tax benefits: Evidence from leveraged ESOPs, Journal of Accounting and Economics 14(2), 117-145.
Erickson, M. and E. Maydew, 1998, Implicit taxes in high dividend yield stocks, Accounting Review 73(4), 435-458.
Class 11 – March 29: Accounting-based anomalies (Scott Richardson)
Papers to be determined
Class 12 – April 5: Cost of capital and disclosure (John Core)
For an overview of the literature, read:
Core, J., 2001, A Review of the Empirical Disclosure Literature: Discussion, Journal of Accounting and Economics 31: 441-456.
***Background Reading***Healy, P. and K. Palepu, 2001, A Review of the Empirical Disclosure Literature, Journal of Accounting and Economics 31: 405-440.
Skim the following two papers. Be sure that you understand the argument in the Leuz et al. footnote 7 re: Easley and O’Hara. Is there a theoretical basis for the prediction that information risk is non-diversifiable and therefore affects expected returns?
Easley, D., and M. O’Hara, 2004. Information and the cost of capital. Journal of Finance 59: 1553-1583.
Lambert, R., C. Leuz, and R. Verrecchia, 2006. Accounting Information, Disclosure, and the Cost of Capital. University of Pennsylvania working paper.
Most of our discussion will be focused on the following empirical papers:
Easton, P., Monahan, S., 2005, An evaluation of the reliability of accounting based measures of expected returns: A measurement error perspective, The Accounting Review 80, 501-538.
W. Guay, S.P. Kothari, and S. Shu, 2006. Properties of Implied Cost of Capital Using Analysts' Forecasts University of Pennsylvania working paper.
Francis, J., R. LaFond, P. Olsson, and K. Schipper. 2004. Cost of Equity and earnings Attributes. The Accounting Review 79 (4), 967-1010.
Francis, J., R. LaFond, P. Olsson, and K. Schipper, 2005. The market pricing of accruals quality. Journal of Accounting and Economics 39 (2), 295-327.
This paper will be distributed on April 4. Be sure to understand the other papers before reading this one:
Core, J., W. Guay, and R. Verdi, 2006. Is Accruals Quality a Priced Risk Factor? University of Pennsylvania working paper.
***Background Reading***Leuz, C., and R. Verrecchia, 2000, The economic consequences of increased disclosure, Journal of Accounting Research 38.
***Background Reading*** Verrecchia, R., 1983, Discretionary Disclosure, Journal of Accounting and Economics 5,179-94.
***Background Reading*** Skinner, D.J., 1994, Why firms voluntarily disclose bad news, Journal of Accounting Research 32, 38-60.
*** Background Reading*** Lang, M., and R. Lundholm, 1993, Cross-sectional Determinants of Analysts Ratings of Corporate Disclosures, Journal of Accounting Research 31, 246-271.
Class12 – April 12: Compensation and Governance, Part I
Jensen, M.C., and W.H. Meckling, 1976, Theory of the firm: managerial behavior agency costs, and ownership structure, Journal of Financial Economics 3, 305-360.
Core, J., W. Guay and D. Larcker, 2002, Executive compensation and incentives: A survey.
Core, J., W. Guay, and R. Verrecchia, 2003, “Price versus Non-Price Performance Measures in Optimal CEO Compensation Contracts,” The Accounting Review 78, 957-981.
Core, J. and W. Guay, 1999, The Use of Equity Grants to Manage Optimal Equity Incentive Levels. Journal of Accounting & Economics 28: 151-184.
Himmelberg, C., G. Hubbard, and D. Palia, 1999, Understanding the determinants of managerial ownership and the link between ownership and performance., Journal of Financial Economics 53, 353-384.
Guay, W., 1999, The Sensitivity of CEO Wealth to Equity Risk: An Analysis of the Magnitude and Determinants. Journal of Financial Economics 53: 43-71.
Hall, B., and K.J. Murphy (2002). "Stock options for undiversified executives." Journal of Accounting and Economics, 33: 3-42.
Class 13 – April 19: Compensation and Governance, Part II
Core, J., R. Holthausen and D. Larcker, 1999, Corporate Governance, Chief Executive Officer Compensation, and Firm Performance. Journal of Financial Economics 51: 371-406.
Bebchuk, L.A., J. Fried and D.Walker (2002). "Managerial Power and Rent Extraction in the Design of Executive Compensation." University of Chicago Law Review, 69: 751-846.
Yermack, D., 1997, Good timing: CEO stock option awards and company news announcements. Journal of Finance 52: 449-476.
Ofek, E. and D. Yermack, 2000, Taking Stock: Equity-Based Compensation and the Evolution of Managerial Ownership. Journal of Finance. 55: 1367-1384.
Bens, D., V. Nagar, and M.H.F. Wong, 2002, Real Investment Implications of Employee Stock Option Exercises, Journal of Accounting Research.
***Background*** Jensen, M. and K. Murphy, 1990, Performance pay and top-management incentives. Journal of Political Economy 98, 225-264.
***Background*** Demsetz, H., and K. Lehn. (1985). “The structure of corporate ownership: causes and consequences.” The Journal of Political Economy, 93:1155-1177.
***Background*** Lambert, R.; D. Larcker, and R. Verrecchia, 1991, Portfolio Considerations in Valuing Executive Compensation. Journal of Accounting Research 29: 129-149
***Background*** Lambert, R. and D. Larcker, 1987, An Analysis of the Use of Accounting and Market Measures of Performance in Executive Compensation Contracts, Journal of Accounting Research 25 Supplement, 129-149.
***Background*** Sloan, R., 1993, Accounting Earnings and Top Executive Compensation, Journal of Accounting and Economics 16, 55-100.
***Background*** Core, J., and W. Guay, 2001, “When are executive compensation and incentives appropriately measured by their market values?,” Working paper, University of Pennsylvania.
***Background*** Baker, G., Hall, B., 2004, CEO incentives and firm size, Journal of Labor Economics 22, 767-98.
***Background*** Hall, B., and J. Liebman. (1998). “Are CEOs really paid like bureaucrats?” The Quarterly Journal of Economics, 113: 653-691.
***Background*** Yermack, D., 1995, Do Corporations Award CEO Stock Options Effectively? Journal of Financial Economics 39, 237-269.
***Background*** Prendergast, C., 2000, What trade-off of risk and incentives? American Economic Review. 90: 421-425.
***Background*** Palia, D., 2001, The Endogeneity of Managerial Compensation in Firm Valuation: A Solution. The Review of Financial Studies 14: 735-764.
***Background*** Guay, W., 2002, “Discussion of: Real Investment Implications of Employee Stock Option Exercises,” Journal of Accounting Research 40: 395-406.