1. Introduction and Overview. 2. Detecting Influential Observations and Outliers. 3. Detecting and Assessing Collinearity. 4. Applications and Remedies. 5. Research Issues and Directions for Extensions. Bibliography. Author Index. Subject Index.

Regression Diagnostics: Identifying Influential Data and Sources of Collinearity

https://faculty.fuqua.duke.edu/~jgraham/website/SurveyPaper.PDF

The theory and practice of corporate finance: Evidence from the field

Researchers have used various measures as indications of "earnings quality" including persistence, accruals, smoothness, timeliness, loss avoidance, investor responsiveness, and external indicators such as restatements and SEC enforcement releases. For each measure, we discuss causes of variation in the measure as well as consequences. We reach no single conclusion on what earnings quality is because "quality" is contingent on the decision context. We also point out that the "quality" of earnings is a function of the firm's fundamental performance. The contribution of a firm's fundamental performance to its earnings quality is suggested as one area for future work.

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Understanding Earnings Quality: A Review of the Proxies, Their Determinants and Their Consequences

Earnings Management and Investor Protection: An International Comparison

https://sites.temple.edu/lnaveen/files/2014/05/JFE_risktaking_2006.pdf

Managerial incentives and risk-taking ☆

SYNOPSIS: This commentary summarizes the materials presented and some of the discussion at the November 2007 AAA/FASB Financial Reporting Issues Conference. The topic of the conference was revenue recognition, and the IASB/FASB were considering two new models: the customer consideration model and the measurement model. This commentary provides some background on revenue recognition, discusses the need for a new model, and presents the two models. The conference discussion highlighted that the two proposed models are based on a single conceptual approach but differ in measurement issues. Key aspects in both models are the identification of contractual performance obligations between the seller and customer (which gives rise to a contract liability) and determining when the performance obligation is satisfied (equivalently, when the contract liability is extinguished) and revenue is recognized.

Reconsidering Revenue Recognition

This paper examines the link between disclosure and the cost of capital. We exploit an exogenous cost of capital shock created by the Enron scandal in Fall 2001 and analyze firms' disclosure responses to this shock. These tests are opposite to the typical research design that analyzes cost of capital responses to disclosure changes. In reversing the tests and using an exogenous shock, we mitigate concerns about omitted variables in traditional cross-sectional disclosure studies. We estimate shocks to firms' betas around the Enron events and the ensuing transparency crisis. Our analysis shows that these beta shocks are associated with increased disclosure. Firms expand the number of pages of their annual 10-K filings, notably the sections containing the financial statements and footnotes. The increase in disclosure is particularly pronounced for firms that have positive cost of capital shocks and larger financing needs. We also find that firms respond with additional interim disclosures (e.g., 8-K filings) and that these disclosures are complementary to the 10-K disclosures. Finally, we show that firms' disclosure responses reduce firms' costs of capital and hence the impact of the transparency crisis.

https://papers.ssrn.com/sol3/Delivery.cfm/nber_w14897.pdf?abstractid=1391844&mirid=5&type=2

Disclosure and the Cost of Capital: Evidence from FirmsA Responses to the Enron Shock

AAA Financial Accounting Standards Committee CHARACTERISTICS OF A CONCEPTUALLY SOUND LEASING STANDARD The Committee supports development of a single, conceptually sound approach to accounting for all types of leases and believes that such an approach should have the following characteristics: 1. The approach should recognize that all leases, regardless of their specific terms and conditions, convey rights and obligations, and so create assets and liabilities. The nature of the property under lease should not affect the accounting, nor should the length of the lease. 2. The approach should recognize that accounting for leases is a special case of accounting for contracts. Accounting for all contracts should be placed on a sound conceptual footing, and the principles developed for leases should be both internally consistent and generalizable, in the sense that the principles governing accounting for leases should be suitable for application to accounting for contracts generally. 3. The approach should be robust to shifts in the contractual details of lease contracts when such shifts do not materially alter the economic substance of the arrangements. In particular, the approach should require that substantially similar lease contracts be accounted for similarly and substantially dissimilar lease contracts not be forced into a misleading appearance of comparability. 4. The approach should take account of practical realities of the leasing market that make measuring lease assets and liabilities difficult. Because lease contracts are frequently tailored to the desires of the parties to the lease, it can be difficult or even infeasible to identify similar lease contracts. [1] Moreover, public information about the specifics of lease contracts is often unavailable. [2] For these reasons, the markets for trading lease assets and liabilities are relatively undeveloped. In addition, the existence of transaction costs associated with relocating and releasing assets under lease may yield incentives that affect the contractual lease provisions. While the measurement difficulties discussed in point 4 above must be considered carefully, the Committee believes that the principles governing accounting for lease receivables and liabilities should conform to the accounting for other financial instruments. In this regard, we note that in previous comment letters to the FASB (most recently, to its December 1999 Preliminary Views "Reporting Financial Instruments and Certain Related Assets and Liabilities at Fair Value"), the Committee stated its support for fair value accounting for financial instruments once the conceptual and measurement issues are resolved. REVIEW AND DISCUSSION OF EMPIRICAL RESEARCH This section contains three parts. Part 1 surveys empirical research and related practice on the use of financial report disclosures of minimum operating lease payments (hereafter operating lease disclosures) by investors for equity valuation and equity risk assessment purposes. This research generally finds that estimates of the lease obligation derived from operating lease disclosures are associated with the market value of equity and market-based measures of equity risk similar to recognized capital leases and debt. Likewise, evidence indicates that practitioners treat operating leases like debt. Part 2 summarizes empirical research bearing on whether balance sheet recognition of operating leases would be more useful for decision-making purposes than the current disclosures of minimum lease payments. The research findings are mixed but suggest that the usefulness of lease information to decision makers would not be reduced and might be improved by recognition rather than disclosure of all leases. Part 3 s urveys empirical research that describes how leasing behavior has changed over time in response to changes in accounting rules. 1. Existing research indicates that operating leases are similar to capital leases and debt for valuation and risk assessment purposes. …

Evaluation of the Lease Accounting Proposed in G4+1 Special Report

Our paper examines voluntary disclosure choice about a different type of “news” than traditional models consider. Firms are exposed to a continuous flow of information about industry conditions that are correlated and uncertain. We predict that capital market pressure and externality costs associated with being the second mover to disclose could make coordinated withholding of adverse industry-wide signals a difficult equilibrium to sustain. A cooperative withholding equilibrium is possible, but its sustainability depends on the structure of the industry and the nature of news in the industry. We empirically document cases of increased intra-industry obfuscation of adverse signals in annual 10-Ks, controlling for changes in fundamentals. Strategic withholding is more likely in industries with greater negative tailrisk, greater equity incentives, and industry associations that foster interpersonal connections. The results have implications for understanding when economic forces are sufficient to generate voluntary disclosure of industry-wide adverse conditions.

/pdf/do-managers-tacitly-collude-to-withhold-industry-wide-bad-2ifaz15how.pdf

Catherine M. Schrand

Papers

Reconsidering Revenue Recognition

Disclosure and the Cost of Capital: Evidence from FirmsA Responses to the Enron Shock

Evaluation of the Lease Accounting Proposed in G4+1 Special Report

Do Managers Tacitly Collude to Withhold Industry-Wide Bad News?

A review of the proxies, their determinants and their consequences