Corporate Finance Commons^™

Should The Sec Adopt International Financial Reporting Standards?, Clemense Ehoff Jr., Dov Fischer

All Faculty Scholarship for the College of Business

In 2002, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) formally began a process to converge Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). By the end of 2011, the SEC will likely decide on whether to adopt International Financial Reporting Standards as the financial reporting system for U.S. public companies, continue with the convergence project, or reject IFRS altogether. This paper examines the benefits and drawbacks of each option and formulates a recommendation as to which option is in the best interest of U.S. investors.

Paying The Irs Whistleblower: A Critical Analysis Of Collected Proceeds, Karie Davis-Nozemack, Sarah J. Webber

Accounting Faculty Publications

Congressional changes to the IRS Whistleblower Program were intended to induce more participation in the program by allowing larger incentives and greater certainty that whistleblowers would be paid. Since the Program was amended, tax whistleblower tips have increased 76 percent1 and revenue collected due to whistleblowers has increased 79 percent.2 Despite a rise in tips and revenue collected, whistleblower payments have not increased. In fact, the number of tax whistleblower awards paid has decreased 44 percent.3 We hypothesize that this trend is due to the administration of the program but also to the interpretation of “collected proceeds.” Collected proceeds are …

Financial Reforms And Corporate Finance In Emerging Markets: An Analysis Of Dividend Policy Among Public Listed Firms In Pakistan, Mohammed Nishat, Wali Ullah

Business Review

This paper analyzes the dividend behavior of 535 Pakistani listed companies during 1988 to 2005 using the Probit regression model. The findings validate the theoretical prediction for positive and significant impact of last year dividend on the current year dividend decision. More profitable and liquid firms have a higher probability to declare the dividends. Furthermore, firm size, ownership, equity and tax are positively related to the dividend declaration decision. The firms' dividend behavior differs significantly across Industries. The secondary market development has a significant effect on dividend decision and financial liberalization has been associated with shift of firms from debt …

Redefining Globalization, Aqueil Ahmad

Walden Faculty and Staff Publications

This article highlights some facts and fallacies about globalization, with a particular reference to the global economy. To explain what is globalization and what it is not is critical both theoretically and practically for nations, corporations, and communities to benefit from it and avoid its negative consequences. Some historical antecedents of globalization and the interactive nature of its structures and processes are highlighted in this article. The analysis is expected to benefit scholars, practitioners, and agents of social change interested and involved directly or indirectly in the impacts and processes of globalization.

Persistence And Survival In Entrepreneurship: The Case Of The Wave Energy Conversion Corporation Of America, Giles Jackson, Randy Boxx

New England Journal of Entrepreneurship

Many entrepreneurial firms risk falling into a cash flow “Valley of Death”—the stage of a young firm’s life when seed funding is running dry but the firm has yet to secure sufficient additional funding to carry it through to product commercialization.This is particularly true in the nascent cleantech sector, where investments are often complex and capital intensive. Drawing on an in-depth interview with seasoned entrepreneur Brian Cunningham, CEO of the Wave Energy Conversion Corporation of America, this article explores the role of persistence in entrepreneurship, distinguishing between “calculated” and “blind” persistence.

Creditor Rights And R&D Expenditures, Bruce Seifert, Halit Gonenc

Finance Faculty Publications

Manuscript Type: Empirical

Research Question?Issue: This study examines the impact of creditor rights on R&D intensity (R&D/total assets). We argue that managers in countries with strong creditor rights have more incentives to reduce cash flow risk and therefore limit expenditures on R&D more than managers located in countries with weak creditor rights.

Research Findings/Insights: Using a sample of over 21,000 firms from 41 countries, our research is one of the first to document that strong creditor rights are indeed associated with reduced R&D intensity. This negative relationship is observed in market‐based countries, but not in bank‐based countries. Moreover, the results …

Risk Allocation Across The Enterprise: Evidence From The Insurance Industry, Michael K. Mcshane, Tao Zhang, Larry A. Cox

Finance Faculty Publications

Financial researchers initially regarded hedging activities as a means to reduce total firm risk, which often is defined in terms of cash flow volatility. More recently, researchers have focused on the strategic allocation of risk. Direct tests of risk allocation have been problematic, however, because hedging data are rarely available and, when available, are specific only to a single operation of the firm, such as bank lending. In this study, we exploit unique data from the insurance industry that allows us to observe hedging proxies for both investment and insurance underwriting risks and test the risk allocation hypothesis developed in …

How Did Listed Islamic And Traditional Banks Performed: Pre And Post The 2008 Financial Crisis?, Mohamed Rashwan

Business Administration

This study tests the efficiency and profitability of banks that belongs to two different sectors: a) Islamic Banks (IBs) and b) Traditional Banks (TBs). The study concentrates on the pre and post 2008 financial crisis with an aim to test if there are any significant differences in performance between the two sectors. The study applies the MANOVA techniques to analyze the financial secondary data for only publicly traded banks in the same region. The findings of the study show that there is a significant difference between the two sectors in 2007 and 2009 and there are no significant differences in …

Credit Gap In Small Businesses: Some New Evidence, Atreya Chakraborty

Accounting and Finance Faculty Publication Series

What is the magnitude of credit constraint affecting small businesses? This paper provides estimate of the credit gap – defined as the difference between the desired and actual levels of debt for credit constrained small businesses. The estimated credit gap is approximately 20 percent, i.e., credit constrained small business on the average would desire 20 percent more debt. This credit gap varies considerably across industries, with manufacturing firms facing a significantly larger gap than firms in the wholesale or service industries.

The Role Of Accounting Conservatism In Firms' Financial Decisions, Jimmy Kiat Bee Lee

Research Collection School Of Accountancy

This paper investigates whether financial reporting conservatism is related to firms’ financial flexibility and their access to capital. If conservatism facilitates monitoring and governance by capital providers, they should be more willing to extend financing and increase firms’ access to capital. However, because conservatism leads to systematic understatement of net worth and weakens the appearance of firms’ balance sheet strength, it could also reduce firms’ access to capital. This study tests these two opposing views of the relationship between conservatism and firms’ financial flexibility. Results indicate that firms with greater reporting conservatism exhibit less flexibility in their corporate liquidity management, …

Accounting Flexibility And Managers’ Forecast Behavior Prior To Seasoned Equity Offerings, Jae Bum Kim

Research Collection School Of Accountancy

This study examines the effect of accounting flexibility on managers’ forecasting behavior prior to seasoned equity offerings(SEO). While SEO firms have strong incentives to convey optimistic information to boost the pre-SEO stock price, they also face enhanced litigation risk arising from SEO-related regulations. Thus, I hypothesize that managers of SEO firms will release optimistic forecasts prior to an SEO only if they have the accounting flexibility to manage subsequent reported earnings to meet or exceed their forecasts. I find that managers with greater accounting flexibility are more likely to issue a forecast prior to the SEO and their forecasts are …

Investor Competition Over Information And The Pricing Of Information Asymmetry, Brian K. Atkins, Jeffrey Ng, Rodrigo Verdi

Research Collection School Of Accountancy

Whether the information environment affects the cost of capital is a fundamental question in accounting and finance research. Relying on theories about competition between informed investors as well as the pricing of information asymmetry, we hypothesize a cross-sectional variation in the pricing of information asymmetry that is conditional on competition. We develop and validate empirical proxies for competition using the number and concentration of institutional investor ownership. Using these proxies, we find a lower pricing of information asymmetry when there is more competition. Overall, our results suggest that competition between informed investors has an important effect on how the information …

Direct And Mediated Associations Among Earnings Quality, Information Asymmetry And The Cost Of Equity, Nilabhra Bhattacharya, Frank Ecker, Per Olsson, Katherine Schipper

Research Collection School Of Accountancy

Using path analysis, we investigate the direct and indirect links between three measures of earnings quality and the cost of equity. Our investigation is motivated by analytical models that specify both a direct link and an indirect link that is mediated by information asymmetry, but do not suggest which link would be more important empirically. We measure information asymmetry as both the adverse selection component of the bid-ask spread and the probability of informed trading (PIN). For a large sample of Value Line firms during 1993–2005, we find statistically reliable evidence of both a direct path from earnings quality to …

Assessing The Valuation And Risk Implications Of Fair Value Accounting For Liabilities: Evidence From Fas 159'S Reported Gains And Losses, Sung Gon Chung, Gerald Lobo, Kevin Ow Yong

Research Collection School Of Accountancy

This study examines the implications of fair value liability gains and losses arising from the adoption of Statement of Financial Accounting Standards No. 159 (hereafter FAS 159). We find a positive correspondence between a firm’s FAS 159 fair value liability gains and losses and stock returns. Further analysis indicates that fair value gains and losses from liabilities attributable to the change in a firm’s own credit risk, which are considered counter-intuitive by critics of fair value accounting for liabilities, are also positively related to returns. Lastly, we document that the volatility of earnings that incorporate FAS 159 liability fair value …

An Analytical And Empirical Measure Of The Degree Of Conditional Conservatism, Dan Segal, Jeffrey L. Callen

Research Collection School Of Accountancy

There is a profound gap between models of accounting conservatism and the proxies for conditional conservatism currently used by the empirical literature. Not one of the proxies employed by the empirical literature to date obtains from a rigorous definition of conditional conservatism. In contrast, this study defines conditional conservatism in terms of truncated distributions and derives analytically a nonlinear relation between revisions to returns and earnings news for the conservative firm. This nonlinear relation is shown to be mathematically equivalent to two linear relations conditioned on the firm's degree of conservatism. From these relations, we derive a model-based proxy of …

Trading Strategy Of Firms In Financial Distress, Christopher J. Arnholz

Undergraduate Honors Theses

This paper tests two hypothesis 1) that firms entering financial distress incur costs that depress the stock price 2) firms entering financial distress are over sold, and the year after they enter financial distress the price bounces back. The paper tests a simple trading strategy of buying the distressed firm and selling the largest firm in the industry. The strategy yields an average return of 10.16%. The returns are enhanced by sorting firms by price to book and selecting firms from the highest quartile, yielding an average return of 34.75%

An Examination Of Corporate Agribusiness Financial Performance: How Agribusinesses Perform Over Time And Under Various Conditions, Sierra J. Enlow

Theses and Dissertations--Agricultural Economics

While several studies examine the managerial structure of privately owned agribusinesses, few studies take a comprehensive look at publically traded agribusiness firms. Our study examines the historical position of agribusiness compared to the market, and then studies the impact of the global economic and financial crisis. The objective of this study is to pinpoint effects of corporate financial management strategies, commonly researched in financial literature on agribusiness firms’ performance. Through utilizing a quantile regression we find that agribusiness position in times of financial crisis is directly related to firm performance. As we examine internal factors, several interesting impacts of managerial …

Application Of The Concept Of Project Finance In Iraq- A Comparative And Analytical Study, Faris K. Nesheiwat

Fordham Journal of Corporate & Financial Law

Many scholars and experts have addressed the issue of project finance, but one area that remains without detailed examination is its legal treatment under the legal systems of developing countries. The legal concepts applied under project finance are Western and are not necessarily identical to or compatible with legal concepts in Middle Eastern countries in general or Iraq in particular. In that sense, project finance is a transplanted legal concept when examined in the Middle Eastern legal framework. Although this Paper tackles the legal and strategic issues arising from the use of project finance in Iraq, its analysis and comparative …

Lessons From The Flash Crash For The Regulation Of High-Frequency Traders, Edgar Ortega Barrales

Fordham Journal of Corporate & Financial Law

Are equity markets vulnerable to a sudden collapse if the traders who account for about half of the volume have no regulatory obligations to stabilize prices? After the “Flash Crash” of May 6, 2010, policymakers have resoundingly answered this question in the affirmative. During the worst of the crash, some of the so-called high-frequency trading firms that dominate equity markets stopped trading and prices collapsed, momentarily wiping out almost $1 trillion in market value. In response, the U.S. Securities and Exchange Commission is considering whether high-frequency trading firms should be required to act as the traders of last resort. This …

Burning Down The House Or Simply Rolling The Dice: A Comment On Section 621 Of The Dodd-Frank Act And Recommendation For Its Implementation, Joshua R. Rosenthal

Fordham Journal of Corporate & Financial Law

Section 621 of the Dodd-Frank Wall Street Reform and Consumer Protection Act modifies the Securities Act of 1933 to prohibit the underwriter, placement agent, initial purchaser, or sponsor, or any affiliate or subsidiary of any such entity of an asset-backed financial product from betting against that very product for one year after the product’s initial sale. The rule prohibits anyone who structures or sells an asset-backed security or a product composed of asset-backed securities from going short, in the specified timeframe, on what they have sold, and labels such transactions as presenting material conflicts of interest. This Comment discusses traces …