http://hdl.handle.net/2451/26402 2026-04-09T15:07:39Z 2026-04-09T15:07:39Z Balakrishnan, Karthik Bartov, Eli Faurel, Lucile http://hdl.handle.net/2451/27762 2014-01-17T18:30:52Z 2008-11-13T16:25:42Z

Title: Post Loss/Profit Announcement Drift Authors: Balakrishnan, Karthik; Bartov, Eli; Faurel, Lucile Abstract: We document a failure of the market to price the implications of a current loss (profit) for a future loss (profit). In a 120-day window following the quarterly earnings announcement date, a portfolio of firms with extreme losses (profits) exhibits a -6.58 percent (3.55 percent) abnormal return. These patterns in stock returns translate into an annualized return of approximately 21 percent on a hedge portfolio that takes a long position in an extreme profit firm quintile and a short position in an extreme loss firm quintile. The results also demonstrate that this loss/profit anomaly is incremental to, and more pronounced than previously documented accounting-related anomalies. In an effort to explain this finding, we show that this mispricing is related to differences between conditional and unconditional probabilities of losses/profits, as if stock prices do not fully reflect conditional probabilities in a timely fashion. A battery of sensitivity tests shows that this loss/profit anomaly is robust to alternative risk adjustments, distress risk, short sales constraints, transaction costs, and sample periods.

2008-11-13T16:25:42Z Oswald, Dennis R. Zarowin, Paul http://hdl.handle.net/2451/27597 2008-06-14T06:04:39Z 2007-08-01T00:00:00Z

Title: Capitalization of R&D and the Informativeness of Stock Prices Authors: Oswald, Dennis R.; Zarowin, Paul Abstract: This paper presents both a new approach to studying the consequences of accounting choice and a unique sample to examine the effects of accounting choice in the R&D context. We investigate the effect of firms’ decision to capitalize R&D expenditures on the amount of information about future earnings reflected in current stock returns, as captured by the association between current-year returns and future earnings (FERC). We use a sample of U.K. firms, which includes both R&D capitalizers and expensers. An important feature of our tests is our use of a two equation system to control for the endogeneity of the accounting choice (i.e., self selection). Proponents of capitalization claim that it enables management to better communicate information about the success of projects and their probable future benefits. Consistent with this, we find that capitalization is associated with higher FERC than expensing.

2007-08-01T00:00:00Z Ryan, Stephen G. Tucker, X. Jenny Zarowin, Paul A. http://hdl.handle.net/2451/27596 2008-06-14T06:04:38Z 2005-06-01T00:00:00Z

Title: The Classification and Market Pricing of the Cash Flows and Accruals on Trading Positions Authors: Ryan, Stephen G.; Tucker, X. Jenny; Zarowin, Paul A. Abstract: We investigate whether the market prices the change in net trading assets as an operating or non-operating activity or some mixture of the two, and whether this market pricing is consistent with the (fundamental) association of the change in net trading assets with future cash flows from operations. Our investigation is motivated by the observation that – despite the classification of the cash flows on trading positions as operating under FAS 102 – trading is economically a hybrid operating/non-operating activity. Reflecting this hybrid nature, we hypothesize and find that the change in net trading assets has a less positive association with returns and future CFO than do the pure operating components of cash flows and accruals, and that it has a more positive association with returns and future CFO than do the pure non-operating components of cash flows. To the best of our knowledge, our paper is the first to propose and test hypotheses about the valuation implications of such hybrid cash flows and accruals.

2005-06-01T00:00:00Z Cohen, Daniel A. Zarowin, Paul http://hdl.handle.net/2451/27595 2008-06-14T06:04:23Z 2008-01-01T00:00:00Z

Title: Accrual-Based and Real Earnings Management Activities Around Seasoned Equity Offerings Authors: Cohen, Daniel A.; Zarowin, Paul Abstract: We examine earnings management behavior around SEOs, focusing on both real activities and accrual-based manipulation, and how this behavior varies over time and cross-sectionally. Although research has addressed the issues of earnings management around SEOs and earnings management via real activities manipulation, ours is the first paper to put these two issues together. We make three contributions to the literature. First, we document that firms use real, as well as accrual-based, earnings management tools around SEOs. Second, consistent with the expectation that the Sarbanes-Oxley Act (SOX) has made accrual-based earnings management more costly, we find that firms have substituted from accrual to real earnings management after SOX. Finally, we show how the tendency for firms to tradeoff real versus accrual-based earnings management activities around SEOs varies cross-sectionally. We find that firms’ choices vary predictably as a function of the firm’s ability to use accrual management and the costs of doing so. Our model is a first step in examining how firms tradeoff between real versus accrual methods of earnings management.

2008-01-01T00:00:00Z