Ronald Stunda, PhD, CPA, CMA

With respect to retail trade in the United States, the platform-based market share has come at the expense of traditional brick and mortar stores. This study focused on two specific areas of retail trade: 1. assessing the stock performance of the industry in each of the past four decades; and 2. assessing the rise of platform-based firms in the industry and their stock performance. The significance of the analysis was to view the dynamics of this industry's shift from an accounting perspective. Results indicate that when correlating the historical measure of unexpected earnings to stock prices, platform-based firms out-perform the industry, in some instances by a margin of two to one. When correlating a wealth measure, proxied by book value, to stock prices, platform-based firms again out-perform the industry by as much as a four to one margin.

This study extends prior research on the subject of goodwill by exploring the impact that goodwill write-downs have on security prices in general, and by specific industry. Results indicate that for firms experiencing goodwill impairment, there is a negative and significant relationship between accounting earnings and share prices in the period immediately following the goodwill impairment announcement. When the sample is further broken down by industry membership, findings indicate that industry plays a role in information content of earnings when it comes to goodwill write downs. For those industries which are considered above average growth industries, accounting earnings are generally positive and significantly related to stock prices. For industries considered below average growth industries, accounting earnings are generally negative and significantly related to stock prices.

This study takes on two divergent notions concerning derivatives; that they are dangerous instruments (Warren Buffet) versus the concept that they help to reduce risk (Allen Greenspan). These notions are assessed from the perspective of the recent Financial Crisis in which derivatives were assigned a good deal of the blame for the meltdown. This study analyzes three different study periods; Pre-Crisis (2003, 2004, 2005), Crisis (2008, 2009, 2010), and Post-Crisis (2011, 2012, 2013-1st quarter). In addition, the study also analyzes three different groups of firms containing 100 firms each; firms engaging in the use of derivatives and accepting TARP funds, firms engaging in derivatives and not accepting TARP funds, and firms not engaging in derivatives and not accepting TARP funds. Results indicate that for Crisis and Post-Crisis periods, investors tend to discount accounting earnings releases in making investment decisions. For the firms using derivative and not accepting TARP funds and firms not using derivatives and not accepting TARP funds, the results across all three study periods are almost identical, accounting earnings reflect positive information-enhancing signals on security prices. This does not mean that security prices continued a steady upward trek, but only that investors placed a greater positive reliance on earnings in making investment decisions, in other words, they tended to not discount earnings releases.

This study examines differences in reporting cash flow under the International Financial Reporting Standards (IFRS) and the Generally Accepted Accounting Principles (GAAP) statement of cash flow presentation and recognition along with subsequent stock price effect. Findings indicate that there is a higher degree of forecast accuracy of cash flows among European firms. This study also finds that a higher degree of correlation between accounting earnings and stock price exists for GAAP-based U.S. firms than for IFRS-based European firms. When the information content of cash flows is assessed under the two differing bases, findings show that a higher degree of correlation between cash flow and security returns exists for IFRS-based European firms than for GAAP-based U.S. firms. Overall results indicate that, with respect to security prices, IFRS-based firms appear to be more cash flow sensitive while GAAP-based firms appear to be more accounting earnings sensitive.

Past studies find differences in the demand for accounting earnings releases, a timeliness issue, that may be specific to Code-law countries (i.e., Germany, France, Japan, China) versus Common-law countries (i.e., US, UK, Canada). This difference may be attributed to structural information asymmetry in these countries. For example, in Code-law countries, stakeholder governance rests in a few hands (i.e., the government or lending institutions). In Common-law countries the stakeholder governance is more diverse and dispersed. In addition, prior studies also show that accounting earnings disclosures in foreign countries (when grouped in regions) have a different correlation to security returns than domestic earnings disclosures and returns, a value-relevance issue. This study extends extant literature by using a more contemporaneous study period (2001-2012) and focusing on countries that have created the most economic growth during this period, namely; the US, UK (Common-law countries), and Germany, Japan, and China (Code-law countries). In addition, this study also incorporates findings regarding the above issues by eight major industries and across nations, something not attempted heretofore. Study findings suggest that regardless of the country, each nation studied contains a relatively high degree of demand for earnings timeliness. In addition, when assessing the timeliness issue by industry, each industry displays a high degree of earnings timeliness with the Healthcare and Utilities industries at the lower end. With respect to the value of earnings disclosure relative to security returns, findings suggest no significant difference across the nations studied. With respect to industry analysis, each industry values the relevance of earnings disclosures, at differing significance levels.

The purpose of this study is to shed light on the link between the information content of accounting earnings on security returns in the presence of derivatives within firms. To accomplish this, a study sample was chosen from years 2011-2015 which included firms within eight separate industries. The sample was partitioned by firms which engage in derivatives and firms which do not. Results indicate that firms that do not utilize derivatives have a resultant average security price change that is almost double that of their derivative using counterparts. Also, the variance in the stock movements for non-derivative firms is approximately half of that for the derivative firms studied, indicating the potential for less risk in the non-derivative firms. Also, analysis shows that industry membership may in fact have some bearing on stock price of firms that utilize derivatives. Accounting earnings of derivative-using firms in high growth industries seem to have a greater impact on security prices whereas for those derivative-using low growth firms, the security price impact of accounting earnings is not significant. It may well be that the upside of significant growth outweighs the potential downside of derivative usage in the minds of the investors when it comes to high growth industry firms.

The purpose of this study is to extend prior research of Goel and Thakor (2014), and Morris (2012), who had conducted preliminary analysis of the effect of major financial regulatory reform. Whereas these studies were limited in that they assessed only one year and focused on singular regulatory issues, this study assess three major financial regulatory mandates over the past two decades, namely; Regulation FD, Sarbanes-Oxley, and Dodd-Frank. In addition, an analysis is made of the effects of these regulatory rulings for five quarters after passage. Analysis is conducted on both cash flow volatility, and risk measures in assessing predictive value of security returns after passage of such regulation. Findings indicate that after passage of major financial regulations, the majority of firms in the sample, for each regulatory sample group, have an increase in both cash flow volatility and overall firm risk, expressed through beta. For each of the three regulatory sample groups which have below average betas and cash flow volatility measures, the information content of earnings for these firms contains significant security return predictive value. For each of the three regulatory sample groups which have above average betas and cash flow volatility measures, the information content of earnings for these firms contains insignificant security return predictive value.

This study provides empirical evidence regarding the bias of management forecasts and information content of management forecasts as analyst coverage increases both by firm and industry. Findings indicate that, on average, management forecasts in the sample exhibit downward bias in the forecast. This is a result that many prior researchers have found. However, when an industry analysis was performed, the industries with the highest analyst coverage (i.e., oil and gas, technology, and healthcare) had minimal bias. In fact, the bias of the management forecast approached zero. All other industries observed contained negative bias results. With respect to information content of the management forecast, firms with fewer than 14 analysts covering them were compared to firms with coverage by greater than 14 analysts. Findings suggest that firms with analysts exceeding 14 have an enhanced information signal to the investors and other interested parties than do firms with fewer than 14 analysts.

This study assesses the disclosure implications by analyzing US firms, which have a high degree of structure from both a timeliness and quality standard, promulgated by US GAAP. These firms were compared to two models of European nation firms propounded by Joos and Lang (1994). The first model, the Continental Model, contains countries where the debtholder, and not the stockholder is the prime stakeholder. The next model, the Anglo-Saxon model, has the equity holder as its prime focus but those investors are tightly controlled by such entities as unions and banks, and therefore exhibit a different structure entirely. Results indicate that with respect to trading volume, US firms engage in greater trading around a four-day period on and after the disclosure release than do both models of European firms. The US firms also have a positive stock price change during this period that is, on average, almost double their European counterparts, while maintaining a variance which is, on average, one third lower than the same European firms.

This study analyzes firms that emerge from Chapter 11 bankruptcy with specific attention given to two groups; those that switch auditors post-bankruptcy, and those who retain previous auditors in a post-bankruptcy environment. In addition, further analysis is made to assess whether or not industry membership, along with pre or post SOX environment play a role in results. Results indicate that when the pre versus post SOX environment is assessed, a significant difference is noted in the sample firms. Post SOX firms emerging from Chapter 11 that switch auditors carry positive information content, therefore, investors tend to bid up the price of stock of these firms. Firms emerging from Chapter 11 in a post SOX environment that do not change auditors tend to convey negative information content as their stock price is bid down by investors. With respect to a pre SOX environment, results indicate that investors do not …

This study extends previous merger and acquisition studies by analyzing firms engaged in merger and acquisition activities in eight specific industries during years of economic downturn (2007-2010) and economic upturn (2011-2015). These eight industries are further partitioned by below average growth industries and above average growth industries. Results indicate that with respect to below average growth industry firms, average mean response coefficients are generally negative and significant at conventional levels, regardless of economic time period. Turning to above average growth industry firms, the coefficients’ average mean are positive and significant at conventional levels. In fact, there are no significant differences between the results regardless of economic period. The conclusion is that during merger and acquisition activities, above average growth industry firms seem to fair better from a stock price perspective than below average growth firms, regardless of economic cycle.

This paper extends prior corporate stock buyback studies by evaluating the effect of stock buybacks on growth and non-growth industries. Regression results indicate that firms categorized in above average growth industries contain a higher degree of information content over firms categorized in below average growth industries, and there appears to be a stronger earnings response among non-buyback firms in the above average growth industries. When assessing the effects of percent change in stock price correlated with long term investment, results indicate that investors perceive earnings associated with non-buyback firms to be informative and good indicators of stock prices and have a strong correlation with long term investment. However, findings indicate that investors perceive earnings associated with buyback firms to be noisy and unclear indicators of stock prices or possessing a strong correlation with …

This study analyzes the market price effect of financial restatements, by industry and in total, in a pre-2002 versus a post-2004 regulatory environment. Regulations implemented during 2002-2004 (ie, Sarbanes-Oxley, PCAOB Auditing Standard No. 2, SEC tightening of Form 8-K filing) altered the regulatory regime of auditing by shifting the oversight of audit firms from the AICPA to the PCAOB. These increased regulations may have brought about a change in the implications associated with releasing a set of financials. Investors’ concerns over the integrity of financial reports report may have significantly changed after the regulation-setting period of 2002-2004. Study results support prior pre-2002 studies that indicate minimal effect of financial restatements on security prices. And this is prevalent across industries. However, the assessment of post-2004 firm restatements indicate that financial restatements have a significantly positive effect on security prices for above average growth industry firms, and a significantly negative effect on security prices for below average growth industry firms indicating that investors do perceive post-2004 financial restatements differently between those two industry groupings.

Prior research into the accuracy of analyst forecasts has spanned several decades. Obrien (1990) conducted a comprehensive analysis of forecast accuracy among financial analysts in nine industries during the period 1975-1982. Sinha, Brown, and Das (1997) reexamined this issue of forecast accuracy among financial analysts during the period 1984-1990, consistent of the fourteen largest industries at the time. These studies reported no or minimal significant differences in forecast accuracy across industries. This study extends the above research and assesses forecast accuracy for eight distinct industries during the period 2010-2015 from the perspectives of: 1. Comparison over forecast horizon 2. Comparison by industry 3. Comparison within industry

This study focused on the five year period prior to inception of Dodd-Frank,(2001-2005) and compared this time frame to years subsequent to passage of Dodd-Frank,(2011-2015). An assessment was made of any significant differences in credit risk assignment, and information content of earnings conveyed to investors during these periods. When assessing the impact of credit rating percentage changes and subsequent risk, findings indicate that when comparing all pre-Act firms to all post-Act firms, percentage change in credit rating is positive, on average, for pre-Act firms while the percentage change, on average, is negative for firms in post-Act periods. Also, overall risk is increased significantly for firms after passage of Dodd-Frank. When comparing pre-Act firms of< $10 billion in assets to firms> $50 billion in assets, there is no significant difference between the average change in credit rating. Both subsamples exhibit an increase in credit rating. Risk is also relatively small and insignificantly different between these pre-Act sub-samples. When attention turns to post-Act time periods, both sub-samples reflect a decrease in credit rating. In addition, risk increases significantly for both sub-samples.

The article offers information on a research study to find the role of oil companies in price gouging with respect to variations in petroleum product prices in the U.S. oil and gas industry. It informs that the study is focused on gross profit percentages (GPP) for the major oil companies, variations in GPP between the major oil companies, and comparison of GPP with other industries in context to study on oil companies including British Petroleum, Conoco Phillips, and Royal Dutch Shell.

Tobin's q ratio has been used over the past four decades to explain a wide variety of firm performance. Over that same period, researchers have been studying the relationships between accounting earnings and security returns, beginning with Ball and Brown (1968). This study links the q ratio research literature with the information content of accounting earnings literature in an attempt to provide another link between accounting earnings and security returns. A study period between 2003-2012 and consisting of a sample of 3,926 firms is used in order to determine the information content of high q ratio firms (i.e., firms with a relatively higher market value of assets) and low q ratio firms (i.e., firms with a relatively lower market value of assets) on security prices. Findings suggest greater significance between accounting earnings and security prices for high q ratio firms. When the sample is broken down by seven major industries high q ratio firms in three industries; utilities, finance and insurance, and oil and gas, contain the greatest significant relationship between accounting earnings and security returns. These results are important to corporate managers, analysts and investors, as these parties have yet another tool for determining potential future security returns, namely the q ratio.

Prior research regarding company payout of dividends has been somewhat elusive and at times contradictory. Some extant studies find that when dividend tax rates are low, investors demand and receive greater dividend payouts. Other studies contradict that notion. This study attempts to expand upon the two notions of distinguishing: 1. high dividend tax rates from low dividend tax rates, and 2. high growth firms from low growth firms in an attempt to address what impact each of these has on dividend policies of firms, and, ultimately the stock price of a firm. Findings suggest that for firms paying dividends, during low dividend tax rate periods the percentage increase in dividend payments is more than double the percentage increase during high dividend tax rate periods. Also, low growth firms’ percentage increase in dividend payments is greater than the percentage increase for high growth firms over the study period. From a stock price impact perspective, whether the firm is high growth or low growth, and whether the dividend tax rate is relatively high or low, all dividend paying firms studied show a positive stock price effect of dividend payments, with the greatest positive intensity occurring in the low dividend tax rate time periods, and for high growth firms.

Prior studies in the area of management forecasts contain a common characteristic; they assess voluntary earnings disclosures during normal operating periods, when incentive structure is generally routine and on-going. This research tests whether voluntary earnings disclosures released during Chapter 11 protection are significantly different from those forecasts released after emergence from Chapter 11 protection. From a bias perspective, results indicate that managers exert greater upward earnings management on the forecast during Chapter 11 protection periods. From an information content perspective, results indicate the presence of information content during both of these periods. When firms are engaged in Chapter11 protection the information content is significantly negative indicating that investors have a tendency to discount the forecast. After emergence from Chapter 11, the information content is significantly positive indicating that investors have a tendency to not discount the forecast. With the numbers of bankruptcies steadily rising today, these findings have practical implications for not only users of forecast information, but also for the managers generating forecasts.

This is a true story of a 100 year old plus academic institution, which saw its reputation maligned and discredited through the acts of a new university president. Those acts led to complete upheaval of the institution, numerous firings of faculty and staff personnel and the mass exit of others. The result was that a once well respected institution was now on the ropes and faced the possibility of shutting its doors.

The article discusses the monetary policy of quantitative easing process by which the U.S. Federal Reserve System purchases a part of the debt of the U.S. government. It mentions that the monetary policy involves buying and selling of government securities which include treasury bonds, notes, and bills. It mentions that the U.S. Federal Open Market Committee takes decision regarding the federal funds rate.

The article reflects on a concept which involves revamping of current income tax system of the U.S., and replacing it with a national sales tax. It presents information that General Electric Co. which has paid no taxes in 2010 despite recording a global pre-tax income of more than 14 billion U.S. dollars. It informs about actual and estimated revenues, derived by the U.S. Congressional Budget Office (CBO), during 2003-2011 and 2012-2017, respectively.

The article presents a study on the on the effect of the U.S. Troubled Asset Relief Program (TARP) on the management earning forecasts in firm which accepted the TARP fund from 2008 to 2010. The management forecast bias was investigated using the data of the firms prior to the receipt of the government fund and results show evidence that the managers have increased earning management after receipt of TARP fund. It adds that the study will be useful on future investors of the firms.

A central market-based question posed by companies today is where to list, the NYSE or Nasdaq? A similar question is also being asked by investors as to which exchange, if either, produces greater positive results. There exists documented differences between the two exchanges, along with the types of companies each tends to attract. Several studies have concentrated on the rule changes for these exchanges and the subsequent impact on security returns or on issues such as transaction costs and the impact that they have on security returns. Most studies have analyzed security returns over short periods while providing minimal evidence for the longterm investor. This study analyzes security returns associated with a sample of similar sized companies in each exchange over a short run period (2011-2013) versus a long run period (1999-2013). Findings indicate that, for short run periods, Nasdaq firms exert a greater positive effect on stock prices. In fact, the average percentage change in stock price for Nasdaq firms is more than twice as great as that for NYSE firms. For long run periods, findings indicate that NYSE firms exert a greater positive effect on stock prices. Average percentage change in stock price for NYSE firms is close to three times as great as that for Nasdaq firms, almost the exact opposite of short run findings. Nasdaq, therefore, appears to be better suited for short run investors while the NYSE seems a better fir for longer run investors.

Co-authored with D. Typpo. The real estate investment trust (REIT) industry relies heavily on a cash flow-based measure of performance called funds flow from operation (FFO). FFO is the most widely used measure of performance for REITs, unlike other industries where earnings are used as a benchmark. This paper examines the role that earnings transitivity has on the value-relevance of FFO relative to earnings. The findings indicate that as earnings become more transitive, FFO gains value-relevance, while earnings lose value-relevance. Additionally, both FFO and earnings provide incremental information in the presence of the other.

Co authored with M. Willis. Two major issues are confronting the Accounting industry and associated standards setting board in the U.S. today: 1. How to make following generally accepted accounting principles less confusing and more cost-beneficial for smaller public companies, and; 2. How and to what extent International Financial Reporting Standards (IFRS) should be integrated into the U.S. standards. The process of melding these two has not exactly been easy for the Financial Accounting Standards Board (FASB). This paper serves to update where U.S. standards lie with respect to the confluence of these two issues by bringing readers up to date with the historical background, differences in GAAP versus IFRS, and challenges going forward of this co-mingled issue.

This study provides empirical evidence regarding the credibility of management forecasts of earnings during differing economic cycles, namely, economic expansion, and economic contraction for both U.S. firms and sample of firms from nine European countries. Results indicate that during periods of economic expansion, managers exert greater downwards earnings management on the forecast (relative to actual earnings) for both U.S. and European firms. However, during periods of economic contraction, managers exert greater upwards earnings management on the forecast (relative to actual earnings) for U.S. firms, while for European firms, this is not observed. Information content results indicate that for U.S. firms during economic expansion, forecasts tend to exhibit a positive information-enhancing signal to users. However, during economic contraction, users interpret the forecast as being more noisy and potentially less informative. For European firms, forecasts tend to exhibit a positive enhancing signal to users during both times of economic expansion and economic contraction.

Past studies find differences in the demand for accounting earnings releases, a timeliness issue, that may be specific to Code-law countries (i.e., Germany, France, Japan, China) versus Common-law countries (i.e., US, UK, Canada). This difference may be attributed to structural information asymmetry in these countries. For example, in Code-law countries, stakeholder governance rests in a few hands (i.e., the government or lending institutions). In Common-law countries the stakeholder governance is more diverse and dispersed. In addition, prior studies also show that accounting earnings disclosures in foreign countries (when grouped in regions) have a different correlation to security returns than domestic earnings disclosures and returns, a value-relevance issue. This study extends extant literature by using a more contemporaneous study period (2001-2012) and focusing on countries that have created the most economic growth during this period, namely; the US, UK (Common-law countries), and Germany, Japan, and China (Code-law countries). In addition, this study also incorporates findings regarding the above issues by eight major industries and across nations, something not attempted heretofore. Study findings suggest that regardless of the country, each nation studied contains a relatively high degree of demand for earnings timeliness. In addition, when assessing the timeliness issue by industry, each industry displays a high degree of earnings timeliness with the Healthcare and Utilities industries at the lower end. With respect to the value of earnings disclosure relative to security returns, findings suggest no significant difference across the nations studied. With respect to industry analysis, each industry values the relevance of earnings disclosures, at differing significance levels.

This paper examines whether use of derivative financial instruments affects the security prices of firms which use them. One hundred sixty-three companies across seven industries were studied. Each company traded for three years prior to using any derivatives and continued to be listed and use derivatives for three years afterward. Not all of the industries included in the sample resulted in a significant information content of earnings effect. However, utilities, manufacturing, and finance/insurance did yield statistically significant results. Overall, the evidence suggests that in general investors perceive a difference in the information content of earnings when a firm uses derivatives, and that difference translates into a positive, significant impact on security prices. This is potentially important to the managers of these firms, alongwith financial analysts and investors.

Presented at the International Association of Applied Business Research Conference held in Orlando, Florida on March 7, 2018.

Presented at the International Academy of Business and Public Administration Disciplines Conference in Orlando, Florida on January 4, 2018.

Presented at the Global Business & International Management Conference (GBIM) in Orlando, Florida on February 20, 2017. Published in the proceedings.

Presented at The International Academy of Business and Public Administration Disciplines (IABPAD) in New Orleans on October 20, 2016.

Presented at the Center for Scholastic Inquiry Annual Meeting, Center for Scholastic Inquiry (CSI) in Charleston, SC on October 30, 2015. Published in the proceedings.

Presented with Y. Cheng at the Annual Conference of the American Society of Business and Behavioral Sciences in Las Vegas on February 20, 2015. Published in the proceedings.

Presented at the International Academy of Business and Public Administration Disciplines (IABPD) in Orlando, FL on January 3, 2015. Published in the proceedings.

Presented at the Global Business & International Management Conference (GBIM) in Seattle, WA. on August 7, 2014. Published in the proceedings.

In 2011 The European Union Tax Commission proposed the establishment of a Financial Transaction Tax (FTT). The FTT was subsequently implemented in France (8/1/12) and Italy (1/1/13). It is also scheduled to be adopted in 9 other European Union states during 2015. Great Britain has thus far failed to accept such a tax. The purpose of the FTT is twofold; minimize and control derivative trading by taxing it, and raise revenues. Opponents of the FTT have suggested that such a tax would increase volatility (i.e., risk) in the securities market and would also lead to a reduction in security trading and a drop in security prices. These are all reasons why Great Britain has thus far refrained from passing the tax.

Presented at the International Conference of the Academic Business World in Nashville, TN. on May 22, 2014. Published in the proceedings.

Historically, Canadian laws have created a less litigious environment than those of the US This changed in 1998 with the passage of the Securities Litigation Uniform Standards Act (SLUSA), and in 2000 with the passage of Regulation Full Disclosure (Regulation FD). The intent of these acts were to not only encourage more US firms to release voluntary earnings forecasts, but to offer protection for such disclosures against lawsuits, similar to laws in Canada. In addition, with the advent of International Financial Accounting Standards (IFRS), voluntary earnings releases play a bigger role, in increased frequency and revision of forecasts. Since Canada requires the use of IFRS in financial reporting, it serves as a good base of comparison of what may be to come in the US These types of differences comprise what can be characterized as institutional differences. This study finds that Canadian managers tend to issue …

Presented at the Mustang International Academic Conference in Las Vegas, Nevada on February 7, 2014. Published in the proceedings.

Presented at the Academy of Business Research Annual Conference in San Antonio, TX on September 19, 2013. Published in the proceedings.

This study provides empirical evidence regarding the credibility of management forecasts of earnings during differing economic cycles, namely, economic expansion, and economic contraction for a sample of firms from nine European countries. Past research on earnings forecasts assess the forecast over time periods which do not consider the effects of the economic cycle on the forecast. In addition, these studies focus almost entirely on US firm forecasts. This study is the first to attempt to assess any possible distinction between US and European firm forecasts. Bias results indicate that during periods of economic expansion and contraction, European managers exert greater downwards earnings management on the forecast (relative to actual earnings) Information content results indicate the presence of information content in management forecasts during both economic expansion and contraction periods. European firms’ forecasts tend to exhibit a positive enhancing signal to users during both times of economic expansion and economic contraction.

Presented at The International Academy of Business and Public Administration Disciplines (IABPAD) in Orlando, FL. on January 3, 2013. Published in the proceedings.

This study attempts to associate a comparison between real estate investment trust (REIT) 100 index stocks and S& P 500 index stocks so that it might be determined if a competitive advantage exists by firms in either index with respect to trading volume and/or interest rates. A study period of 1997-2013 is evaluated. Findings indicate that when composite stock price changes are evaluated for each index group during high volume trading days, firms in the REIT index have a greater stock price reaction, almost double that of the Standard and Poor (S& P) 500 firms. When the study period is segmented into high interest rate and low interest rate periods, findings show that REIT 100 firms have significantly positive stock price changes during periods of relatively low interest rates and significantly negative stock price changes during periods of high interest rates while S& P 500 firms seem unaffected by movement in …

Presented at The Academic Forum in Tampa, FL on December 18, 2012. Published in the proceedings.

Two major issues are confronting the Accounting industry and associated standards setting board in the US today: 1. How to make following generally accepted accounting principles less confusing and more cost-beneficial for smaller public companies, and; 2. How and to what extent International Financial Reporting Standards (IFRS) should be integrated into the US standards. The process of melding these two has not exactly been easy for the Financial Accounting Standards Board (FASB). This paper serves to update where US standards lie with respect to the confluence of these two issues by bringing readers up to date with the historical background, differences in GAAP versus IFRS, and challenges going forward of this co-mingled issue.

Presented at the Allied Academies Annual Conference in New Orleans, LA on April 6, 2012. Published in the proceedings.

This is the first empirical study to assess the stock price effect of the Affordable Care Act. The timeline for appropriate assessment begins when the Act became law on June 28, 2012 in a 5-4 decision by the United States Supreme Court. Although the study is constrained by the fact that not much time has passed since the June, 2012 Court decision, quarterly returns and stock prices were analyzed for each quarter beginning with the third quarter of 2012 and ending with the first quarter of 2014. This is referred to as the post-Act time period. The results were then compared to similar quarterly data for the period 2004-2007. This is referred to as the pre-Act period. Fifty-seven firms and 912 pre-Act firm quarters were assessed for 5 health care industries in the sector (hospital companies, diagnostic companies, medical device companies, drug manufacturing companies, and assisted living companies). These total firm quarters were then compared to the same 57 firms and 399 firm quarters in the post Act period. Findings indicate that stock prices of these firms are significantly positive in the pre-Act study period but significantly negative in the post-Act study period. The analysis was then broken down by each of the five industries in both the pre and post-Act study periods. Findings again show that stock prices are significantly lower in post-Act time periods with hospital companies, diagnostic companies and medical device companies being the most pronounced in stock price decline. These results have significant bearing on managers and investors in a post Affordable Care Act era. It is possible that the health care sector as a whole may experience …

Presented at the Advances in Business Research Symposium in Ft. Smith, AR on October 26, 2011. Published in the proceedings.

This study provides empirical evidence regarding the credibility of management forecasts during pre-SOX and post-SOX forecasting periods. Bias results indicate that managers exert greater upward earnings management on the forecast during a pre-SOX environment, but tend to exert greater downward earnings management on the forecast during post-SOX time periods. Information content results indicate the presence of incremental information content in management forecasts in a post-SOX environment, and this information content is significantly different from that in a pre-SOX time periods.

Presented at the Allied Academies Conference, Allied Academies, New Orleans, LA in April of 2009. Published in the proceedings.

This study provides empirical evidence regarding the effect of the Sarbanes-Oxley Act (SOX) on the stock price of firms emerging from Chapter 11. Extant literature indicates that the stock price of firms emerging from Chapter 11 tends to be significantly positive. These studies, however, are limited almost exclusively to pre-SOX time periods. More current literature suggests that SOX may have created some structural changes in firms’ reporting and thus impacted the interpretation for investors. This study extends previous literature by analyzing the stock price effect of firms emerging from Chapter 11 in strictly a post-SOX environment. Results are contrary to previous findings. Significant decreases in stock prices are noted for these firms. The study controls for some but not all potential extraneous factors, still, the conclusion that may be reached is that SOX at least has some bearing on stock prices for firms emerging from Chapter 11. These findings have implications for firms currently or prospectively engaged in Chapter 11 activities. Findings also act as a signal to investors to be cognizant of implications associated with firms undergoing Chapter 11 protection.

Presented at the Allied Academies conference in Tunica, MS in April of 2008. Published in the proceedings.

Presented at the Allied Academies Conference in Memphis, TN in April of 2006. Published in the proceedings.

Presented at the Allied Academies Conference in Las Vegas, NV in October of 2005. Published in the proceedings.

This study analyzes the market price effect of financial restatements in a pre-versus post-SOX environment. Restatement of financials has long been an issue with investor groups and regulators alike. Since the advent of the Sarbanes-Oxley Act, we have seen a general increase in restatements and this has furthered to alarm these investor groups and regulators. Previous studies have analyzed predominantly pre-SOX effects of restatements on firm security prices, and have found the effects to be negligible. The studies that have attempted to assess the post-SOX security price effects have had limitations in years studied, numbers of firms, and robustness of models. This study overcomes many of these weaknesses by incorporating more study years (8 in each the pre-and post-SOX time periods), more firms (2,104 pre-SOX and 3,407 post-SOX firms), and greater robustness in the model (exclusion of overlapping announcements and tightening of the announcement window). Study results support prior pre-SOX studies that indicate minimal effect of financial restatements on security prices. However, the assessment of post-SOX firm restatements indicate that financial restatements have a significant downward effect on security prices, indicating that investors do perceive post-SOX financial restatements differently from those issued in pre-SOX time frames. The implication is that regulators and investor groups may be justified in their concern over the number of restatements subsequent to the passage of Sarbanes-Oxley. Although the vast bulk of the restatements do not result from misbehavior by management, there seems to exist a negative …

Previous studies have examined acquiring firms undergoing mergers and acquisitions along with the impact that these events have on firm security prices. These studies have had mixed results. Some indicate negative impact on stock prices while others conclude that there is a positive effect. This study extends these previous studies by increasing both the number of firms sampled and the years evaluated. The first finding indicates that when acquiring firms are compared to firms not engaged in M&A activities, the acquiring firms’ stock price effect is significantly negative, while the non-M&A firms’ stock price effect is significantly positive. When the acquiring firms are evaluated by industry membership, findings suggest that firms engaged in M&A activities in all industries evaluated exert a significantly negative effect on stock prices, with the exception of the oil and gas industry along with the banking and financial …

Prior studies in the area of management forecasts contain a common characteristic, they make no distinction as to the economic cycle of the US when assessing voluntary earnings disclosures. This research tests whether voluntary earnings disclosures released during periods of an economic downturn differ from disclosures released during periods of economic expansion. In terms of bias and information content, findings suggest that forecasts tend to significantly differ during these distinctly different periods. With the US in the grip of what may be a protracted recessionary period, these findings have practical and important implications for users and disseminators of forecast information.

Co-authored with L. Wisenbaker. In October of 2008, the US Treasury launched the Troubled Asset Relief Program (TARP). The purpose of TARP was to promote stability for financial institutions primarily in association with the subprime mortgage debacle. Upon its inception, some theorized that this program would be beneficial to the recipients and their stockholders, and therefore the overall economy while others believed that it would have a minimal effect. Because of these conflicting opinions, this study was undertaken to assess whether or not recipients of TARP, along with their constituents have benefited from this program funded by the Federal government and US taxpayers. The top 100 recipients of TARP funds were analyzed in three separate study periods; Pre-TARP (2003-2005, period of economic expansion), TARP (2008-2010, period of financial crisis and TARP infusion), and Post-TARP (2011-2012, period in which majority of TARP …

Past research documents managers' reluctance to issue voluntary earnings forecasts due to legal and other considerations. In 1998, The US Congress established the Securities Litigation Uniform Standards Act (SLUSA). The intent was to encourage more firms to release voluntary earnings forecasts and also to help protect these firms from potential litigation. This study finds that when comparing firms that release voluntary earnings forecasts in a pre-SLUSA versus a post-SLUSA environment, more firms are found to issue voluntary earnings forecasts in a post-SLUSA environment. In addition, these forecasts tend to exhibit less bias than those in a pre-SLUSA environment, and also tend to have more significant information content on security prices than those in a pre-SLUSA environment. Results indicate that this Act has successfully met its goal of generating increased and more precise forecasts by US firms.

Prior studies in the area of management forecasts contain a common characteristic, they make no distinction as to the economic cycle of the US when assessing voluntary earnings disclosures. This research tests whether voluntary earnings disclosures released during periods of an economic downturn differ from disclosures released during periods of economic expansion. In terms of bias and information content, findings suggest that forecasts tend to significantly differ during these distinctly different periods. With the US in the grip of what may be a protracted recessionary period, these findings have practical and important implications for users and disseminators of forecast information.

Prior studies in the area of management forecasts contain a common characteristic, they make no distinction as to the economic cycle of the US when assessing voluntary earnings disclosures. This research tests whether voluntary earnings disclosures released during periods of an economic downturn differ from disclosures released during periods of economic expansion. In terms of bias and information content, findings suggest that forecasts tend to significantly differ during these distinctly different periods. With the US in the grip of what may be a protracted recessionary period, these findings have practical and important implications for users and disseminators of forecast information.

In October of 2008, the US Treasury launched the Troubled Asset Relief Program (TARP). The purpose of the Program was to promote stability for financial institutions primarily in association with the subprime mortgage debacle. Upon its inception, some theorized that this program would be beneficial to stockholders of firms participating in the Program, while other believed that it would be detrimental to stockholders of recipients of such funds. Because of these conflicting opinions, this study was undertaken to assess the effect the Program has had in its brief life to stockholders. An analysis was conducted using a sample of 30 firms which participated in the Program. This analysis compared the security prices of these firms in the three years preceding TARP (pre-TARP) to the security prices of the same firms in the three years after TARP (post-TARP). Findings indicate that stockholders of these firms realized a drop in security prices between the two periods. In addition, a control sample of 30 similar firms that did not receive TARP funding was analyzed during the same periods. Findings indicate that these firms did not realize a drop in security prices between the two periods. Thus, we can conclude, for those firms participating in TARP, stockholders of those firms saw the value of their investment drop, whereas stockholders of non-participating firms did not see a similar drop.

This study utilizes prior cash flow literature that compares accounting accrual estimates to actual cash flow components in assessing which is a better predictor of stock prices. Extant studies indicate that actual cash flows are a better predictor of security prices. However, recent studies interject the notion that cash flow volatility impacts investor decisions. The question that this study attempts to answer is: if cash flow volatility affects investor decisions, can it also affect the predictive ability on stock prices? In an attempt to answer this question, a sample of firms is selected from the study period 1998- 2012 and partitioned into below average volatility cash flow firms and above average volatility cash flow firms. Regressions are then run for these two groups, utilizing actual cash flow components, and compared to the same firms’ accounting accrual estimates for the same study period. Results show that when firms are disaggregated by below average cash flow volatility and above average cash flow volatility, for the “below average volatility” firms, actual cash flows are a better predictor of stock prices than accounting accrual estimates, while in the case of “above average volatility” firms, accounting accrual estimates are a better predictor of stock prices than actual cash flow components.

Co-authored with C. Pacini. In 2002, Congress enacted the Sarbanes-Oxley Act (SOX) in response to various fraud scandals. SOX implementation may have led to a rise in auditor switches, a shift in the risks and increase in the costs associated with auditing, a rise in auditor conservatism in the issuance of unqualified audit reports and a shift in investor reactions to qualified audit reports. We examine investor reaction to auditor switches for both unqualified and qualified opinion firms in an unexpected earnings disclosure context in both pre-and post-SOX environments. We find no difference exists in investor reaction for unqualified opinion firms with or without auditor switches in pre-and post-SOX environments. Investors demonstrate significant negative share price responses to qualified opinions in a post-SOX environment (with or without an auditor change). The results indicate that investors’ perceptions of a qualified opinion changed after …

Extant studies regarding the impact that auditor switches have had on firms' security prices have been mixed. Some indicate an increase in stock prices follow auditor switches while others show negligible or negative stock price changes. The vast majority of these studies take place prior to the Sarbanes-Oxley Act (SOX) of 2002. One of the requirements of SOX is that public companies must change external auditors every five years, thus making the number of auditor switches more plentiful, and the assessment more rich. This study evaluates auditor switches that occurred in a post-SOX environment (2005-2010). Study samples were broken down into two groups: 1. Client firms currently engaging Big 4 auditors that switch to either another Big 4 auditor or a non-Big 4 auditor. 2. Client firms currently engaging non-Big 4 auditors that switch to either another non-Big 4 auditor or a Big 4 auditor. Findings suggest that …

During the late 1990s, both Congress and the Securities and Exchange Commission (SEC) sought to encourage more forward-looking disclosures. As a result, in 2000, Regulation Fair Disclosure, better known as Reg FD was created. Extant research documents managers’ reluctance to issue voluntary forecasts of earnings due to legal and other considerations. This study finds that when comparing firms that release voluntary earnings forecasts in Pre-Reg FD versus Post-Reg FD environments, more firms are found to issue voluntary earnings forecasts in a Post–Reg FD environment. In addition, forecasts tend to be more accurate than those in a Pre-Reg FD environment, and also tend to have more significant effect on security prices than those in a Pre-Reg FD environment. Overall, it appears that Reg FD has met its goal of increasing transparency, accuracy and numbers of forward-looking financial disclosures to investors.

Recent research has investigated whether or not there is a distinct “Wal-Mart Effect” in the securities market. That is, does Wal-Mart possess an advantage over its competitors in analyzing security prices? A factor associated with this notion centers around the numerous stock splits by Wal-Mart during its corporate life. This study compares Wal-Mart to all other firms in the retail trade industry that have had multiple stock splits. Results of this study show that Wal-Mart still maintains an advantage over its competitors with respect to information content of a wealth measure. When comparing firms with multiple stock splits to all other firms in the same industry, firms with multiple stock splits have a similar advantage. These findings establish a basis for concluding that, on whole, firms that have multiple stock splits over their corporate life are more likely to possess more significant information content of wealth when linked to security prices than firms with fewer or no multiple stock splits.

This paper examines whether use of derivative financial instruments affects the security prices of firms which use them. Two hundred fifty-eight companies across seven industries were studied. Each company traded for three years prior to using any derivatives and continued to be listed and use derivatives for three years afterward. Not all of the industries included in the sample resulted in a significant information content of earnings effect. However, utilities, manufacturing, finance/insurance and oil/gas firms did yield statistically significant results. Overall, the evidence suggests that in general investors perceive a difference in the information content of earnings when a firm uses derivatives, and that difference translates into a positive, significant impact on security prices. This is potentially important to the managers of these firms, along with financial analysts and investors.

In the history of retail sales, no corporation has had as profound an impact on consumer spending across the United States as has Wal-Mart. In 2006, Charles Fishman wrote the eye-opening book," The Wal-Mart Effect.'This book describes how Wal-Mart has changed the landscape in retail trade along with both good and bad effects brought about by its rise to the powerful position it now commands. Mr. Fishman's book stops short in analyzing the impact Wal-Mart has had in the securities market. This research tests whether or not there is a" Wal-Mart Effect" in the securities market. Research from the most recent four decades among firms in retail trade indicates that Wal-Mart does have a distinct advantage over its competitors when it comes to wealth generation and its link to security prices. This finding has practical implications on patterns of future investment among current and future security investors …

This research tests whether there is any impact on voluntary earnings disclosures released after the implementation of the Sarbanes-Oxley Act of 2002. This study provides empirical evidence regarding the credibility of management forecasts during pre Sarbanes-Oxley and post Sarbanes-Oxley forecasting periods. Bias results indicate that managers exerted greater upward earnings management on the forecast during a pre Sarbanes-Oxley environment, but tend to exert greater downward earnings management on the forecast in a post Sarbanes-Oxley environment. Information content results indicate the presence of incremental information content in management forecasts in a post Sarbanes-Oxley environment.

Co-authored with D. Sinason and D. Typpo. Companies hire auditors to meet legal requirements if they are publicly traded and to provide credibility to their financial statements. However, all auditors may not provide the same level of service to third parties. Prior research has found qualitative differences among big Five and non-Big Five auditors. Companies may, therefore, switch auditors to attain some perceived qualitative difference in the audit engagement. The degree that this auditor change is or is not incorporated by financial analysts into analysts' forecasts has not been fully researched for the benefit of determining if there is any information content associated with the auditor change on security prices. The results of this study show that financial analysts do not fully incorporate information relative to auditor changes in their forecasts.

Prior studies in the area of management forecasts contain one common characteristic, they assess voluntary earnings disclosures during normal operating periods, when the incentive structure is generally routine and ongoing. This research tests whether voluntary earnings disclosures released during non-normal operating periods (specifically chapter 11 bankruptcy filing) differ from disclosures released during normal operating periods in terms of credibility. In terms of bias and information content, findings suggest that forecasts tend to significantly differ during normal versus non-normal operating periods. With increasing bankruptcy filings taking place today, these findings have practical implications on users of forecast information.

Co-authored with D. Sinason. In the past fifteen years, the quantity of research concerning the implications of cash flow has greatly increased. Research concerning the relationship of cash flows to earnings and stock prices, as well as the information content of cash flow can be found in most current accounting research periodicals. Many of the seminal investigations of cash flow used proxies and estimations for the cash flow component of financial statements. These studies utilized the best available information to further the extent of accounting knowledge. Currently, the information available to accounting researchers has improved, therefore, it is now pertinent to question whether these proxies and estimations were adequate measures of cash flow, or, given the improved accounting information, these studies should be reviewed and the conclusions reexamined. The study compares cash flow proxies and estimates used in prior research to the …

As the Great Recession of the 21st century ended, 61 key cities across America- the most populous one in each state plus all others with more than 500,000 people- emerged with a gap of more than $217 billion between what they had promised their workers in pension benefits and what they had set aside to pay that bill. Retired city workers in Stockton and San Bernardino in California saw their pensions cut in half as these cities struggled to climb out of the pension gap hole. Detroit declared bankruptcy due in large part to the surging pension costs plaguing the city. The mayor of Chicago, Rahm Emanuel, recently called for a doubling of property taxes in that city to assist in the pension shortfall for city pensioners. Other cities sitting on the precipice include; Charleston, West Virginia, Omaha, Nebraska, Portland, Oregon, Providence, Rhode Island, and many others.

This study extends the research of Defond and Hung (2003), who found significance between analysts’ forecasts of cash flow and security returns, but failed to find significance between accounting earnings and security returns. Overall results indicate that accounting earnings possess information content to the investor when associated with firms’ security prices, regardless of industry. When assessing the analysts’ forecast of cash flows, industry membership, along with analyst group (i.e., above or below average), seem to have a bearing on strength of information content when relating the forecast to security prices of the firms

The Schedule C Tax Gap. In 2012, the Internal Revenue Service (IRS) released some rather startling data in relation to the US tax gap. The data shows a significant increase in the size of the tax gap in a matter of just a few years. What has caused this increase? Does this mean that people are finding more ways to commit tax evasion? What does this mean for the US tax system as a whole? After the release of this data, the IRS provided some observations to help explain this vast increase in the tax gap.

Co-authored with C. Williams. According to the US Census, there are approximately 100 million ethnic minorities in the United States. In addition, the population will continue to increase, and by 2050, minorities will account for nearly half of the US population. Based on this data, there is a high probability that minorities will represent an increasing percentage of those working in the accounting profession. Today, however, minorities do not represent a great number in this rapidly growing field.