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Publications
Journal Article
Review of Accounting Studies
Frank Ecker, Jennifer Francis, Per Olsson, Katherine Schipper
Subject(s)
Finance, accounting and corporate governance
Keyword(s)
Association tests, non-random sampling, equity, returns
Journal Article
Journal of Accounting, Auditing, and Finance
Neil Bhattacharya, Per Olsson, Hyungshin Park
Subject(s)
Finance, accounting and corporate governance
Keyword(s)
Analyst forecast, earnings announcement, investor sophistication, under-reaction
We decompose analysts’ earnings forecast error into predictable and unpredictable components, and investigate individual vis-à-vis institutional investors’ reactions to each of these components. We find that in the immediate post-earnings announcement window, only individuals under-react to the predictable component, while both individuals and institutions under-react to the unpredictable component. The price drift in this window is driven primarily by investors’ under-reaction to the unpredictable component. This drift remains highly significant in larger firms and intensifies in firms with complex financial reports, suggesting that it likely represents the slow and noisy process of price discovery. Around the next quarterly earnings announcement, only individuals under-react to the previous quarter’s predictable component, and this fixation drives the entire price drift in this window. This drift disappears in larger firms, and gets exacerbated in firms with greater forecast error autocorrelations, suggesting that it is likely attributable to incomplete processing of earnings information by individuals.
​​​​With permission of SAGE Publishing
ISSN (Online)
2160-4061
Journal Article
Journal of Accounting and Economics 56 (2–3): 190–211
Frank Ecker, Jennifer Francis, Per Olsson, Katherine Schipper (2013)
Subject(s)
Finance, accounting and corporate governance
Keyword(s)
Discretionary accruals, earnings management, peer firms, discretionary accruals models
JEL Code(s)
M41, M42, C12, C13, C18
We examine how the criteria for choosing estimation samples affect the ability to detect discretionary accruals, using several variants of the Jones (1991) model. Researchers commonly estimate accruals models in cross-section, and define the estimation sample as all firms in the same industry. We examine whether firm size performs at least as well as industry membership as the criterion for selecting estimation samples. For U.S. data, we find estimation samples based on similarity in lagged assets perform at least as well as estimation samples based on industry membership at detecting discretionary accruals, both in simulations with seeded accruals between 2% and 100% of total assets and in tests examining restatement data and AAER data. For non-U.S. data, we find industry-based estimation samples result in significant sample attrition and estimation samples based on lagged assets perform at least as well as estimation samples based on industry membership, both in simulations and in tests examining German restatement data, with substantially less sample attrition.
With permission of Elsevier
Volume
56
Journal Pages
190–211
Journal Article
The Accounting Review 87 (2): 449–482
Nilabhra Bhattacharya, Frank Ecker, Per Olsson, Katherine Schipper (2012)
Subject(s)
Finance, accounting and corporate governance
Keyword(s)
Path analysis, earnings quality, information asymmetry
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 the cost of equity, and an indirect path that is mediated by information asymmetry, with the weight of the evidence favoring the direct path as the more important.
With the permission of the American Accounting Association
Volume
87
Journal Pages
449–482
Journal Article
Review of Accounting Studies 15 (3): 658–662
Per Olsson (2010)
Subject(s)
Finance, accounting and corporate governance
Keyword(s)
Accounting choice, contagion, diffusion, stock options
JEL Code(s)
M40, M41
Volume
15
Journal Pages
658–662
Journal Article
Foundations and Trends in Accounting 1 (4): 259–340
Jennifer Francis, Per Olsson, Katherine Schipper (2008)
Subject(s)
Finance, accounting and corporate governance
Keyword(s)
Management control
Volume
1
Journal Pages
259–340
Journal Article
Review of Accounting Studies 13 (2–3): 411–417
Per Olsson (2008)
Subject(s)
Finance, accounting and corporate governance
Keyword(s)
Inventory, accruals quality, information risk, cost of capital, asset pricing
JEL Code(s)
M41, G12
Volume
13
Journal Pages
411–417
Journal Article
Journal of Accounting Research 46 (1): 53–99
Jennifer Francis, Dhananjay Nanda, Per Olsson (2008)
Subject(s)
Finance, accounting and corporate governance
We investigate the relations among voluntary disclosure, earnings quality, and cost of capital. We find that firms with good earnings quality have more expansive voluntary disclosures (as proxied by a self-constructed index of coded items found in 677 firms' annual reports and 10-K filings in fiscal 2001) than firms with poor earnings quality. In unconditional tests, we find that more voluntary disclosure is associated with a lower cost of capital. However, consistent with the complementary association between disclosure and earnings quality, we find that the disclosure effect on cost of capital is substantially reduced or disappears completely (depending on the cost of capital proxy) once we condition on earnings quality. Extensions probing alternative proxies show that our findings are robust to measures of earnings quality and cost of capital, but not to other measures of voluntary disclosure. In particular, we find opposite relations for voluntary disclosure measures based on management forecasts and conference calls, and we find no relations for a press release based measure.
© University of Chicago on behalf of the Institute of Professional Accounting, 2008
Volume
46
Journal Pages
53–99
Journal Article
Journal of Business Finance and Accounting 34 (3–4): 403–433
Jennifer Francis, Ryan LaFond, Per Olsson, Katherine Schipper (2007)
Subject(s)
Finance, accounting and corporate governance
Keyword(s)
Anomalies, earnings quality, information uncertainty, abnormal returns
We examine whether rational investor responses to information uncertainty (IU) explain properties of and returns to the post-earnings-announcement-drift (PEAD) trading anomaly. Consistent with a rational learning explanation, we find that: (1) unexpected earnings (UE) signals that are characterized as having greater IU have more muted initial market reactions; (2) extreme UE portfolios are characterized by securities with higher IU than non-extreme UE portfolios; and (3) within the extreme UE portfolios, high IU securities are more prevalent and earn larger abnormal returns than low IU securities. Further tests show that prior evidence of greater PEAD profitability for higher idiosyncratic volatility securities is explained by the greater information uncertainty associated with these securities.
© 2007 The Authors. Journal compilation © 2007 Blackwell Publishing Ltd
Volume
34
Journal Pages
403–433
Journal Article
The Accounting Review 81 (4): 749–780
Frank Ecker, Jennifer Francis, Irene Kim, Per Olsson, Katherine Schipper (2006)
Subject(s)
Finance, accounting and corporate governance
Keyword(s)
Earnings quality, returns-based measures,mimicking factor
We examine the properties of a returns-based representation of earnings quality, estimated from firm-specific asset pricing regressions augmented by an earnings quality mimicking factor. The coefficient on the earnings quality factor (the “e-loading”) captures the sensitivity of the firm’s returns to earnings quality in a given year or quarter, analogous to beta as a measure of the sensitivity of returns to market movements. Relative to other proxies for earnings quality, e-loadings can be calculated for larger samples of firms and can be estimated for shorter intervals at any point in time. Along all dimensions examined, we find that e-loadings perform well in capturing notions of earnings quality.
With the permission of the American Accounting Association
Volume
81
Journal Pages
749–780
Journal Article
Journal of Accounting and Economics 39 (2): 295–327
Jennifer Francis, Ryan LaFond, Per Olsson, Katherine Schipper (2005)
Subject(s)
Finance, accounting and corporate governance
Keyword(s)
Capital markets, accruals quality, information risk
JEL Code(s)
D80, G12, G14, M41, M43
We investigate whether investors price accruals quality, our proxy for the information risk associated with earnings. Measuring accruals quality (AQ) as the standard deviation of residuals from regressions relating current accruals to cash flows, we find that poorer AQ is associated with larger costs of debt and equity. This result is consistent across several alternative specifications of the AQ metric. We also distinguish between accruals quality driven by economic fundamentals (innate AQ) versus management choices (discretionary AQ). Both components have significant cost of capital effects, but innate AQ effects are significantly larger than discretionary AQ effects.
With permission of Elsevier
Volume
39
Journal Pages
295–327
Journal Article
The Accounting Review 79 (4): 967–1010
Jennifer Francis, Ryan LaFond, Per Olsson, Katherine Schipper (2004)
Subject(s)
Finance, accounting and corporate governance
Keyword(s)
Cost of capital, earnings quality, persistence, predictability, smoothness, value relevance, timeliness, conservatism
JEL Code(s)
M41, M44, G12, G29
We examine the relation between the cost of equity capital and seven attributes of earnings: quality, persistence, predictability, smoothness, value relevance, timeliness and conservatism. We refer to the first four attributes as accounting-based because measures of these constructs are typically based on accounting information only. We refer to the last three attributes as market-based because proxies for these constructs are typically based on relations between market data and accounting data. Our analysis of the cost of capital effects of these attributes is based on two distinct approaches to measuring the cost of capital: a cross-sectional approach which uses ex ante cost of capital estimates derived from analyst forecast data, and a time-series approach that uses realized returns and asset pricing regressions. Across both sets of tests, we find that firms with the most favorable values of each attribute, viewed individually, enjoy significantly lower costs of capital than firms with the least favorable values. The largest cost of capital effects are found for the accounting-based attributes; within this set, earnings quality has the strongest effects. Among the market-based attributes, value relevance dominates timeliness and conservatism. Considering all attributes together, the results show that investors consistently price earnings quality and earnings persistence, and to a lesser extent, value relevance.
With the permission of the American Accounting Association
Volume
79
Journal Pages
967–1010
Journal Article
Review of Accounting Studies 9 (1): 117–139
Marty Gosman, Patricia Kelly, Per Olsson, Terry Warfield (2004)
Subject(s)
Finance, accounting and corporate governance
Keyword(s)
financial reporting, intangible assets, analysis, valuation
Volume
9
Journal Pages
117–139
Journal Article
The Accounting Review 77 (1): 107–126
Hollis Ashbaugh, Per Olsson (2002)
Subject(s)
Finance, accounting and corporate governance
Keyword(s)
International accounting standards, valuation, cross-listed firms
JEL Code(s)
G12, M41, M44, M47
Despite the increasing integration of global capital markets, there is little evidence on the valuation properties of cross-listed, non-U.S. firms' accounting variables. We use the relative performance of the earnings capitalization, the book value, and the residual income valuation models to explore the valuation properties of International Accounting Standards and U.S. Generally Accepted Accounting Principles earnings and book values reported by non-U.S., cross-listed firms trading in a common equity market. Using non-U.S./non-U.K. firms whose shares trade on the International Stock Exchange Automated Quotation system in London, we find that the earnings capitalization model is the dominant accounting-based valuation model when cross-listed firms report under International Accounting Standards. In contrast, we find that when cross-listed firms report under U.S. Generally Accepted Accounting Principles, the residual income model is the dominant accounting-based valuation model. Our exploratory study provides insights into the valuation implications of allowing a dual reporting system for foreign registrants trading in a common equity market.
With the permission of the American Accounting Association
Volume
77
Journal Pages
107–126
Journal Article
Journal of Accounting Research 38 (1): 45–70
Jennifer Francis, Per Olsson, Dennis R. Oswald (2000)
Subject(s)
Finance, accounting and corporate governance
© Institute of Professional Accounting 2000
Volume
38
Journal Pages
45–70