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Abstract:
The 1990s were characterized by substantial increases in the performance of and investor reliance on financial analysts. Because managers possess superior private information and issue forecasts to align investors' expectations with their own, we predict that managers increased the quality of their earnings forecasts during the 1990s in order to keep pace with the improved forward-looking information provided by financial analysts, upon which investors increasingly relied.

Using a sample of 2,437 management earnings forecasts, we document an increase in management earnings forecast precision, management earnings forecast accuracy, and managers' tendency to explain earnings forecasts in 1993-1996 relative to 1983-1986. Given that these forecast characteristics are linked to greater informativeness and credibility, we also document that the information content of management earnings forecasts, as measured by the strength of share price responses to forecast news, increased in 1993-1996 relative to 1983-1986. As expected, the increased information content of management forecasts primarily occurred for firms covered by financial analysts.

Management forecasts, Information environment, Earnings quality

Abstract:
Managers often explain their earnings forecasts by linking forecasted performance to their internal actions and the actions of parties external to the firm. These attributions potentially aid investors in the interpretation of management forecasts by confirming known relationships between attributions and profitability or by identifying additional causes that investors should consider when forecasting earnings. We investigate why managers choose to provide attributions with their forecasts and whether the attributions are related to security price reactions to management earnings forecasts. Using a sample of 951 management earnings forecasts issued from 1993 to 1996, we find that attributions are more likely for larger firms, less likely for firms in regulated industries, less likely for forecasts issued over longer horizons, more likely for bad news forecasts, and more likely for forecasts that are maximum type. Furthermore, attributions are associated with greater absolute price reactions to management forecasts, more negative price reactions to management forecasts (forecast news held constant), and a greater price reaction per dollar of unexpected earnings. Our findings hold after control for the aforementioned determinants of attributions and after control for other firm- and forecast-specific variables that are often associated with security prices.

Abstract:
"Wal-Mart's Use of Interest Rate Swaps" recounts Wal-Mart's use of interest rate swaps to hedge the fair value of its fixed-rate debt against changing interest rates. This case provides students with a foundation for understanding the use of and accounting for more complex derivatives. Specific issues raised include: (1) the financial statement impact of hedge accounting, (2) motivations for using derivatives, including the potential role of accounting standards, and (3) the degree to which financial statement and MD&A disclosures are sufficiently informative about the risks associated with financial instruments.

Abstract:
Explains the accounting for interest rate derivatives under Statement of Financial Accounting Standards 133.

Abstract:
Statement of Financial Accounting Standards 141 (SFAS No. 141)'s requirement that an acquirer in a business combination estimate the fair value of the target's separately identifiable assets and liabilities (including research and development capital) provides a rare occasion where estimated fair values of U.S. firms' research and development (R&D) capital based on private information about their R&D activities are publicly disclosed. The degree to which equity values impound the estimated fair values of R&D depends upon the extent to which the private information implicit in the R&D estimates is reflected in investor expectations. Financial statement recognition of R&D capital and analyst activities have been cited as alternative mechanisms by which private information about firms' R&D activities can be revealed to investors. I investigate the degree to which both mechanisms lead to the public revelation of the private information implicit in the R&D fair value estimates by examining whether financial statement recognition of R&D assets by the target prior to the merger announcement and/or analyst coverage of a target prior to the merger announcement influence the degree to which the target's pre-merger announcement equity value reflects the acquirer's subsequently disclosed estimate of the fair value of the target's R&D capital. I find that the degree to which a target's pre-merger announcement equity value reflects the estimated fair value of its R&D capital is increasing in the amount of R&D-related intangibles captured in the target's pre-merger announcement balance sheets and in the number of analysts covering the target prior to the merger announcement. This evidence is consistent with the notion that both financial statement recognition and analysts' private information search activities lead to the revelation of private information about the value of R&D assets that investors incorporate into equity values. I further find that the positive relation between analyst following and the market's valuation of R&D capital is strongest for the portion of the estimated fair value of R&D capital that is unrecognized by the target prior to the merger announcement. This finding is consistent with analysts filling in the information gap left by the lack of financial statement recognition. The results of this study confirm the theorized roles of financial statement recognition and analyst activities in aiding the market's valuation of intangible assets.

Intangible Assets, R&D Capital, Analysts

Abstract:
I extend prior research on the information content of conference calls by examining whether they accelerate analysts' and investors' responses to the future implications of currently announced earnings. I find that the initiation of conference calls is associated with a significant reduction in the serial correlation in analyst forecast errors, a measure of initial analyst underreaction. I also find that the initiation of conference calls is associated with significant reductions in two measures of initial investor underreaction: (1) post-earnings announcement drift and (2) the proportion of the total market reaction to firms' earnings announcements that is "delayed" (i.e. that is attributable to post-earnings announcement drift). The reduction in post-earnings announcement drift surrounding conference call initiation is concentrated in the set of sample firms where drift is most severe (i.e. the smallest, least heavily traded sample firms) while the largest, most heavily traded sample firms do not exhibit significant drift either before or after conference call initiation. Robustness tests, including analyses of matched samples of non-conference call firms, indicate that the results are not driven by general increases in analyst and investor sophistication over time or by contemporaneous increases in the information and trading environments of conference call initiators.

Conference calls, post-earnings announcement drift, voluntary disclosure

Abstract:
Citing fear of legal liability as a partial explanation, prior research documents (1) managers' reluctance to voluntarily disclose management earnings forecasts, and (2) higher forecast disclosure frequencies in periods of bad news. We provide evidence on how management earnings forecast disclosure differs between the United States (U.S.) and Canada, two otherwise similar business environments with different legal regimes. Canadian securities laws and judicial interpretations create a far less litigious environment than exists in the U.S. We find a greater frequency of management earnings forecast disclosure in Canada relative to the U.S. Further, although U.S. managers are relatively more likely to issue forecasts during interim periods in which earnings decrease, Canadian managers do not exhibit that tendency. Instead, Canadian managers issue more forecasts when earnings are increasing, and their forecasts are of annual rather than interim earnings. Also consistent with a less litigious environment, Canadian managers issue more precise and longer-term forecasts. These findings hold after controlling for other determinants of management earnings forecast disclosure that might differ between the two countries: firm size, earnings volatility, information asymmetry, growth, capitalization rates, and membership in high-technology and regulated industries.