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Abstract:
The absence of organized markets in intangibles has been a major hindrance to their recognition as assets in financial reports. Economic conditions, however, change fast and markets in intangibles, particularly in patents and know-how, are operating both off and on-line (Internet). We examine various valuation and disclosure aspects of the most active of these markets - the licensing of patents and know-how - which has grown substantially in recent years.Our findings indicate that: (a) a significant nonuniformity exists in the financial reporting of royalty (licensing) income across firms, (b) royalty income is a highly relevant variable to investors, (c) in addition to being an important source of income, the intensity of patent royalties provides investors with a strong signal concerning the value and potential of R&D expenditures, and (d) given both the direct and indirect (signaling) valuation implications of royalty income, and the heightened public concern about the adequacy of information concerning intangibles, accounting standard-setters should reevaluate firms' disclosure of various aspects of patents, technology, and know-how.

patent licensing, royalty, intangibles

Abstract:
The absence of organized markets in intangibles has been a major hindrance to their recognition as assets in financial reports. Economic conditions, however, change fast and markets in intangibles, particularly in patents and know-how, are operating both off and on-line (Internet). We examine various valuation and disclosure aspects of the most active of these markets - the licensing of patents and know-how - which has grown substantially in recent years.

Our findings indicate that: (a) a significant nonuniformity exists in the financial reporting of royalty (licensing) income across firms, (b) royalty income is a highly relevant variable to investors, (c) in addition to being an important source of income, the intensity of patent royalties provides investors with a strong signal concerning the value and potential of R&D expenditures, and (d) given both the direct and indirect (signaling) valuation implications of royalty income, and the heightened public concern about the adequacy of information concerning intangibles, accounting standard-setters should reevaluate firms' disclosure of various aspects of patents, technology, and know-how.

Patent licensing; Royalty; Intangibles

Abstract:
We hypothesize that the root cause of many goodwill write-offs - managers' public admission of ill-advised corporate acquisitions - is the overpriced shares of buyers at acquisition. Overpriced shares provide managers with strong incentives to invest, and particularly to acquire businesses, even at excessive prices and doubtful strategic fit, in order to buy themselves out of the overpriced share predicament and postpone the inevitable price correction by portraying continued growth. We corroborate our hypothesis by documenting: (1) share overpricing is strongly and positively associated with the intensity of corporate acquisitions, (2) share overpricing is negatively related to the post-acquisition share performance of buyers, beyond the price correction, indicating a negative relation between overpricing and the quality of acquisitions, (3) share overpricing is positively related to the size of goodwill write-offs. We further show that share overpricing predicts both goodwill write-offs and their magnitude, and that acquisition by overpriced companies is a losing proposition for shareholders. Finally, we document some of the serious private and social consequences of the ill-advised acquisitions made by overpriced firms. These findings contribute to the accounting literature on business combinations and goodwill, as well as to the finance/economics research on investor sentiments and corporate investment.

Abstract:
This study investigates management incentive to disclose non-GAAP indicators concerning innovation in high-technology industries and the usefulness of the disclosure. As predicted, we find that firms increase disclosures of innovation when current earnings are less informative, or when future earnings are more uncertain. This finding is consistent with firms increasing disclosure in response to investor information demands when accounting data are less useful in assessing firm value. We also find that disclosures of innovation contain price-sensitive news. In addition, we find that disclosures of innovation are positively associated with the firm's future sales growth, profitability, and stock returns, after controlling for current performance and other factors known to influence future performance. This evidence is consistent with management disclosure conveying value-relevant information that is not reflected in current performance, but is predictive of future performance.

disclosure, innovation, high-technology firms, value-relevance

Abstract:
We hypothesize that the root cause of many goodwill write-offs - managers' public admission of ill-advised corporate acquisitions - is the overpriced shares of buyers at acquisition. Overpriced shares provide managers with strong incentives to invest, and particularly to acquire businesses, even at excessive prices and doubtful strategic fit, in order to buy themselves out of the overpriced share predicament and postpone the inevitable price correction by portraying continued growth. We corroborate our hypothesis by documenting: (1) share overpricing is strongly and positively associated with the intensity of corporate acquisitions, (2) share overpricing is negatively related to the post-acquisition share performance of buyers, beyond the price correction, indicating a negative relation between overpricing and the quality of acquisitions, (3) share overpricing is positively related to the size of goodwill write-offs. We further show that share overpricing predicts both goodwill write-offs and their magnitude, and that acquisition by overpriced companies is a losing proposition for shareholders. Finally, we document some of the serious private and social consequences of the ill-advised acquisitions made by overpriced firms. These findings contribute to the accounting literature on business combinations and goodwill, as well as to the finance/economics research on investor sentiments and corporate investment.

Abstract:
Loan announcement effects for 152 Canadian companies are examined to investigate the efficiency of monitoring by banks facing lender environmental liability. Market reaction to the announcement of bank debt to environmental firms is more positive and significant than for non-environmental firms and, for firms in industries with a higher likelihood of experiencing spill events, is more positive and significant, reinforcing earlier results that establish a relationship between specific loan/borrower characteristics and announcement period excess returns and providing further evidence on the uniqueness of bank loans by demonstrating the superior ability of banks to monitor corporate borrowers exposed to environmental liability.

Abstract:
We examine stock price reaction to voluntary disclosure of innovation strategy by high-tech firms and its relation with insider stock transactions before the disclosure. We find that, despite the qualitative and subjective nature of strategy-related disclosure, there is positive stock price reaction to the disclosure. The evidence suggests that investors view the disclosure as credible good news. We also find that the disclosure is associated with more positive stock price reaction when it is preceded by insider purchase transactions. This evidence is consistent with insider purchase enhancing the credibility of the disclosure. The credibility-enhancing effect is found to be stronger for firms with higher degrees of information asymmetry (younger firms, firms with lower analyst following, loss firms, and firms with higher research and development (R&D) intensity). Our evidence also indicates that predisclosure insider purchase is associated with greater future abnormal returns, suggesting that managers are privy to good news shortly before the disclosure.

Abstract:
This paper investigates factors that are associated with management decisions to disclose warranty information voluntarily. First, I find that firms with lower warranty liabilities are more likely to disclose the information. Second, firms whose warranty provisions are lower than other firms with similar warranty liabilities or lower than what their own warranty liabilities would imply choose to disclose the provision amount. Third, firms which disclose warranty liabilities voluntarily are characterized by less volatile time-series of warranty liabilities. The evidence supports the notion that the benefits from signaling good news exceed potential proprietary costs from adverse reactions of consumers or from competitors' responses.

Abstract:
This study examines the global disclosure practices of U.S. companies that list equities in overseas markets. We focus on two questions: First how (if at all) do the frequency mix and timing of a firm's disclosures change in an overseas market when the firm lists equity in that market? Second after a U.S. firm has listed overseas are its disclosures in the overseas market as frequent and as timely as in the U.S.? We observe that U.S. firms listing in the U.K. and in Continental Europe do not increase the frequency of timeliness of accounting disclosures they make in Europe during the post-listing period. In contrast the private U.S. firms making initial public offerings in the U.K. and U.S. firms listing existing equity in Japan do increase disclosure frequency and timeliness. We also find that U.S. firms make fewer and less timely accounting disclosures in non-U.S. markets than in the U.S. during the post-listing period. These results suggest that since acquiring and maintaining an equity listing in the U.K. and Continental Europe is inexpensive and monitoring and enforcement of disclosure rules is not stringent U.S. firms might list in those markets even when they have little serious intention of expanding their shareholder bases or complying with the disclosure rules there. In contrast since listing equity in Japan is comparatively expensive perhaps the only firms that list in Japan are those that believe they can benefit significantly from the foreign listing and this may influence their disclosure choices.