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Hui Zhou's
Scholarly Papers
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Downloads
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1.
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Hui Zhou
University of Illinois at Urbana-Champaign
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10 Apr 09
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Last Revised:
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03 Nov 09
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172
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Abstract:
SFAS 133 requires the application of fair value accounting to hedging derivatives. This study investigates the income statement effect of SFAS 133 by examining 1) whether SFAS 133 improves the information content of accounting earnings, and 2) whether the differential accounting treatment of different categories of hedging activities under SFAS 133 induces opportunistic earnings management behavior. Using a sample of bank holding companies during the period from 1995 through 2005, I find evidence that SFAS 133 results in more informative earnings. However, this improvement in earnings quality is mitigated by differential accounting treatment of cash flow hedge that defers the recognition of derivative gains/losses, and I find evidence that firms take advantage of this deferral mechanism to avoid earnings decreases.
fair value accounting, SFAS 133, earnings quality, earnings management
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2.
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Hui Zhou
University of Illinois at Urbana-Champaign
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06 Sep 09
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Last Revised:
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22 Oct 09
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104
(76,735)
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Abstract:
This study investigates the income statement effect of SFAS 133, which requires the application of fair value accounting to hedging derivatives, by examining 1) whether SFAS 133 improves the information content of accounting earnings, and 2) whether the differential accounting treatment of different categories of hedging activities under SFAS 133 induces opportunistic earnings management behavior. Using a sample of bank holding companies during the period from 1995 through 2005, I find evidence that SFAS 133 results in more informative earnings. However, this improvement in earnings quality is mitigated by differential accounting treatment of cash flow hedge that defers the recognition of derivative gains/losses, and I find evidence that firms take advantage of this deferral mechanism to avoid earnings decreases.
fair value accounting, SFAS 133, earnings quality, earnings management
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3.
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Gans Narayanamoorthy
University of Illinois at Urbana-Champaign Hui Zhou
University of Illinois at Urbana-Champaign
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21 Sep 08
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Last Revised:
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10 Apr 09
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25
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Abstract:
This study examines stock returns around announcements of litigation settlements to investigate market expectations of corporate litigation outcomes and the importance of financial distress costs. Unlike prior research that considers a settlement an exogenous shock, this study draws on analytical models in the economics literature to analyze how the market forms expectations prior to settlements and how these expectations affect market reactions upon news of settlements. Consistent with the implications of these models, we find that returns around settlements are more positive when higher stake lawsuits are settled. We also find evidence of the existence of financial distress costs, although our results contradict the conclusion from prior research that the unexpected relief from financial distress is the primary benefit of litigation settlements. Finally, our analysis suggests that the contingent legal liabilities recognized in financial statements have low value relevance.
litigation settlements, financial distress, contingent liabilities
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