Accounting Adjustments and the Valuation of Financial Statement Note Information in 10-K Filings

47 Pages Posted: 17 Mar 2010

See all articles by Gus De Franco

Gus De Franco

Tulane University - A.B. Freeman School of Business

M.H. Franco Wong

University of Toronto - Rotman School of Management

Yibin Zhou

University of Texas at Dallas - School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: March 10, 2010

Abstract

We examine the valuation of financial statement note information at the time of 10-K filings. We conjecture that financial statement users explore the information in these notes to compute accounting adjustments to correct the imperfections in financial statements. We find that stock returns around 10-K filings are positively related to accounting adjustments, calculated from note information. We further find that the likelihood of equity analysts updating their target price estimates at the 10-K dates is increasing in the magnitude of the adjustments. Those analysts who do update their target prices at this time revise their estimates consistent with the sign and magnitude of the adjustments. These findings are consistent with financial statement users using financial statement note information to make accounting adjustments, thereby incorporating this information into stock prices.

Keywords: Accounting adjustments, financial statement note information, 10-K filings, equity analysts, target price estimates

JEL Classification: G14, G29, M40, M41, M44

Suggested Citation

De Franco, Gus and Wong, M.H. Franco and Zhou, Yibin, Accounting Adjustments and the Valuation of Financial Statement Note Information in 10-K Filings (March 10, 2010). Available at SSRN: https://ssrn.com/abstract=1569644 or http://dx.doi.org/10.2139/ssrn.1569644

Gus De Franco

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

M.H. Franco Wong (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6
Canada
416-946-0729 (Phone)

HOME PAGE: http://www.rotman.utoronto.ca/FacultyAndResearch/Faculty/FacultyBios/Wong.aspx

Yibin Zhou

University of Texas at Dallas - School of Management ( email )

2601 N. Floyd Road
Richardson, TX 75080
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
231
Abstract Views
2,216
rank
46,451
PlumX Metrics