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University of Alberta School of Business
Department of Accounting and OIS
Accounting 708 Ph.D. Seminar
Capital Markets-Based Financial Accounting Research Winter 2017
Prof. Shamin Mashruwala Office: 3-30C
Phone: 780.492.5394
Email: [email protected]
Class: Wed 10:00-12:50 (Tory B109)
Course Objectives
The objective of this course is to develop your ability to critically evaluate and conduct empirical research on (1) the role of accounting information in security valuation; and (2) market-based assessments of the usefulness and limitations of alternative accounting measurements and disclosures. Important elements of this include developing:
(a) An appreciation for the role of theory in applied work.
(b) An understanding of research designs commonly used in accounting and finance research.
(c) The necessary skills to design and conduct empirical research.
(d) Skills to identify a marketable project.
The learning objectives described above are in keeping with the PhD program’s three learning goals: acquiring advanced knowledge, creating advanced knowledge, and preparing effective teachers in higher education.
Course Requirements & Grading
This course will be conducted as a seminar. You will be evaluated based on your performance on the following:
1. Class discussions and paper outlines (40%)
2. Research proposal (30%, due Wednesday, April 12) 3. Paper review (30%, due Monday, April 17)
2 Class discussions
You are expected to take an active role in discussing and evaluating the readings assigned for each class session. This requires in-depth reading and critical analysis of the assigned papers prior to the class in which they are discussed. The purpose of the discussion is not to summarize the assigned papers. Instead, the focus is on addressing such questions as: Why was the topic chosen? What is the theoretical basis underlying the analysis? What are the properties of the research design? The idea is to understand why the study was conducted in the manner it was.
These considerations should also guide the preparation of your written outlines (discussed below).
Each of you is expected to prepare an outline for one of the assigned papers for every session.
We will do the paper assignments in the first class (thus, no outlines are required for the first class). I will provide some guidance with respect to preparing your outlines. You should make copies of your outline and distribute them to all seminar participants at the beginning of each class session. These outlines will also help you prepare for your comprehensive examinations.
I will lead the class discussion for the first four sessions. In subsequent sessions, each of you will be responsible for leading the class discussion for the paper for which you prepared an outline.
Quality participation in class discussions can take several forms including: clarifying issues raised in the assigned readings to enhance the understanding of the class; asking penetrating questions; providing supportive comments or constructively challenging what other participants have said; integrating the material covered both within and across class sessions; and even offering new ideas!
Research proposal
The ability to identify a question and analyze its potential as a research topic is critical to your performance as an academic researcher. This ability is learned and refined through practice. To this end, you are required to complete a research proposal for this seminar. The topic should be related to the course and be of interest to you.
You must provide me with a one-page outline of your tentative topic for my approval no later than Wednesday, March 29. The outline should include a brief description of what the problem is that the proposal addresses, why this problem is important, and how the proposal addresses the problem.
The final research proposal is due in class on Wednesday, April 12 (last class). Your research proposal would amplify the above issues in greater detail and should be between 7 and 10 pages in length. Specifically, it should identify the research question, discuss the importance of the research, review related literature, explain the proposed research design (including the research hypotheses, how they will be tested, what data will be required), and identify the potential outcomes and inferences that can be drawn. You do not need to run any data.
3 Paper review
Evaluating the rigor and soundness of research papers is an important part of your academic life.
You will frequently be asked to review colleagues’ papers as part of academic journals’ review process. I will provide you with a working paper, and you will review the manuscript from the perspective of a referee for an academic journal. Your review should be organized as follows:
(1) An opening paragraph that briefly summarizes the working paper, and indicates the main strengths (if any) of the paper.
(2) A decision paragraph in which you recommend immediate acceptance, conditional acceptance, revise and resubmit, or reject, along with a few sentences justifying your decision.
(3) A summary of your major concerns with the paper, including recommendations for how your concerns might be addressed. This section of your review can be as long as you like. Note that, although you should think carefully about how your concerns might be addressed by the author(s), sometimes it is simply not possible to address a particular concern (for example, due to data restrictions). If this is the case for any of the issues you raise, you can simply state that you perceive this concern to be
insurmountable. Depending on the seriousness of the issue, this may or may not affect your recommendation to the editor.
(4) A summary of your minor concerns with the paper.
Please note that in order to assess the working paper’s incremental contribution, you should also read the major papers on which the working paper relies.
The paper review is due by 10am on Monday, April 17.
4 Reading List Class 1, Jan 11 – Information Content of Earnings
Ball, R. and P. Brown, “An Empirical Evaluation of Accounting Income Numbers,”
Journal of Accounting Research (1968), pp. 159-178.
Beaver, W., “The Information Content of Annual Earnings Announcements,” Supplement to The Journal of Accounting Research (1968), pp. 67-92.
Kothari, S.P., “Capital Market Research in Accounting,” Journal of Accounting and Economics (2001), pp. 105-232.
Lee, C., “Market Efficiency and Accounting Research: A Discussion of ‘Capital Market Research in Accounting’ by S.P. Kothari,” Journal of Accounting and Economics (2001), pp. 233-253.
Class 2, Jan 18 – Information Content of Earnings
Beaver, W., R. Clarke and F. Wright, “The Association Between Unsystematic Security Returns and the Magnitude of Earnings Forecast Errors,” Journal of Accounting Research (1979), pp. 316-340.
Beaver, W., R. Lambert and D. Morse, “The Information Content of Security Prices,”
Journal of Accounting and Economics (1980), pp. 3-28.
Patell, J., “Corporate Forecasts of Earnings Per Share and Stock Price Behavior:
Empirical Tests,” Journal of Accounting Research (1976), pp. 246-76
Brown, S. and J. Warner “Measuring Security Price Performance,” Journal of Financial Economics (1980), pp. 205-258
Brown, S. and J. Warner, “Using Daily Stock Returns: The Case of Event Studies,”
Journal of Financial Economics (1985), pp. 3-31.
Class 3, Jan 25 – Earnings Response Coefficients
Kormendi, R. and R. Lipe, “Earnings Innovations, Earnings Persistence and Stock Returns,” Journal of Business, (1987), pp. 323-345.
Collins, D. and S.P. Kothari, “An Analysis of the Intertemporal and Cross-Sectional Determinants of Earnings Response Coefficients,” Journal of Accounting and Economics (1989), pp. 143-181.
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Kothari, S.P. and R. Sloan, “Information in Prices about Future Earnings: Implications for Earnings Response Coefficients,” Journal of Accounting and Economics 15, (1992), 143-171.
Hayn, C., “The Information Content of Losses,” Journal of Accounting and Economics (1995), pp. 155-192
Class 4, Feb 1 - Conservatism
Basu, S., “The Conservatism Principle and the Asymmetric Timeliness of Earnings,”
Journal of Accounting & Economics (1997), pp. 3-37.
Givoly, D. and C. Hayn, “The Changing Time-Series Properties of Earnings, Cash Flows and Accruals: Has Financial Reporting Become More Conservative?” Journal of
Accounting and Economics (2000), pp. 287-320.
Ball, R., S.P. Kothari and A. Robin, “The Effect of International Institutional Factors on Properties of Accounting Earnings.” Journal of Accounting and Economics (2000), pp. 1- 52.
Ball, R. and L. Shivakumar, “The Role of Accruals in Asymmetrically Timely Gain and Loss Recognition,” Journal of Accounting Research (2006), pp. 207-241.
Class 5, Feb 8 – Alternative Performance Measures
Dechow, P., “Accounting Earnings and Cash Flows as Measures of Firm Performance:
The Role of Accounting Accruals,” Journal of Accounting and Economics (1994), pp. 3- 42.
Bowen, R., G. Biddle and J. Wallace, “Does EVA beat Earnings? Evidence on Associations with Stock Returns and Firm Values," Journal of Accounting and Economics (1997), pp. 301-306.
Dhaliwal, D., K. Subramanyam and R. Trezevant, “Is Comprehensive Income Superior to Net Income as a Measure of Performance?” Journal of Accounting and Economics
(1999), pp. 43-67.
Class 6, Feb 15 - Discretionary Accruals
Jones, J., “Earnings Management During Import Relief Investigations,” Journal of Accounting Research (1991), pp. 193-228.
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Dechow, P., R. Sloan and A. Sweeney, “Detecting Earnings Management,” The Accounting Review (1995), pp. 3-42.
Kothari, S.P., A. Leone and C. Wasley, “Performance Matched Discretionary Accrual Measures,” Journal of Accounting and Economics (2005), pp. 163-197.
Marquardt, C. and C. Wiedman, “How Are Earnings Managed? An Examination of Specific Accruals,” Contemporary Accounting Research (2004), pp. 461-491.
Class 7, Mar 1
NO CLASS – Explore potential research ideas for your proposals
Class 8, Mar 8 – Market Inefficiency: The Pricing of Earnings
Bernard, V. and J. Thomas, “Post-Earnings-Announcement Drift: Delayed Price Response or Risk Premium,” Supplement: Journal of Accounting Research, (1989), pp. 1-48.
Bernard, V. and J. Thomas, “Evidence That Stock Prices Do Not Fully Reflect the Implications of Current Earnings for Future Earnings,” Journal of Accounting and Economics (1990), pp. 305-340.
Ball, R. and E. Bartov, “How Naïve is the Stock Markets' Use of Earnings Information?”
Journal of Accounting & Economics, (1996), pp. 319-337.
Class 9, Mar 15 – Market Inefficiency: The Pricing of Accruals
Sloan, R., “Do Stock Prices Fully Reflect Information in Accruals and Cash Flows About Future Earnings?” Accounting Review (1996), pp. 289-316.
Xie, H., “The Mispricing of Abnormal Accruals,” Accounting Review (2001), pp. 357- 373.
Burgstahler, D., J. Jiambalvo and T. Shevlin, “Do Stock Prices Fully Reflect the Implications of Special Items for Future Earnings?” Journal of Accounting Research, (2002), 585-612.
Subramanyam, K., “The Pricing of Discretionary Accruals,” Journal of Accounting and Economics (1996), pp. 249-281.
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Francis, J., R. Lafond, P. Olsson and K. Schipper, “The Market Pricing of Accruals Quality,” Journal of Accounting and Economics 39(2) (2005)
Barth, M., Y. Konchitchki and W. Landsman, “Cost of Capital and Earnings Transparency,” Journal of Accounting and Economics (2013), pp. 206-224.
Hail, L. and C. Leuz, “International Differences in the Cost of Equity Capital: Do Legal Institutions and Securities Regulation Matter?” Journal of Accounting Research (2006), pp. 485-531.
Core, J., W. Guay and R. Verdi, “Is Accruals Quality a Priced Risk Factor?” Journal of Accounting and Economics (2008), pp. 2-22.
Dechow, P., W. Ge and C. Schrand, “Understanding Earnings Quality: A Review of the Proxies, their Determinants and their Consequences,” Journal of Accounting and Economics (2010), pp. 344-401.
Class 11, Mar 29 – Valuation and Fundamental Analysis
Ohlson, J., “Earnings, Book Value and Dividends in Security Valuation,” Contemporary Accounting Research (1995), pp. 661-688.
Lev, B. and R. Thiagarajan, “Fundamental Information Analysis,” Journal of Accounting Research (1993), pp. 190-215.
Abarbanell, J. and B. Bushee, “Fundamental Analysis, Future Earnings, and Stock Prices,” Journal of Accounting Research (1997), pp. 1-24.
Frankel, R., and C. Lee, “Accounting Valuation, Market Expectation, and Cross- Sectional Stock Returns,” Journal of Accounting and Economics (1998), pp. 283-320.
Dechow, P., A. Hutton and R. Sloan, “An Empirical Assessment of the Residual Income Valuation Model,” Journal of Accounting and Economics (1999), pp. 1-34.
Class 12, Apr 5 – Value Relevance
Aboody, D., M. Barth and R. Kasznik, “SFAS 123 Stock-Based Compensation Expense and Equity Market Values,” The Accounting Review (2004), pp. 251-275.
Francis, J. and K. Schipper, “Have Financial Statements Lost Their Relevance?” Journal of Accounting Research (1999), pp. 319-352.
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Brown, S., K. Lo and T. Lys, “Use of R2 in Accounting Research: Measuring Changes in Value Relevance over the Last Four Decades,” Journal of Accounting and Economics (1999), pp. 83-115.
Holthausen, R.W. and R.Watts, “ The Relevance of the Value-Relevance Literature for Financial Accounting Standard Setting,” Journal of Accounting and Economics, (2001), pp. 3-75.
Barth, M., W. Beaver, and W. Landsman, “The Relevance of the Value Relevance Literature for Financial Accounting Standard Setting: Another View,” Journal of Accounting and Economics (2001), pp. 77-104.
Class 13, Apr 12 – Accounting-Based Cost of Equity
Easton, P., and S. Monahan, “An Evaluation of Accounting Based Measures of Expected Returns,” The Accounting Review (2005), pp. 501-538.
Botosan, C., and M. Plumlee, “Assessing Alternatives Proxies for Expected Risk Premium,” The Accounting Review, (2005), pp. 21-53.
Li, K., and P. Mohanram, “Evaluating Cross-Sectional Forecasting Models for Implied Cost of Capital,” Review of Accounting Studies (2014), pp. 1152-1185.
