Search Content

Industry-specific discretionary accruals and earnings management

Description

In this dissertation, I examine the source of some of the anomalous capital market outcomes that have been documented for firms with high accruals. Chapter 2 develops and implements a methodology that decomposes a firm's discretionary accruals into a firm-specific and an industry-specific component. I use this decomposition to investigate…

In this dissertation, I examine the source of some of the anomalous capital market outcomes that have been documented for firms with high accruals. Chapter 2 develops and implements a methodology that decomposes a firm's discretionary accruals into a firm-specific and an industry-specific component. I use this decomposition to investigate which component drives the subsequent negative returns associated with firms with high discretionary accruals. My results suggest that these abnormal returns are driven by the firm-specific component of discretionary accruals. Moreover, although industry-specific discretionary accruals do not directly contribute towards this anomaly, I find that it is precisely when industry-specific discretionary accruals are high that firms with high firm-specific discretionary accruals subsequently earn these negative returns. While consistent with irrational mispricing or a rational risk premium associated with high discretionary accruals, these findings also support a transactions-cost based explanation for the accruals anomaly whereby search costs associated with distinguishing between value-relevant and manipulative discretionary accruals can induce investors to overlook potential earnings manipulation. Chapter 3 extends the decomposition to examine the role of firm-specific and industry-specific discretionary accruals in explaining the subsequent market underperformance and negative analysts' forecast errors documented for firms issuing equity. I examine the post-issue market returns and analysts' forecast errors for a sample of seasoned equity issues between 1975 and 2004 and find that offering-year firm-specific discretionary accruals can partially explain these anomalous capital market outcomes. Nonetheless, I find this predictive power of firm-specific accruals to be more pronounced for issues that occur during 1975 - 1989 compared to issues taking place between 1990 and 2004. Additionally, I find no evidence that investors and analysts are more overoptimistic about the prospects of issuers that have both high firm-specific and industry-specific discretionary accruals (compared to firms with high discretionary accruals in general). The results indicate no role for industry-specific discretionary accruals in explaining overoptimistic expectations from seasoned equity issues and suggest the importance of firm-specific factors in inducing earnings manipulation surrounding equity issues.

ContributorsIkram, Atif (Author) / Coles, Jeffrey (Thesis advisor) / Hertzel, Michael (Committee member) / Tserlukevich, Yuri (Committee member) / Arizona State University (Publisher)

Created2011

Company X Digital Education Thesis Project

Description

This paper goes does a market analysis on Inter Active Flat Panel Displays (IFPDs), and talks about how company X can grow its market share in IFPDs.

ContributorsKoroli, Eri (Co-author) / Phillips, Maya (Co-author) / Morales, Herwin (Co-author) / Hauck, Tanner (Co-author) / Simonson, Mark (Thesis director) / Hertzel, Michael (Committee member) / School of Accountancy (Contributor) / Department of Finance (Contributor) / Department of Information Systems (Contributor) / Barrett, The Honors College (Contributor)

Created2021-05

Stock Price Performance in the Covid-19 Era: A Five-Phase Analysis

Description

The Covid-19 pandemic has made a significant impact on both the stock market and the global economy. The resulting volatility in stock prices has provided an opportunity to examine the Efficient Market Hypothesis. This study aims to gain insights into the efficiency of markets based on stock price performance in the Covid era.…

The Covid-19 pandemic has made a significant impact on both the stock market and the global economy. The resulting volatility in stock prices has provided an opportunity to examine the Efficient Market Hypothesis. This study aims to gain insights into the efficiency of markets based on stock price performance in the Covid era. Specifically, it investigates the market’s ability to anticipate significant events during the Covid-19 timeline beginning November 1, 2019 and ending March 31, 2021. To examine the efficiency of markets, our team created a Stay-at- Home Portfolio, experiencing economic tailwinds from the Covid lockdowns, and a Pandemic Loser Portfolio, experiencing economic headwinds from the Covid lockdowns. Cumulative returns of each portfolio are benchmarked to the cumulative returns of the S&P 500. The results showed that the Efficient Market Hypothesis is likely to be valid, although a definitive conclusion cannot be made based on the scope of the analysis. There are recommendations for further research surrounding key events that may be able to draw a more direct conclusion.

ContributorsBrock, Matt Ian (Co-author) / Beneduce, Trevor (Co-author) / Craig, Nicko (Co-author) / Hertzel, Michael (Thesis director) / Mindlin, Jeff (Committee member) / Department of Finance (Contributor) / Economics Program in CLAS (Contributor) / WPC Graduate Programs (Contributor) / Barrett, The Honors College (Contributor)

Created2021-05

Stock Price Performance In The Covid-19 Era: A Five-Phase Analysis

Description

The Covid-19 pandemic has made a significant impact on both the stock market and the global economy. The resulting volatility in stock prices has provided an opportunity to examine the Efficient Market Hypothesis. This study aims to gain insights into the efficiency of markets based on stock price performance in…

The Covid-19 pandemic has made a significant impact on both the stock market and the global economy. The resulting volatility in stock prices has provided an opportunity to examine the Efficient Market Hypothesis. This study aims to gain insights into the efficiency of markets based on stock price performance in the Covid era. Specifically, it investigates the market’s ability to anticipate significant events during the Covid-19 timeline beginning November 1, 2019 and ending March 31, 2021. To examine the efficiency of markets, our team created a Stay-at-Home Portfolio, experiencing economic tailwinds from the Covid lockdowns, and a Pandemic Loser Portfolio, experiencing economic headwinds from the Covid lockdowns. Cumulative returns of each portfolio are benchmarked to the cumulative returns of the S&P 500. The results showed that the Efficient Market Hypothesis is likely to be valid, although a definitive conclusion cannot be made based on the scope of the analysis. There are recommendations for further research surrounding key events that may be able to draw a more direct conclusion.

ContributorsCraig, Nicholas (Co-author) / Beneduce, Trevor (Co-author) / Brock, Matt (Co-author) / Hertzel, Michael (Thesis director) / Mindlin, Jeffrey (Committee member) / Department of Finance (Contributor) / Barrett, The Honors College (Contributor)

Created2021-05

Company X Collaborative Thesis: Real Estate

Description

The COVID-19 pandemic has and will continue to radically shift the workplace. An increasing percentage of the workforce desires flexible working options and, as such, firms are likely to require less office space going forward. Additionally, the economic downturn caused by the pandemic provides an opportunity for companies to secure…

The COVID-19 pandemic has and will continue to radically shift the workplace. An increasing percentage of the workforce desires flexible working options and, as such, firms are likely to require less office space going forward. Additionally, the economic downturn caused by the pandemic provides an opportunity for companies to secure favorable rent rates on new lease agreements. This project aims to evaluate and measure Company X’s potential cost savings from terminating current leases and downsizing office space in five selected cities. Along with city-specific real estate market research and forecasts, we employ a four-stage model of Company X’s real estate negotiation process to analyze whether existing lease agreements in these cities should be renewed or terminated.

ContributorsHegardt, Brandon Michael (Co-author) / Saker, Logan (Co-author) / Patterson, Jack (Co-author) / Ries, Sarah (Co-author) / Simonson, Mark (Thesis director) / Hertzel, Michael (Committee member) / Department of Finance (Contributor) / Barrett, The Honors College (Contributor)

Created2021-05

Employee stock option exercise behavior and firms' claims about employee stock option expense

Description

This dissertation analyzes the reliability of reported employee stock option (ESO) expense, the determination of expected life of ESOs, motivations to manipulate ESO expense, and the impact of noise in ESO expense on subsequent stock price returns. Based on unique data, this is the first paper to measure average historical…

This dissertation analyzes the reliability of reported employee stock option (ESO) expense, the determination of expected life of ESOs, motivations to manipulate ESO expense, and the impact of noise in ESO expense on subsequent stock price returns. Based on unique data, this is the first paper to measure average historical ESO life for all employees of a broad set of firms. I find average life has a mean of 4.12 years. Average life is reduced by 0.38 years per 10 percentage point increase in volatility, and industry effects explain an additional 7% of the variation. Reported expected life increases 0.37 years per year of historical life and an additional 0.16 years per year of age of the outstanding options. Deviations of reported volatility and life from benchmarks have positive correlations with deviations from own reporting history. Using stated assumptions rather than benchmark assumptions drops (increases) ESO expense by 8.3% (17.6%) for the 25th (75th) percentile firm. The change in earnings per share decreases (increases) by $0.019 ($0.007) for the 25th (75th) percentile firm. Tests for motivations to manipulate stock option expense downward have mixed results. Absolute values of deviations from benchmarks have a positive relationship with subsequent stock price volatility suggesting noise in reported stock option expense results in stock price noise. Deviations from benchmarks and subsequent cumulative abnormal returns have statistically significant results but are difficult to interpret.

ContributorsYoung, Brian (Author) / Coles, Jeffrey (Thesis advisor) / Hertzel, Michael (Committee member) / Babenko, Ilona (Committee member) / Arizona State University (Publisher)

Created2011

The impact of portfolio disclosure on hedge fund performance, fees, and flows

Description

This study investigates the impact of portfolio disclosure on hedge fund performance. Using a regression discontinuity design, I investigate the effect of the disclosure requirements that take effect when an investment company's assets exceed $100 million; when that occurs, a fund is required by the SEC to submit form 13F…

This study investigates the impact of portfolio disclosure on hedge fund performance. Using a regression discontinuity design, I investigate the effect of the disclosure requirements that take effect when an investment company's assets exceed $100 million; when that occurs, a fund is required by the SEC to submit form 13F disclosing its portfolio holdings. Consistent with the argument that portfolio disclosure reveals "trade secrets" and also raises front running costs thus harms the funds that disclose, I find that there is a drop in fund performance (about 4% annually) after a fund begins filing form 13F, as well as an increase in return correlations with other hedge funds in the same investment style. The drop in performance cannot be explained by a change in the assets under management or a mean reversion in returns. Consistent with the idea that funds with illiquid holdings tend to employ sequential trading strategies, which increase the likelihood of being taken advantage of by free riders and front runners, the drop in performance is more dramatic for funds that have more illiquid holdings. In addition, I find that the incentive fees paid to fund managers are 1% higher when portfolio disclosure is required, which supports the hypothesis that investors' monitoring of portfolio holdings disciplines adverse risk-taking by fund managers and allows for higher convexity in the optimal compensation structure. Finally, there is a drop in flows into funds that file 13F, which suggests that hedge fund investors negatively value 13F disclosure. Overall, this study suggests that the cost of portfolio disclosure is economically large. It contributes to the policy debate over what constitutes optimal disclosure.

ContributorsShi, Zhen (Author) / Hertzel, Michael (Thesis advisor) / Aragon, Georges (Thesis advisor) / Coles, Jeffrey (Committee member) / Arizona State University (Publisher)

Created2011

Chaos computing: from theory to application

Description

In this thesis I introduce a new direction to computing using nonlinear chaotic dynamics. The main idea is rich dynamics of a chaotic system enables us to (1) build better computers that have a flexible instruction set, and (2) carry out computation that conventional computers are not good at it.…

In this thesis I introduce a new direction to computing using nonlinear chaotic dynamics. The main idea is rich dynamics of a chaotic system enables us to (1) build better computers that have a flexible instruction set, and (2) carry out computation that conventional computers are not good at it. Here I start from the theory, explaining how one can build a computing logic block using a chaotic system, and then I introduce a new theoretical analysis for chaos computing. Specifically, I demonstrate how unstable periodic orbits and a model based on them explains and predicts how and how well a chaotic system can do computation. Furthermore, since unstable periodic orbits and their stability measures in terms of eigenvalues are extractable from experimental times series, I develop a time series technique for modeling and predicting chaos computing from a given time series of a chaotic system. After building a theoretical framework for chaos computing I proceed to architecture of these chaos-computing blocks to build a sophisticated computing system out of them. I describe how one can arrange and organize these chaos-based blocks to build a computer. I propose a brand new computer architecture using chaos computing, which shifts the limits of conventional computers by introducing flexible instruction set. Our new chaos based computer has a flexible instruction set, meaning that the user can load its desired instruction set to the computer to reconfigure the computer to be an implementation for the desired instruction set. Apart from direct application of chaos theory in generic computation, the application of chaos theory to speech processing is explained and a novel application for chaos theory in speech coding and synthesizing is introduced. More specifically it is demonstrated how a chaotic system can model the natural turbulent flow of the air in the human speech production system and how chaotic orbits can be used to excite a vocal tract model. Also as another approach to build computing system based on nonlinear system, the idea of Logical Stochastic Resonance is studied and adapted to an autoregulatory gene network in the bacteriophage λ.

ContributorsKia, Behnam (Author) / Ditto, William (Thesis advisor) / Huang, Liang (Committee member) / Lai, Ying-Cheng (Committee member) / Helms Tillery, Stephen (Committee member) / Arizona State University (Publisher)

Created2011

Love Your Body [A Non-Profit Prevention Approach to Eating Disorders]

DescriptionBased on previous research and findings it is proven that a non-profit class to create awareness will be beneficial in the prevention of eating disorders. This analysis will provide significant research to defend the proposed class.

ContributorsAllen, Brittany (Author) / Chung, Deborah (Author) / Fey, Richard (Thesis director) / Peck, Sidnee (Committee member) / Mazurkiewicz, Milena (Committee member) / Barrett, The Honors College (Contributor) / W. P. Carey School of Business (Contributor) / College of Liberal Arts and Sciences (Contributor)

Created2012-12

Establishing a Health Practice in the U. S. by a Mexican National: A Study into the Public Policy, Business and International Components of Urgent Care in Arizona

Description

Establishing a healthcare practice in the U. S. by a Mexican national involves many different steps at federal as well as state levels. The recent implementation of the Patient Protection and Affordable Care Act overhauls some requirements which include increased Medicaid eligibility as well as mandatory health insurance coverage. With…

Establishing a healthcare practice in the U. S. by a Mexican national involves many different steps at federal as well as state levels. The recent implementation of the Patient Protection and Affordable Care Act overhauls some requirements which include increased Medicaid eligibility as well as mandatory health insurance coverage. With these changes taking place over the next few years, the need for healthcare providers will expand. Consequently, I look into the requirements of establishing an urgent care practice in the state of Arizona. Given that Phoenix has a 40.8% Hispanic population and that the Affordable Care Act will increase the coverage of this demographic, it is the city of focus for my analysis. In order to make access to the Arizona healthcare market more impartial and accessible to Mexican entrepreneurs, changes need to be made to the certification process of medical physicians who graduated from Mexican universities. The general disadvantage of Mexican physicians as compared to their U. S. counterparts comes in the form of increased certification times and additional processes. An equal playing field will allow the ease in movement of medical physicians between the U. S. and Mexico which will help meet the increased demand over the next few years. From ownership to taxation and medical billing and coding, this analysis focuses on the many requirements needed to establish an urgent care in Arizona.

ContributorsIbarra, Joseph Anthony (Author) / Carlos, Velez-Ibanez (Thesis director) / Cruz-Torres, Maria (Committee member) / Barrett, The Honors College (Contributor) / W. P. Carey School of Business (Contributor)

Created2014-05

Filtering by