Quarterly Accounting Research Articles

RJDemetra, a promising tool for the seasonal adjustment of official statistics

Seasonal adjustment (SA) is a crucial factor in the process of producing official macroeconomic statistics. The most important SA methods, X-13Arima-Seats and Tramo-Seats, are currently included into JDemetra+, a universal open-source environment, which is available on several platforms and operating systems, as a result of adoption of Java programming language for source codes, and Xml metalanguage for the definition of input specifications. This paper focuses on the potentials of RJDemetra, the R library developed for JDemetra+ suite. Its structure and functionalities will be illustrated with several examples, reporting the associated R scripts. In addition, a new operational practices will be suggested, exposing an alternative procedure to enhance interactive time-series updating in SA revision policies step, and also to ensure consistency checking in input system, in order to improve and to speed up the SA estimation process, providing greater security and efficiency. Finally, the interaction between two very different environments such as SAS-IML, and R will be displayed through a new SAS-R procedure available for estimating Quarterly Accounts SA series.

An Examination of Other‐than‐temporary Impairments: Evidence from FSP FAS 115‐2 and FAS 124‐2

This study investigates amendments to the other‐than‐temporary impairment (OTTI) measurement and recognition guidance for debt securities in the Financial Accounting Standards Board's Staff Position FAS 115‐2 and FAS 124‐2 (‘the FSP’). The FSP permits the OTTI charge for debt securities to be split into the credit loss amount recognized in net income (NI) and the amount related to all other factors (noncredit loss) recognized in other comprehensive income (OCI) under certain instances. Thus, the FSP provides banks with additional discretion in recognizing the amount of unrealized losses in NI. Using quarterly accounting data on US bank holding companies from the first quarter of 2010 to the fourth quarter of 2016, I examine whether banks’ decisions regarding OTTI bifurcation are associated with financial reporting and regulatory capital incentives. First, I predict and find that proxies for regulatory capital management, income smoothing, and big bath behaviour impact the percentage of OTTI recognized in OCI. Further evidence suggests that banks with histories of income smoothing through loan loss provision and realized security gains and losses assign a greater share of OTTI to OCI. Then, I predict and find that banks manage OTTI recognized in NI downward to meet quarterly financial reporting benchmarks. Finally, I show that banks with a higher discretionary proportion of OTTI recognized in OCI increase their lending over the subsequent quarter.

Conceptual provisions of information systematization to analyze the financial sustainability of the university

Subject. This article explores the need of public sector organizations, and universities in particular, to classify the source data to conduct a reliable and trustworthy analysis of their financial stability. Objectives. The article aims to develop information support for a comprehensive economic analysis of the financial stability of the university by determining the sources of data used to analyze its financial stability. Methods. For the study, I used the methods of analysis, synthesis, and comparison. Results. Based on the study of accounting (financial) reporting indicators, the article proposes to determine three levels of data systematization, i.e. managerial, departmental, and public ones. The article substantiates proposals to clarify the provisions of the Instructions on the preparation, presentation of the annual, quarterly accounting of State (municipal) budgetary and autonomous institutions for economic analysis of the financial stability of public sector institutions. Conclusions. The current state of the methods used to assess financial stability makes it difficult to widely disseminate and implement them in the analytical activities of public sector institutions, including universities. Practical application of the original developments by grouping data sources to analyze the financial stability of the university, as well as the division of these groups into levels will help provide the most objective assessment, which will have a high degree of confidence in the assessment of the financial sustainability of budgetary and autonomous institutions of higher education.

Product market competition and efficiency of corporate tax management

PurposeThe purpose of this paper is to test the economic theory that product market competition should enhance firm performance in the US corporate tax management setting. It identifies one mechanism through which corporate management can improve firm performance. The paper also identifies business conditions that may facility or impede effective corporate tax management.Design/methodology/approachThe paper tests the relationship between product market competition and corporate tax efficiency using large archival data. The primary data source is COMPUSTAT, which contains annual and quarterly accounting data for US public firms. Other data sources include accounting comparability data generously shared by Professor Vedi.FindingsThe paper finds that firms in competitive industries are more efficient in managing taxes. Specifically, the paper documents that firms in competitive industries exhibit lower effective tax rates than their non-competitive counterparts. Furthermore, the paper finds that the positive link between competition and the efficiency of tax management is much stronger for firms with lower cash flow volatility and for firms with fewer industry investment opportunities. The lack of financial statement comparability may weaken this link.Research limitations/implicationsTax laws vary greatly from country to country. Readers should interpret the results within the US tax environments.Practical implicationsResults in this paper have implications for multinational corporations that are interested in investing and doing business in the USA.Originality/valueThis paper sheds light on how competition influences firm performance through efficient tax management, a specific mechanism through which competition improves firm performance. To the best of the author’s knowledge, this study provides the first documentation of how product market competition affects tax planning for US publicly traded companies.

Relacionamento temporal entre lucros trimestrais e retorno das ações no Brasil

Este estudo tem como objetivo analisar as propriedades de séries temporais dos lucros contábeis trimestrais e seu relacionamento com o preço (retorno) das ações nas empresas brasileiras com participações no Índice da Bolsa de Valores de São Paulo (Ibovespa) de 2010 a 2016, período após a adoção dos International Financial Reporting Standards (IFRS). Assim, das 58 empresas com ações ativas na data da coleta, foram analisadas 48 delas, uma vez que foram retiradas aquelas com ausência de informações nos referidos anos, totalizando, dessa forma, 1624 observações. Para isso, utilizou-se o modelo multivariado de séries temporais de vetores autorregressivos (VAR) e foram aplicados testes às séries temporais analisadas, a fim de verificar suas propriedades. Os achados da pesquisa apontaram que não há relação de longo prazo e nem causalidade entre os lucros trimestrais e o retorno das ações nas empresas estudadas. Além disso, foi observado que o retorno é mais sensível a mudanças nos lucros trimestrais do que o inverso. Por meio da decomposição da variância dos erros de previsão do lucro médio e do retorno médio, os resultados mostraram uma direção da causalidade no sentido de lucros trimestrais para retorno das ações. A função impulso-resposta permitiu observar, ainda, que o retorno é mais influenciado por choques do lucro do que o contrário, mostrando ajustamento a curto prazo.

ЗАТРАТИ НА УТРИМАННЯ РОБОЧОЇ СИЛИ ТА ЇЇ ВАРТІСТЬ: ПОНЯТТЯ, ТЕНДЕНЦІЇ, ПОКАЗНИКИ

Concepts of “labor costs” and “cost of labor” have been refined. Differences between the concepts of “labor costs” and “total cost of labor”, “price of labor” and “wages”, “compensation” and “wages”, “labor costs” and “staff costs” are shown. The concept of “labor costs not belonging to the wage fund” is specified. Significance of these costs as a workforce reproduction factor in the system of social and labor relations is considered. Trends in labor costs and their structural elements in Ukraine and abroad are revealed and their comparative analysis is carried out. The difference between the “production value of labor force” (that is, “real cost of labor for producer”) and the “real consumer value of labor force” (that is, “real cost of labor for employee” as a consumer of goods and services) is justified. Differences in cost of labor indicators in Ukraine and the EU countries are shown and proposals to use new indicators are suggested. Recommendations on development of the system of accounting for the cost of labor in terms of its flexibility, efficiency and reliability are elaborated, in particular, concerning the quarterly accounting of cost of labor indices, hourly wages and labor cost levels. Purposes of using the statistical information on employer’s expenses for maintaining the workforce are determined. Indicators of the costs of maintaining the workforce were estimated by users of this information. The need of enterprises for additional information is justified.

Multifactor Model for Estimation of Tobin’s Q for Listed Firms

This research examines the effect of firms efficiency in asset utilzation(ROA), leverage(debt/equity ratio), dividend decision and corporate governance on the firm value measured through Tobin’s Q for listed Indian firms in FMCG, Auto and IT sector using quarterly accounting data collected for period from 2004 through 2017. The study has examined a multi-factor model by applying multiple linear regression to identify the model for estimation of Tobin’s Q. The results reveal that the explanatory variables for predicting firm value for the auto sector are ROA, debt equity ratio and dividend payout ratio, for the FMCG sector, debt equity ratio, dividend payout ratio and governance score and for the IT sector are ROA, debt equity ratio, dividend payout ratio and governance score are the statistically significant explanatory variables for modelling Tobin’s Q. As the statistically significant predictors for Tobin’s Q are different for IT, auto and FMCG sectors, a key implication of this study is that it is not very useful to apply a common model for predicting Tobin’s Q for all firms.

Effect of the Adoption of IFRS on the Information Relevance of Accounting Profits in Brazil

This study aimed to assess the effect of adopting the International Financial Reporting Standards (IFRS) in Brazil on the information relevance of accounting profits of publicly traded companies. International studies have shown that the adoption of IFRS improves the quality of accounting information compared with domestic accounting standards. Concurrent evidence is sparse in Brazil. Information relevance is understood herein as a multidimensional attribute that is closely related to the quality and usefulness of the information conveyed by accounting profits. The associative capacity and information timeliness of accounting profits in relation to share prices were examined. Furthermore, the level of conditional conservatism present in accounting profits was also analyzed because according to Basu (1997), this aspect is related to timeliness. The study used pooled regressions and panel data models to analyze the quarterly accounting profits of 246 companies between the first quarter of 1999 and the first quarter of 2013, resulting in 9,558 quarter-company observations. The results indicated that the adoption of IFRS in Brazil (1) increased the associative capacity of accounting profits; (2) reduced information timeliness to non-significant levels; and (3) had no effect on conditional conservatism. The joint analysis of the empirical evidence from the present study conclusively precludes stating that the adoption of IFRS in Brazil contributed to an increase the information relevance of accounting profits of publicly traded companies.

Retornos das ações e o lucro: Avaliação da relevância da informação contábil

This article aims to verify, by testing for Granger causality, the relationship between sets of quarterly accounting earnings and market returns (RET) of Brazilian on the market that have different levels of disclosure requirements. The sample was composed of 75 companies listed on BOVESPA during the period 1995 to 2010, who had 15 consecutive observations and synchronous returns accounting (ROE) and market return (RET), reducing thus the survival bias in these series . In analyzing the results, it was found at the 5% level of statistical significance which most companies had at least some sense of causality, or ROE for the RET, or RET for the ROE. It was also ascertained by analysis at the aggregate level of P-values of the Granger test, which is bi-causality between ROE and RET, concluding that the Brazilian stock market has market efficiency in the sample. It stands out among the main results of this research, which was not found that the causality between ROE and RET is higher for companies that have a higher level of required disclosures of accounting information, allowing to infer that the net profits of companies that disclose more information statements do not have more causality to the market return than other firms. Therefore, we may conclude generally, that despite the importance of accounting information for the stock market, the highest quality and quantity of the information did not generate greater predictive ability of market returns

Estimativas da função exportações brasileiras agregadas com dados das Contas Nacionais Trimestrais, 1995-2009

This paper presents new econometric specifications for the Brazilian exports in the period 1995-2009 using data from the Quarterly Accounts and allowing for nonlinearities. In the cointegrating vector, there is evidence of a level shift, but the elasticities have not changed significantly. The income-elasticity remained close to the unity, and the real exchange rate multiplier was small. In the short-run dynamics, the world income exerts a nonnegligible influence, and the exchange rate is not significant. We estimate the correction of disequilibria occurs within three quarters. In addition, we underscore selected models exhibited a good performance in the out-of-sample one-step-ahead forecast.

The Timeliness of Accounting Write-Downs by U.S. Financial Institutions During the Financial Crisis of 2007-2008

I examine the timeliness of write-downs taken by U.S. financial institutions during the financial crisis of 2007–2008. The timeliness of write-downs is measured by benchmarking the quarterly accounting write-down schedule with the devaluation schedule implied by exposure-specific credit indices such as the ABX. The results show that the accounting write-downs are less timely than the devaluations implied by credit indices. In a cross-sectional analysis of the determinants of the timeliness of write-downs, I document that corporate governance quality, regulatory investigations, and litigation pressure are positively related to the timeliness of write-downs, whereas the write-downs by firms with higher financial leverage, tighter regulatory constraints, and more complex exposures are less timely. I control for numerous exposure-specific characteristics and document that less risky exposures and exposures that were affected later during the financial crisis were written down later. Regarding the consequences of timeliness, I find that the exposure to risky assets is reflected faster in stock returns for firms with timelier write-downs.

Using Artificial Neural Networks To Examine Semiotic Theories Of Accounting Accruals

<p class="MsoNormal" style="text-align: justify; line-height: normal; text-indent: 0in; margin: 0in 0.5in 0pt; tab-stops: center 3.25in; mso-hyphenate: none;"><span style="font-family: Times New Roman;"><span style="font-size: 10pt; mso-bidi-font-weight: bold;">Although the primary purpose of accounting is to communicate information, few studies have investigated the communicative nature of accounting.<span style="mso-spacerun: yes;">  </span>This study uses semiotics, a theory of signs and signals, to examine the purpose and usefulness of accounting accruals with a popular tool in forecasting--artificial neural networks.<span style="mso-spacerun: yes;">  </span>Two primary theories are proposed by this study.<span style="mso-spacerun: yes;">  </span>The <span style="mso-bidi-font-style: italic;">Theory of the Functions of Accounting Accruals</span> categories accounting accruals by their basic functions and states that two general types of accounting accruals exist: syntactic accruals and semantic accruals.<span style="mso-spacerun: yes;">  </span></span><span style="font-size: 10pt;">Syntactic accounting accruals reflect incomplete transactions under a system of cash receipts and cash disbursements.<span style="mso-spacerun: yes;">  </span>Semantic accounting accruals present messages in a different format than their counterparts in a system of cash receipts and cash disbursements.<span style="mso-spacerun: yes;">  </span>The <span style="mso-bidi-font-style: italic;">T</span>heory of the Pragmatic Information of Accounting Accruals states that accounting accruals contain pragmatic information (value) because of their functions.<span style="mso-spacerun: yes;">  </span>The pragmatic information (value) of accounting accruals is examined by comparing the ability of accrual accounting data to forecast future cash flows compared to that of cash-flow accounting data.<span style="mso-spacerun: yes;">  </span>Forecasts are made using backpropagation neural networks.<span style="mso-spacerun: yes;">  </span>The results indicate that both syntactic<span style="mso-spacerun: yes;">  </span>and semantic accounting accruals contain pragmatic information (have value when forecasting future cash flows).<span style="mso-spacerun: yes;">  </span>The study provides evidence of the pragmatic information (value) of annual accounting accruals.<span style="mso-spacerun: yes;">  </span>However, no evidence was found in support of the pragmatic information (value) of quarterly accounting accruals.<span style="mso-spacerun: yes;">  </span>This result implies that annual accrual accounting data is a better predictor of future cash flows than cash-flow data while quarterly accrual accounting data is not. </span></span></p>

The Inferential Value of Quarterly Earnings Announcements Relative to Other Sources of Information

This paper evaluates the prevalent view that accounting information competes with, but also disciplines, information from other sources by examining the inferential value to investors of accounting versus non-accounting information. Inferential value is defined as the ability of the capital markets to draw the correct inference from the information signals regarding future firm performance. Both average quarterly accounting rate of return on equity and excess stock returns are used as measures of firm performance. The findings indicate that a market-normalized accounting rate of return derived from stock prices and excess returns measured around earnings announcement dates are more highly correlated with changes in future firm performance than similar measures in the non-disclosure periods. The findings support the prevalent view that accounting information disciplines information from other sources.

A Proposal for Expensing Employee Compensatory Stock Options for Financial Reporting Purposes

This article presents an accounting approach for employee stock options based on the insight that the currentperiod compensation expense should reflect only that part of the option value that is earned independent of the obligation of continued employment. Given that the maturity of vested options is typically shortened to 90 days when an employee resigns or is terminated, this method views the employee as owning a 90-day option (even if the stated maturity of the option is ten years) and earning a 90-day extension to that option each quarter as a result of the employee's continued employment. In the case of vested options, the compensation expense in each quarterly accounting period is thus the value of the 90-day extension of the option's maturity. There is no option expense in the quarter when the option is either exercised or expires. In the case of unvested options, the expected option value at vesting should be estimated quarterly starting at the time of grant and the corresponding estimated expense should be revised and allocated as a pro rata accrual each quarter over the vesting period. The cumulative expense over the entire vesting period will equal the fair market value of the option at its vesting date. Besides reflecting the economics of the exchange of value for labor involved in stock option grants, this approach has a number of practical advantages: • The 90-day maturity permits the use of publicly traded options to determine fair market value and makes Black-Scholes and other (lattice) pricing models more reliable. • The shortened maturity eliminates the need to adjust for early exercise or employee attrition. • Consistent application should lead to a greater degree of comparability in option valuation and expense allocation among companies (including those that use restricted stock instead of options).

A TIME-SERIES APPROACH TO MEASURING THE DECLINE IN QUARTERLY EARNINGS PERSISTENCE

Abstract Although prior research documents an inter-temporal decline in earnings relevance for equity investors, precise evidence has not been collected on why the decline has occurred. We document a substantial decline in the persistence of quarterly accounting earnings over a 35-year period for a sample of New York Stock Exchange firms. Our findings hold regardless of whether firms are in industries with dramatic increases in spending on information technology through time or not. Further, neither ex ante measures of expected economic change (changes in barriers-to-entry and product type) nor an ex post measure of economic change (quarterly sales persistence) decline inter-temporally for our sample firms.

Neural network forecasting of quarterly accounting earnings

This study uses an artificial neural network model to forecast quarterly accounting earnings for a sample of 296 corporations trading on the New York stock exchange. The resulting forecast errors are shown to be significantly larger (smaller) than those generated by the parsimonious Brown-Rozeff and Griffin-Watts (Foster) linear time series models, bringing into question the potential usefulness of neural network models in forecasting quarterly accounting earnings. This study confirms the conjecture by Chatfield and Hill et al. that neural network models are context sensitive. In particular, this study shows that neural network models are not necessarily superior to linear time series models even when the data are financial, seasonal and non-linear.

Denominator estimation: approaches in the Hamburg paediatric sentinel network.

The aims were to develop an estimator for the size of paediatric practices to be used as a denominator for purposes of comparison; to analyse the age structure of the patients attending paediatric practices and to check the necessity for an age specific denominator; and to validate the denominator information by other available data. This was an observational study. A sentinel network was set up comprising 26 self selected paediatric practices. Weekly patient contacts in relation to age and sex were counted three times during the study period of two years. In addition, accounting data, including the total number of children treated in a given three month period (quarter), were available. Weekly patient contact counts were stable over time, not in terms of the absolute number of contacts but in the rank positions of the practices (rs = 0.86) and in their age structure. The age distribution of weekly patient contacts differed significantly between the practices. Cross validation of the weekly contact count by means of the quarterly accounting data resulted in a rank correlation of rs = 0.90. Sentinel networks with paediatric practices should use age specific denominator information. Weekly contact group, estimated by counts in a sample of weeks, is a stable and easily available denominator for sentinel practices in the context of the German health care system.

THE USE OF TENDENCY SURVEYS IN EXTRAPOLATING NATIONAL ACCOUNTS

A well‐known way of using tendency survey data is the construction of Composite Leading Indicators (CLIs). It is rather peculiar that CLIs pretend to predict macroeconomic aggregates, while their construction is not consistent with the way actual macroeconomic statistics are compiled. This paper contains preliminary results of an attempt to integrate tendency survey indicators into the framework of the Dutch Quarterly Accounts. We conclude that tendency survey indicators can contribute to an explanation of trends in “real” economic variables. Many of these indicators lead the Quarterly Accounts indicators. They can, therefore, contribute to a timely estimation of National Accounts aggregates.

Structural changes and the forecasting of quarterly accounting earnings in the utility industry

This paper presents a statistical procedure to identify effects of three potential structural changes on accounting earnings – temporary, short-run, and long-run. The procedure is applied to quarterly accounting earnings of 39 utility companies. Structural changes are found to be commonplace. Statistical forecasting models that explicitly incorporate structural change effects are found to generate more accurate forecasts than other statistical models in the literature. Although no statistical model significantly dominates Value Line, a firm-specific model with structural change adjustment forecasts as well as Value Line. Moreover, all statistical models examined have significant marginal forecasting power to complement Value Line forecasts.

Univariate Time-Series Models of Quarterly Accounting Earnings per Share: A Proposed Model

Recently, Watts [1975], Foster [1977], and Griffin [1977] have suggested that a single Box and Jenkins (BJ) [1970] model form explains the time series of most firms' quarterly accounting earnings per share. In BJ notation, Watts and Griffin propose the (0,1,1) x (0,1,1) model, while Foster favors the (1,0,0) x (0,1,0) model with constant. We propose here a third model, the (1,0,0) x (0,1,1) model. We test several single model forms and individually identified BJ models. After reviewing previous studies (Section 1.1), we present past evidence pointing to the (1,0,0) x (0,1,1) model (1.2) and discuss individual BJ model identification (1.3). Section 2 of the paper contains sample description (2.1), fitting tests (2.2), and tests of model forecasts over several horizons and holdout periods (2.3). Conclusions and a summary appear in Section 2.4.