مدیریت درآمد، مسائل مربوط به سهام و پرونده های حقوقی سهامداران
|کد مقاله||سال انتشار||مقاله انگلیسی||ترجمه فارسی||تعداد کلمات|
|23096||2004||23 صفحه PDF||سفارش دهید||محاسبه نشده|
Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Journal of Financial Economics, Volume 71, Issue 1, January 2004, Pages 27–49
Abnormal accounting accruals are unusually high around stock offers, especially high for firms whose offers subsequently attract lawsuits. Accruals tend to reverse after stock offers and are negatively related to post-offer stock returns. Reversals are more pronounced and stock returns are lower for sued firms than for those that are not sued. The incidence of lawsuits involving stock offers and settlement amounts are significantly positively related to abnormal accruals around the offer and significantly negatively related to post-offer stock returns. Our results support the view that some firms opportunistically manipulate earnings upward before stock issues rendering themselves vulnerable to litigation.
Earnings are one of the most frequently cited firm performance statistics. It is well known that accounting earnings convey information about firm values to investors. Ball and Brown (1968), Beaver (1968), and Rendleman et al. (1982) were among the first to show that earnings surprises are positively related to contemporaneous stock returns. More recently, Bernard and Thomas (1990) also report a positive relation between earnings surprises and stock returns, though they emphasize that investors apparently under react to the information contained in earnings. Nevertheless, investors do react and there is little doubt that earnings disclosures move stock prices. Managers exercise some discretion in computing earnings without violating generally accepted accounting principles. For example, firms can affect reported earnings by accelerating revenue recognition and deferring expense recognition. This effectively shifts earnings to the current period from a subsequent period. Alternatively, firms can affect earnings by changing methods of inventory accounting, revising estimated quantities such as bad debt expense, or a variety of other techniques. It is possible that firms use discretionary accounting choices to manage earnings disclosures around the time of certain types of corporate events. Jones (1991), for example, argues that firms manage earnings strategically to influence the outcomes of import relief investigations. Similarly, DeFond and Jiambalvo (1994) find evidence consistent with earnings manipulation by firms that violate debt covenants. In light of the well-established link between earnings and stock prices, earnings management activity seems particularly plausible around the time of new stock issues. That is because a firm's recently reported earnings are likely to influence its issue proceeds and, therefore, its cost of capital. There are two competing views about earnings management and stock issues. One view holds that some firms opportunistically manipulate earnings upward before stock issues. According to this opportunism hypothesis, investors are deceived and led to form overly optimistic expectations regarding future post-issue earnings. Thus, offering firms would obtain a higher price for their stock issue than they otherwise would, but subsequent earnings would tend to be disappointing. This view stresses the incentives that entrepreneurs, venture capitalists, and managers have to maximize issue proceeds, given the number of shares offered. The second, competing view stresses instead the penalties arising from false earnings signals. These include explicit legal remedies that are available to investors who are damaged by defective accounting disclosures and implicit costs stemming from reputation effects. A poor reputation can adversely affect a firm's ability to raise additional capital. Entrepreneurs and venture capitalists must also consider the possible negative effects of false signaling on their ability to take other firms public in the future. In conjunction, these penalties tend to impel firms to signal validly. In this view, firms can manage earnings to achieve a fair value for stock issues, not an excessive one. This implies that investors are informed, not deceived, by discretionary accounting choices made by firms.1 Several studies, including DuCharme (1994), Friedlan (1994), and Shivakumar (2000), find that earnings reported by firms making stock offers contain on average abnormally high levels of positive accruals around offer dates. Moreover, according to Rangan (1998) and Teoh et al. (1998), these accruals tend to reverse in later reporting periods. Rangan (1998) and Teoh et al. (1998a) also find that abnormal accruals around seasoned equity offers (SEOs) are significantly negatively related to post-offer stock returns. Teoh et al. (1998b) report a similar finding for abnormal accruals during the years of initial public offers (IPOs). Moreover, DuCharme et al. (2001) show that abnormal accruals around IPOs are negatively related to post-offer returns and positively related to initial firm value. Indeed, Xie (2001) reports that abnormal accruals are negatively correlated with subsequent stock returns in the population of firms. Therefore, the relationship between abnormal accruals and post-offer stock returns appears to be part of a more general empirical regularity. These results raise serious questions regarding market efficiency with respect to widely available accounting information. They are consistent with the interpretation that offering firms opportunistically manage earnings upward around offer dates, temporarily inflating their stock prices, which later fall as less favorable earnings information arrives after the offer. The results, however, do not uniformly support this conclusion. Eckbo et al. (2000) and Eckbo and Norli (2000) argue that post-offer stock returns are consistent with a multifactor capital asset pricing model. This implies that the post-offer returns anomaly is a spurious result arising from improper risk-adjustment. Furthermore, Brous et al. (2001) find that abnormal stock returns around earnings announcements differ insignificantly from zero for periods of up to five years after SEOs. Hence, the evidence is somewhat mixed and it is dangerous to draw sweeping conclusions about the role of earnings management, as manifested by abnormal accruals, in stock offers. Firms that employ discretionary accounting practices that mislead investors are liable to be sued. Section 10b-5 of the Securities and Exchange Act of 1934 generally prohibits firms from disseminating false or misleading information, or failing to disclose materially relevant information to investors. Section 11 of the Securities Act of 1933 governs information disclosure in public stock issues specifically. Investors who are harmed by relying on defective information supplied by a firm may sue to recover damages. To recover damages under 10b-5 of the 1934 Act, an investor must prove that the information was defective, that the investor relied on it, and that this reliance led to his loss. In lawsuits brought under Section 11 of the 1933 Act, however, investors do not have to prove that they relied on false or misleading information or omissions in the offering registration statement. Instead, the burden of proof falls on the defendant firm. Thus, the incidence of Section 11 lawsuits is relatively high. If high average levels of abnormal accruals around stock offers reflect deceptive accounting by some offering firms, we would expect those firms to be particularly likely targets for subsequent offer-related lawsuits by disgruntled investors. Moreover, if reliance on misleading earnings information harms investors, damage settlements in the lawsuits should be positively related to measures of earnings management just before the stock offers. Abnormal accruals for reporting periods before offers would be positively related both to litigation risk and to expected damage awards. Alternatively, earnings management around stock offers can generate valid information signals. If so, there would be no reason to expect that abnormal accruals contained in earnings reported by offering firms to be related to the incidence of lawsuits or the magnitude of damages. We study the relations among earnings management, abnormal accruals, stock offers, post-offer stock returns, and shareholder lawsuits using a very large sample of offers made during the period from 1988 through 1997. Confirming earlier studies, we find that earnings reported around stock offers on average contain positive abnormal accrual components, that the accruals are negatively related to post-offer stock returns, and that they tend to reverse during the post-offer period. We also find that stock returns are much lower and reversals much more pronounced for firms that are sued in connection with their offers than for those that are not sued. In multivariate logistic regressions, controlling for a variety of factors, we find that the incidence of these lawsuits is significantly positively related to abnormal accruals and significantly negatively related to post-offer stock returns. Moreover, settlement amounts in the lawsuits are also significantly positively related to the abnormal accruals and significantly negatively related to post-offer stock returns. These results support the view that some firms opportunistically manipulate earnings upward before stock issues rendering themselves vulnerable to litigation. The paper is organized as follows. Section 2 describes our data and method of measuring earnings management. Section 3 describes the tests and empirical results. Section 4 concludes.
نتیجه گیری انگلیسی
We find that firm earnings reported around stock offers contain positive abnormal working capital accrual components, on average, and that post-offer stock returns are significantly negatively related to the abnormal accruals. Moreover, abnormal working capital accruals tend to decline after stock offers. This decline is significantly more pronounced for firms that are later sued regarding their offers than for those that are not sued. In addition, abnormal working capital accruals around stock offers are negatively related to post-offer stock returns and significantly positively related to the incidence of these lawsuits. Furthermore, they are significantly positively related to the lawsuit settlement amounts. This evidence strongly supports the opportunism hypothesis. Apparently, some firms manage earnings upward before stock issues. This increases measured earnings growth rates and causes investors to form overly optimistic expectations regarding future earnings growth. As a consequence, these firms obtain more than fair value for their shares. The increased growth rate, however, is only temporary and quickly reverses after the offer as abnormal accruals decline. Investors revise downward their growth expectations and offering firms exhibit low stock returns, reflecting investors’ disappointment. The revisions are particularly large for firms with especially high accruals around the stock offer, and these firms also exhibit especially poor stock price performance. Very poor stock price performance, in turn, prompts lawsuits from disgruntled investors. Most of our results indicate that abnormal accruals around stock offers also affect lawsuit risk and settlement amounts independently of their significant effect on post-offer stock returns. Furthermore, we find that the abnormal accruals are unrelated to explicit allegations of earnings management in lawsuits concerning stock offers. Hence, our statistical measure of earnings management does not correspond well to the legal notion of improper earnings management, but it appears correlated with other factors that increase the probability of lawsuits and expected settlement amounts. Firms that, by our measure, manage earnings aggressively may also engage in other behaviors that render them vulnerable to litigation regarding their stock offers.