Deferred tax accounting under SFAS No. 109: an empirical investigation of its incremental value-relevance relative to APB No. 11

Article Abstract:

The net deferred tax liabilities disclosed under Statement of Financial Accounting Standards No 109 (SFAS No 109) contain incremental value-relevant information above and beyond the disclosure required by Accounting Principles Board Opinion No 11 (APB No 11). The value-relevance of information in SFAS No 109 particularly lies in the separate recognition of deferred tax assets, the establishment of the deferred tax asset valuation allowance, and adjustments for the effects of changes in enacted tax rates. SFAS No 109 requires the separate disclosure of deferred tax assets and deferred tax liabilities and the creation of a valuation allowance to reduce deferred tax assets when the full amount is not expected to be realized. APB No 11, on the other hand, neither requires separate disclosure of deferred tax assets nor the creation of valuation allowances.

Standards, Liabilities (Accounting), Disclosure statements (Accounting), Financial Accounting Standards Board, Deferred tax (Accounting), Accounting Principles Board

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Abnormal returns to a fundamental analysis strategy

Article Abstract:

A study was conducted to determine whether the application of fundamental analysis can produce significant abnormal returns using a collection of proxies that were based on traditional rules of fundamental analysis related to contemporaneous changes. The changes were associated with subsequent actual earnings changes and stock returns that were calculated with disclosure of the signals. They included inventories, accounts receivables, selling expenses, capital expenditures, gross margins, inventory methods, and labor force sales productivity. Results showed that abnormal returns were highly correlated with realization of one-year-ahead earnings changes. They also suggested that the concept of 'unaccounted for risk' did not complement strategy success.

Return on investment, Earnings per share, Rate of return

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The influence of institutional investors on myopic R&D investment behavior

Article Abstract:

A firm's current earnings performance is the determinant of the relationship between institutional ownership and R&D decisions. This was gleaned from the results of an examination of the influence of institutional investors on investment in R&D designed to meet short-term earnings goals. Findings showed a negative correlation between greater institutional ownership and cutbacks in R&D spending to reverse a decline in earnings. However, managers are more likely to reduce R&D to reverse an earnings decline for a broader set of firms with high portfolio turnover and involvement in momentum trading. These results suggest that institutional behavior encourages myopic investment when these investors have high levels of ownership in a firm.

Research Expenditures Analysis, Finance, Industrial research, Profits, Financial analysis, Institutional investments, Corporate profits

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