Tax planning, earnings management, and the differential information content of bank earnings components
Article Abstract:
The bank earnings components entitled 'Securities Transactions Gains and Losses (STGL) were examined in terms of the information they convey. STGL record accounting gains and losses resulting from a bank's sale of investment securities wherein the selling price is not based on the securities' book value. The purpose of the study was to test the assumption that the tax minimization effect of realizing STGL influences how bank investors price the STGL earnings component. A sample of 745 quarterly earnings announcements from banks issued between 1980 and 1985 was analyzed to assess the reaction of the market to the information content of STGL earnings component and the 'Income before Securities Transactions' (IBST) earnings component. Results provided support for the tax-planning hypothesis. It was also shown that investors do not price STGL and IBST earnings components in the same way.
Publication Name: Accounting Review
Subject: Business, general
ISSN: 0001-4826
Year: 1992
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The usefulness of hybrid security classifications: evidence from redeemable preferred stock
Article Abstract:
A study of the relationship between redeemable preferred stock (RPFD) and systematic risk is conducted to obtain evidence on the stock market perception of the economic substance of such hybrid securities. It uses data drawn from a sample of 239 firms with RPFD outstanding between 1979 and 1989 listed on the 1989 Compustat Industrial, Full Coverage and Tertiary File. The empirical results show that no debt-like relationship exists between RPFD and systematic risk despite mandatory redemption payments. Findings also reveal that the market perception of RPFD and other hybrid securities is influenced by such characteristics as voting rights and conversion features. These findings suggest that dichotomous classification of hybrid securities may not accurately represent these securities' economic substance, as indicated by their impact on systematic risk.
Publication Name: Accounting Review
Subject: Business, general
ISSN: 0001-4826
Year: 1995
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