Academic Research Article #1
In Mary Barth, Wayne Landsman, Mark Lang, and Christopher Williams’ research article, “Are IFRS-based and US GAAP-based accounting amounts comparable?,” is primarily concerned with the comparability of IFRS adopted by non US firms as they compare with US GAAP applied by US firms.
There has been much debate on the convergence of IFRS and US GAAP reporting standards. As the world becomes more of a globalized economy, it becomes important for comparability to maintain efficient capital flow. While some firms utilize other forms of reporting, it requires investors to understand the differences in accounting amounts and the validity of some reporting standards. If non-US firms did implement IFRS, the thought is that it would increase value and improved confidence since IFRS is aligned with US GAAP, which is considered to be the gold standard in reporting. If non-US firms implement IFRS reporting standards, it may increase investor confidence and potentially better capital inflow. Investors, creditors, and other stakeholders are concerned with the comparability of different firms. However, the need for standardized, or at least comparable, standards is necessary in today’s globalization (Barth, Landsman, Lang, Williams, 2012).
These researchers utilized several key indicators, metrics, and tests to determine if the economic outcomes of the application of IFRS were more comparable to US GAAP. Utilizing equity indicators such as stock price, return, and earnings permits better analysis of equity value. The researchers also utilized cash flow in their analysis (Barth, Landsman, Lang, Williams, 2012)..
The researchers concluded that the implementation of IFRS standards, as opposed to non-US domestic standards, resulted in greater comparability to US GAAP. They also determined that IFRS provided a better accounting system and had better value relevance comparability to firms in the US.
Academic Research Article #2
In Christopher William’s article, “Asymmetric Respones to Earnings News: A Case for Ambiguity,” he discusses the effect of macro level events and investor’s primary responses. Specifically, Williams discussed the correlation between certain firm returns and macro uncertainty as well as indications of the effects of macro uncertainty by monitoring volume during the announcement of earnings (Williams, 2015).
Macro level events can cause investors to react negatively towards certain firms, despite any legitimate connection to a specific firm. While most individuals claim that the stock market is irrational, there are situations in which macro environment impacts can greatly affect investor confidence in a firm. By connecting macro level events to certain firms, there is the possibility of increased volatility in the marketplace. Williams does discuss the connection of certain firms, that possess higher market to book ratios being more susceptible to macro impact. The asymmetric tendencies of investors valuing “bad” news over “good” news, causes inaccurate value (Williams, 2015).
By defining the terms, risk and ambiguity, Williams is able to make certain distinctions and evaluations. The paper discussed prior research done that suggests the shock of macro events causes significant volatility and investors take a conservative approach by considering mainly taking a pessimistic view. Williams utilized several indicators such as the VIX, a volatility index, in determining the investor bias in relation to macro uncertainty and earnings announcements. While Williams cannot entirely assure that ambiguity proves his results, there appears to be some correlation (Williams, 2015).
Understanding investor psychology is important since macro uncertainty can increase the volatility in the marketplace. While investors appear to value and react more to bad news, certain companies and firms avoid significant volatility.
Academic Research Article #3
In Robert Bushman, Christopher Williams, and Regina Wittenberg-Moerman’s article, “The Informational Role of the Media in Private Lending,” there is a question as to how the media can benefit outside lenders in private lending situations. While equity investors are given some disclosure of financial aspects, they are not given as much information as debt lenders receive. However, in most situations there exists a hierarchal structure in which some previous lenders who have an existing relationship possess a greater picture of the company than do new outside investors. Also, the lead in a lending syndicate can claim certain lending opportunities that are more favorable than other loans (Bushman, Williams, 2017).
Media’s role in private lending is potentially an area where certain new lenders can find solace. While these new lower ranking lenders do not possess a greater picture of the borrower, they may rely on potential outside information to determine if certain loans should be pursued. This ultimately can affect the capital inflow for certain companies if the media does not find favor in these firms. Also, the opportunities for moral hazard and adverse selection cause ethical situations in lack of disclosure. Lenders who do not possess the necessary information to make appropriate loan decisions, can be left in adverse positions, creating a competitive advantage to relationship lenders (Bushman, Williams, 2017).
The article focuses on several situations and cases such as Rajan, Sufi, Ivashina, and much more to determine the effect media has on loan syndicates. It also seems to assert certain hypotheses about non-relationship lenders being more willing to lend in situations where there is media sentiment. (Bushman, Williams, Wittenberg-Moerman, 2017).
While the media can play a valuable role for outside lenders in private lending in loan syndicates, there is still risk. Media only appears to be one source of information and non-relationship lenders will need to seek other routes of information.
Barth, M. E., Landsman, W. R., Lang, M., & Williams, C. (2010). Are IFRS-based and US GAAP-based accounting amounts comparable? Journal of Accounting and Economics.
Bushman, R. M., Williams, C. D., & Wittenberg-Moerman, R. (2017). The Information Role of the Media in Private Lending. Journal of Accounting Research, 55(1).
Williams, C. D. (2015). Asymmetric Responses to Earnings News: A Case for Ambiguity. The Accounting Review, 90, 785-817.
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