UMD Theses and Dissertations
Permanent URI for this collectionhttp://hdl.handle.net/1903/3
New submissions to the thesis/dissertation collections are added automatically as they are received from the Graduate School. Currently, the Graduate School deposits all theses and dissertations from a given semester after the official graduation date. This means that there may be up to a 4 month delay in the appearance of a given thesis/dissertation in DRUM.
More information is available at Theses and Dissertations at University of Maryland Libraries.
Browse
13 results
Search Results
Item ESSAYS ON NEWS AND ASSET PRICES(2010) Sinha, Nitish Ranjan; Kyle, Albert S; Business and Management: Finance; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)The first essay examines news and the cross section of returns. Using a sentiment score provided by Thomson Reuters to measure the tone of news articles, this paper examines monthly portfolio returns constructed from information about past news articles. The sentiment score is obtained from the kind of words and phrases that are used in the news article. Positive tone in news articles in the past months predicts positive returns. Similarly, negative tone in the past months predicts negative returns. Past sentiment predicts future returns even for large stocks. The predictive ability of past sentiment dominates the predictive ability of past returns. After controlling for past sentiment, the predictive ability of past returns (in predicting future return) disappears. The findings are robust to multiple specifications. The predictive ability of past sentiment can be used profitably. When applied to the largest decile of stocks, a strategy that takes a long position in stocks with past positive sentiment score and a short position in stocks with past negative sentiment score generates a statistically significant alpha of 34 basis points per month. The resulting portfolio is also positively correlated with a long-short momentum portfolio. Within the same time period, a trading strategy using the sentiment scores from the subset of news articles citing analysts is not profitable. The news items that cite analysts have economically significant contemporaneous returns. The findings suggest that (i) the market underreacts to information contained in news articles, (ii) momentum might be related to underreaction to the sentiment information, and (iii) market participants pay attention to sentiment score information in analyst news. The findings are consistent with a model where one trader has private information and others are trading based on past returns and volume information. The paper also shows that after adjusting for firm size, stocks with abnormally high counts of news articles underperform stocks with normal counts of news. Stocks with abnormally low newscounts also underperform. The second essay examines the relationship between news and trading activity. The theory of trading game invariance of Kyle and Obizhaeva(2009) predicts that for every one percent increase in trading activity, the frequency of news articles should increase two-thirds of one percent. Using news data from 2003 to 2008, we show that the cross-sectional variation in news articles across stocks is related to the trading activity in a manner consistent with the trading game invariance. The relationship is robust to various estimation procedures including models of count data. The relationship is also robust to multiple ways of counting news and excluding various type of firm specific news.Item Controlling shareholders, audit committee effectiveness, and earnings quality: the case of Thailand(2010) Kiatapiwat, Wilasinee; Kim, Oliver; Cheng, Shijun; Business and Management: Accounting & Information Assurance; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)This study examines the associations of controlling shareholders and audit committee effectiveness with earnings quality. A sample of non-financial Thai listed firms is used in the study because Thailand provides a useful setting for the study of ownership concentration. A unique data set on the voting rights of controlling shareholders and audit committee characteristics is used to test the hypotheses of whether controlling shareholders and audit committees with strong governance characteristics affect the quality of earnings. Earnings quality is measured using (1) Basu's (1997) asymmetric timeliness measure of accounting conservatism, and (2) absolute abnormal accruals estimated from the Dechow and Dichev (2002) and the Jones (1991) models and its variations. Audit committee effectiveness is measured using a composite index comprising four audit committee characteristics. The empirical results show that firms with a controlling shareholder, on average, are associated with both lower accounting conservatism (lower earnings quality) and lower absolute abnormal accruals (higher earnings quality) than firms with no controlling shareholder. Further analysis shows that family- and the government-controlled firms and firms whose controlling shareholders have voting rights below 75%, in particular, are associated with lower accounting conservatism and absolute abnormal accruals. Although the results imply both lower and higher earnings quality for firms with a controlling shareholder compared to firms with no controlling shareholder, the lower (higher) absolute abnormal accruals (earnings quality) simply reflects less conservative accounting practice by firms with a controlling shareholder. The results provide no evidence that audit committees with strong governance characteristics are associated with earnings quality.Item A theoretical and empirical study of computing earnings per share(2008-08-04) Zhang, Mei; Kim, Oliver; Business and Management: Accounting & Information Assurance; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)In this dissertation, I propose a theoretic foundation to compute earnings per share (EPS) for firms with both common shares and dilutive securities outstanding. I derive a new EPS measure, market EPS, which is defined as the expectation of the future earnings per share. From the view of investors, market EPS naturally captures EPS information in stock prices. It is compared to basic EPS and diluted EPS, which are suggested in the dual presentation under the current U.S. rule. The comparisons show that market EPS is below the range defined by basic EPS and diluted EPS as long as the expected future abnormal earnings is zero. This indicates a weakness behind the thinking of the current rule. I also find that the diluted EPS by the treasury stock method overstates market EPS more than that by the if-converted method. In addition, given all conditions the same, the upward bias of diluted EPS of growth firms is smaller than that of non-growth firms. To support the proposed theory, I conduct an empirical study using a dataset containing 3130 firm-year employee stock option plans from 1997 to 2006. The results show that diluted EPS under the rule is, on average, larger than market EPS by 1%. Furthermore, the bias is larger for firms that are heavy users of employee stock options and for firms that have higher earnings volatility.Item Multiple Audiences and Corporate Disclosure(2007-08-28) Yang, Jing-Wen; Kim, Oliver; Business and Management: Accounting & Information Assurance; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)This study contributes to literature in three ways: first, it draws a full picture about the determinants of a firm's voluntary disclosure decision; second, it aims at tackling the mixed results found about the relation between competition and disclosure; and third, it shows evidence that it is possible that a firm would change its disclosure behaviors across time. The examination is based on the concept that management's communication could reach out to multiple audiences. While a firm could be concerned about the responses from investors and competitors when deciding disclosure-or-not, union and government could also come into consideration. In addition, how the concern about competitors would affect a firm's voluntary disclosure could depend on different interpretations about competition. Whether a firm is thinking of the abnormal profit that it has earned or the cost advantage that it has possessed, different interpretations about competition result in different predictions about the relation between competition and disclosure, and this could have caused mixed results in previous studies. Measuring a firm's disclosure level by the number of information items disclosed within a year, I found that a firm would disclose less in the face of a union's bargaining power and the litigation threat from outside blockholders. Such concerns are even more salient when it comes to revealing proprietary information. In addition, I found that a larger firm would disclose more information about itself, proprietary or not. Higher incentives for a large firm to give more information might come from both demand and supply of information about it. Furthermore, after controlling for other factors, I only found evidence that supports the argument that less competition (in the sense of market power) would cause less disclosure. The results did not, however, show that a firm facing more competition (in the sense of barriers to entry) would choose to disclose less. Finally, the findings also indicated that a firm's disclosure policy could be not as "sticky" as claimed in previous studies, especially when it comes to disclosing proprietary information. A firm might change its attitudes towards disclosure in the face of different political environment.Item Internal Control, Enterprise Risk Management, and Firm Performance(2007-08-02) Tseng, Chih-Yang; Gordon, Lawrence A; Business and Management: Accounting & Information Assurance; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)This dissertation investigates two research questions arising from the regulation of internal controls required by Sarbanes-Oxley Act of 2002 (SOX). The first research question asks whether better internal controls can enhance firm performance? To address this question, the relation between market-value and internal control is estimated by a residual income model. Firms with weak internal controls are identified as those that disclose material weaknesses in internal controls in periodic filings from August 2002 to March 2006, as required by SOX. The empirical results, based on a sample of 708 firm-years with the disclosures of material weaknesses, show that firms with weak internal controls have lower market-value. Building on the' efforts for SOX to improve internal controls, more and more firms are starting to adopt Enterprise Risk Management (ERM), because sound internal control system rests on adequate and comprehensive analysis of enterprise-wide risks. In light of this trend triggered by SOX, the second research question in this dissertation asks whether implementation of ERM has an impact on firm performance? The basic approach to answer this question uses a contingency perspective, since all risks arise from the firm's internal and external environment. More specifically, the basic argument states that the relation between ERM and firm performance is contingent on the proper match between ERM and five key contingency variables: environment uncertainty, industry competition, firm size, firm complexity, and monitoring by the firm's board of directors. A sample of 114 firms disclosing the implementation of ERM in their 2005 10Ks and 10Qs are identified by keyword search in EDGAR database. In developing the proper match, high performing firms are defined as those with greater than 2% one-year excess return to develop the proposed proper match. An ERM index (ERMI) is constructed based on the Committee of Sponsoring Organizations (COSO) ERM's (2004) definition of four objectives: strategy, operation, reporting, and compliance. The contingency view is supported by the empirical evidence, since the deviation from the proposed proper match is found negatively related to firm performance.Item MANDATING DISCLOSURE OF R&D BENEFITS AND COSTS TO EXTRACT MANAGERS' PRIVATE INFORMATION: OBSTACLES AND PRACTICAL CONSIDERATIONS(2007-07-19) Yen, Ai-Ru; KIM, OLIVER; Business and Management: Accounting & Information Assurance; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)This study suggests that mandating managers to disclose information about the net benefit of R&D outside financial statements is worth to be considered as one potential approach to improve the market's valuation of R&D and to improve managers' R&D-related decision making process. A transition of the R&D reporting practice from cost focused to net benefit focused is viewed necessary. A stream of two mandatory reporting systems is established for the transition to take place more smoothly. It is expected that information asymmetry can be reduced after information about R&D net benefit becomes publicly available. This study contributes to the literature in three ways. First, this is the first study which seriously considers the direct disclosure of net benefit of R&D as a way to improve the R&D reporting practice. Second, this study proposes a stream of reporting systems in the transition. The current R&D reporting practice can be transited gradually toward the desirable R&D reporting practice following the stream. Finally, this study points out that both market participants and firms will be potentially benefited in the transition. Not only the negative impact of information asymmetry will be reduced but also some potential subsidiary benefits will be provided by the transition.Item TO TELL OR NOT TO TELL: MARKET VALUE OF VOLUNTARY DISCLOSURES OF INFORMATION SECURITY ACTIVITIES(2006-11-24) Sohail, Tashfeen; Gordon, Lawrence A.; Loeb, Martin P.; Accounting and Information Assurance; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)This study measures the economic consequences of information security activities, in general, and more specifically the market value of disclosures of information security activities. Since information security activities are primarily non-revenue generating, management tends to view them as the cost-of-doing-business, with no impact on firm value. Furthermore, managers are reluctant to share the details, because that they do not want to attract the attention of hackers. However, voluntary disclosures of information security can help reduce information asymmetry, which leads to belief revisions by investors, and hence corrects the misspecifications (if any) of the firm's market value. In other words, voluntary disclosures of security activities are signaling mechanisms. The objective of this dissertation is to develop a taxonomy of disclosures of information security activities, and empirically test the value relevance of such disclosures. Based on a sample of 1,637 disclosing firms, the empirical results provide support for the argument that voluntary disclosures of information security activities are value-relevant. Industry-wide analyses support the disclosure taxonomy developed, and highlight that firms which are technology and data-dependent, have the most impact from these discretionary disclosures of information security activities. These results are robust to various sensitivity checks, including matched-pair design, returns model, and the model that corrects for self-selection bias. The main contributions of this research are three-fold: 1) it adds to the discretionary disclosure literature by supporting the signaling hypothesis, 2) it adds to the extant literature on value-relevance vis-à-vis the importance of intangible voluntary disclosures, and 3) it adds to the information security literature concerning the value of information security-related activities to organizations. Future directions highlight the rich stream of potential research, based on the dataset collected as a part of this studyItem Analysts' Superiority in Processing Public Information: Evidence from Recommendation Revisions(2006-07-20) Wang, Zheng; Kim, Oliver; Accounting and Information Assurance; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)In this paper, I study analysts' superiority over the market in processing publicly disclosed earnings information by examining a sample of recommendation revisions issued subsequent to annual earnings announcements within a short period of thirty trading days. The main findings of this study are as follows: First, I provide strong evidence that these recommendation revisions convey valuable information to the market for clarifying the long term implications of recently released earnings. These revisions significantly alter the market's belief about the value implications of announced earnings, suggesting that analysts do have superiority over the market in processing pubic information. Also, the extent of this superiority is positively related to analysts' performance in picking stocks and forecasting earnings. Recommendation revisions issued by analysts with superior performance can make the market revise its assessment about the value implications of previous earnings to a much greater extent than those issued by analysts with moderate performance. Moreover, the extent of this superiority increases with the level of information complexity of earnings signals. Analysts' information is even more valuable to the market for reevaluating previous earnings when the earnings information is more difficult to analyze. Lastly, on average, the extent of this superiority declines after Regulation Fair Disclosure, but still remains significant, suggesting that analysts do not solely rely on inside information from the management to interpret public information. Actually, the decline in the extent of superiority is more likely due to a great increase in the number of revisions issued by analysts whose expertise is not in processing public information. Prior studies document that investors also use subsequent earnings announcements to adjust their estimate of the value implications of previous earnings. This study finds initial evidence that when analysts' information and subsequent earnings announcements provide consistent predictions on how previous earnings is misinterpreted, subsequent earnings announcements become less useful to investors for updating their beliefs regarding the implications of previously released earnings. This paper also compares the extent of analysts' superiority in processing publicly released earnings information across industries and find that analysts exhibit a greater degree of superiority for firms in the manufacturing and retail industry.Item THE USEFULNESS OF EARNINGS, THE MAGNITUDE OF PRICE CHANGE, AND THE RETURN-EARNINGS COVARIANCE: BEYOND THE ERC AND R²(2005-08-02) Cho, Myojung; Kim, Oliver; Accounting and Information Assurance; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)This study proposes the return-earnings covariance as a proxy for the usefulness of earnings inferred from the absolute magnitude of price changes associated with earnings information. It is argued that such measurement of the absolute usefulness of earnings information has been neglected in existing long-window studies. For example, the ERC and R² measure the marginal impact and the relative impact of earnings information on the stock price, respectively. It is demonstrated that the return-earnings covariance is a close proxy for the absolute magnitude of price change which is free from noise in both return and earnings. Thus, the return-earnings covariance can be used in long-window studies as well as short-window studies. Two covariance measures, the total covariance and the time distribution of weekly covariance are introduced and applied to empirical data to show new insights that can be obtained by the measures. The result indicates that the previously documented decrease on the value relevance of earnings over the past decades is mainly driven by the increasing influence of factors not directly related to earnings on the regression measures, not by a decrease in the absolute usefulness or timeliness of earnings. It is also found that the previously documented weak return-earnings relation over the short-window announcement period or contemporaneous return-earnings association for larger or more closely followed firms is due not only to more vigorous pre-disclosure information production activities of those firms, but also, and more importantly, to the weaker overall magnitude of price changes associated with earnings information of those firms.Item An Alternative Measure to Detect Intentional Earnings Management through Discretionary Accruals(2005-06-10) Ibrahim, Salma Samir; Kim, Oliver; Accounting and Information Assurance; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)This study proposes an alternative measure of discretionary accruals that can be used in testing for intentional earnings management. Prior research has shown the prevalence of measurement error in all models used to estimate discretionary accruals (Healy (1985), DeAngelo (1986), Jones (1991) and modified Jones models (Dechow et al., 1995). The alternative measure proposed relies on the premise that managers use one or more components of accruals (accounts receivable, inventories, accounts payable, other working capital and depreciation) to manipulate bottom-line income in a given direction, consistent with their incentives. In other words, components of discretionary accruals are expected to be positively correlated. If they are not, this is an indication of high measurement error in the models estimating them. The alternative measure is tested in terms of its power (type II error) and specification (type I error) and compared to the traditional discretionary accruals measure. The power of the tests is measured in random samples with added accrual manipulation as well as a sample of firms targeted by the Securities and Exchange Commission for alleged fraud and a sample of firms that violated their debt covenants. The results indicate that the power of this alternative discretionary measure is higher than that of the traditional discretionary accruals measure. The specification (specificity) is tested in random samples chosen from the full sample as well as random samples chosen from extreme income and cash from operations observations and a sample in which discretionary accruals is a noisy measure of the estimated discretionary accruals. The results indicate that the specification of detecting earnings management behavior is improved by using the alternative discretionary accruals measure.