This introductory course is designed to provide you with an opportunity to learn about empirical research concerning financial reporting and the capital markets, including how to conduct your own research in this area.
When you have completed this course, I want you to be able to...
 |
understand theories relevant to the investigation of financial-reporting- and capital-markets-related questions; |
|
|
develop and integrate methodological tools necessary to conduct high-quality original research; |
|
|
critically analyze the behavior of participants in the capital markets and existing research thereupon; and |
|
|
become aware of the range of topics that comprise the empirical capital markets/financial accounting literature and the state of knowledge in this literature. |
The objectives are driven by my belief that the main purpose of the seminar is to help you learn how to do your own research. To do so, you need to acquire the basic building blocks of good research:
|
|
an understanding of the relevant theories of the discipline that inform thinking about the researchable problems at hand; |
|
|
an understanding of what has gone before: what "facts" can be relied upon, and how a given undertaking relates to prior and contemporaneous research; |
|
|
sufficient intrinsic interest, knowledge, and intellectual curiosity about business and accounting issues to facilitate the development of new testable hypotheses; |
|
|
research design tools sufficient to implement effective and efficient tests of hypotheses; |
|
|
effective critical thinking skills and logical reasoning skills that enable evaluation of previous research, hypothesis development, and careful application of well-conceived research designs; and |
|
|
an ability to communicate clearly, succinctly, and effectively both orally and in writing. |
The most widely-used approach to teaching courses such as this at our peer universities around the country is a seminar format wherein students and the instructor read and discuss papers. I view the clustering around this approach as an equilibrium outcome, and as such, I adopt a slightly-modified version of this approach in my course as well. This choice implicitly assumes that osmosis is the optimal means of transmission, which may or may not be true, and so I supplement the osmosis process where practicable.
I have planned both the course format and the evaluation of you with the course objectives in mind. We will all carefully and thoroughly read and discuss each of the papers in the reading list and exchange our ideas about the papers in weekly, 3-hour meetings. Each class meeting will include a mix of activities, including my organized presentation of material, student-led discussion of papers, and free-ranging discussions of papers and issues that arise related to them. For each paper in the reading list below, you should prepare and bring to class an outline to share with the class that you could use to lead a discussion of the important points raised by the paper. You are strongly encouraged to work together with your fellow students to resolve questions and to share insights about the papers both before and after each class.
Below is a list of aspects of papers and questions that might be helpful in focusing your preparation:
|
|
The motivation -- Why is this research being done? What is/was the missing link in the literature that this paper is trying to address? |
|
|
The research objectives/questions -- What is (are) the specific research question(s)? |
|
|
The theory -- What is the underlying theoretical framework? What assumptions are made in constructing the arguments? |
|
|
The specific hypotheses. Do the hypotheses follow from the logical development of the arguments? |
|
|
The basic model(s). How well does the model represent reality? What sacrifices are being made? What key insights does the model provide? How does the model differ from/improve upon models used in other studies? |
|
|
The research method/design -- What are the features of the research design -- how do these features affect external and internal validity, are there sufficient controls for competing explanations; are there any inherent biases; features that may lead to misinterpretations, e.g., lead to type I and type II errors. |
|
|
What were the key research design choices made? What were the alternatives? Did the author(s) make the best choice? |
|
|
What were the results? What does each table in the paper tell you? How do you interpret the reported findings? |
|
|
Interpretations, conclusions and cautionary notes. What do we know after reading the study that we didn't know before? Are the author's (s') conclusions consistent with the evidence presented? What are the limitations of the evidence? |
|
|
Learning by example --- what was great about this paper? What was not so great about the paper? What can we learn from it to help us in our own work? |
|
|
Future research issues suggested by this research. What questions remain unanswered? What new questions are raised? |
The modern literature in empirical financial research has continued to expand very rapidly during the past 45 years. Meanwhile, the length of a semester has remained constant during this time. This creates a very difficult challenge. Instructors of courses like this one must try to strike a balance between somewhat superficial coverage of a large number of papers versus in-depth coverage of a smaller number of papers. I prefer the latter, and so we will typically only cover three papers in a given weekly session, or about 40 papers in total for the semester.
I have selected topics for the course based on their relative prominence in recent volumes of the top three accounting research journals (The Accounting Review, Journal of Accounting Research, and Journal of Accounting and Economics) and the relative importance of the papers in that area. I try to sample the history, development of knowledge, and also the state of the art in each area. It should be noted that despite my attempts to be unbiased, the list below reflects my subjective assessment of what is important and what is interesting. My bias stems from my own doctoral training, the seminars that I've taught and/or participated in at UMass, my own research, and insights gained from sharing syllabi with colleagues around the country. At every opportunity, you should avail yourself of the opportunity to become aware what else is out there, as your ultimate goal is to become knowledgeable in all of the areas of empirical financial accounting research.
I will evaluate your performance in the class based upon (1) overall performance in the seminar meetings throughout the semester (50% of the grade); (2) a mid-semester written critique of a paper that I will select (20% of the grade); and (3) a course project, the details of which are discussed below (30% of the grade).
Excellent performance in the seminar meetings means (1) coming to class prepared to discuss the key features of all of the assigned papers, whether or not you are the assigned discussant for a given paper; (2) providing high-quality insights and interpretations that enrich the understanding of the paper for everyone in the class; (3) drawing connections among papers in the course; (4) suggesting avenues for future research.
The paper critique is designed to simulate the experience of serving as a peer reviewer for an academic journal, as a discussant for a paper at an academic conference, or as a colleague providing feedback to another scholar. A good critique includes accurate identification of the key features of the paper, constructive criticism of the work, assessment of the authors' conclusions given the evidence; and where possible, specific suggestions for improvement.
The course project will give you the opportunity to work with actual data to investigate a question of interest that arises during the semester. The idea behind the project is that when you actually work with data, you gain a much deeper appreciation of the issues faced by empirical researchers. Also, the project will help you to develop skills that will be useful to you in your future courses and in your dissertation.
|
Instructor: |
Ray Pfeiffer, Ph.D., CPA; Professor of Accounting |
 |
| Office address: | 355 School of Management | |
| Email: | pfeiffer@acctg.umass.edu | |
| Web URL: | http://intra.som.umass.edu/pfeiffer | |
| Office phone: | 413 545 5653 | |
| Fax: | 413 545 3858 | |
| Campus mailbox: | 230 School of Management | |
| Office hours: | By appointment. |
Education:
University of North Carolina, Chapel Hill, North Carolina — Ph.D. (Accounting) 1994
Moravian College, Bethlehem, Pennsylvania: B.A. (Accounting) 1987
Stroudsburg High School, Stroudsburg Pennsylvania, June 1983
Work experience:
Professor, Isenberg School of Management, University of Massachusetts 2007-present
Associate Professor, Isenberg School of Management, University of Massachusetts, 2000-2007
Assistant Professor, Isenberg School of Management, University of Massachusetts, 1994-2000
Assistant Accountant, Deloitte & Touche, 1987-1990
Staff accountant, Stone, Cyphers, McCoy, and DeAngelo, PC, summer 1986.
Certified Public Accountant, Pennsylvania and North Carolina
Research interests:
Financial reporting issues, financial reporting regulation, firms' accounting and disclosure choices, and stock market investors' and financial analysts' use of financial statement information.
Outside interests:
My family; playing piano, and arranging and composing music (click here to hear samples); tennis; travel (especially Germany), cooking and eating good food, Carolina and UMass basketball; the Red Sox
More details about me, including my curriculum vita, are available on my web page.
My goal as a teacher is to effectively help my students to reach the highest level of mastery (broadly defined) that they can, ideally a higher level than they thought possible. To accomplish this, I embrace the following philosophy regarding my teaching:
|
|
I believe my purpose as a teacher goes beyond the teaching of accounting. It is equally important to help students to grow as people, to support their intellectual and professional development, to challenge their assumptions, and to expand their world views. In this regard, I wholeheartedly embrace the following perspective offered by Martin Luther King: "...Education must enable one to sift and weigh evidence, to discern the true from the false, the real from the unreal, and the facts from the fiction. The function of education, therefore, is to teach one to think intensively and to think critically..." (from a speech at Morehouse College, "The Purpose of Education," 1948) |
|
|
I believe that I succeed as a teacher when my students are inspired to teach themselves. Ideally, my role is to appeal to each individual’s inner intellectual curiosity, which I believe is the most valuable educational resource. |
|
|
I believe in challenging my students to reach very high standards of performance and in providing them with the resources they need to reach those standards. I believe that just about anybody can learn just about anything in such an environment. |
|
|
I take my role in the learning process very seriously. I am personally invested in my students’ success or failure because I care very deeply that they learn. |
|
|
I believe that the most important element of learning is building structure. Without a framework, students are unlikely to internalize facts, rules, ideas, and techniques. With a framework and the ability to build their own frameworks, students can become critical thinkers and thus more effective learners and professionals. |
|
|
I believe that I should continuously improve my teaching ability and the content of my courses. This includes keeping the material current with the state of the art in the academic literature and in practice; finding new ways to make the material appeal to students’ curiosity; making efficient use of class time; and introducing new pedagogical tools that recognize diverse learning styles and enhance my ability to reach my students. |
Love of teaching was my first inspiration to pursue an academic career. In my many years of teaching (all here at UMass), I realize that I love it even more than I thought I would. My work as a teacher is a crucial part of my contribution to my profession, to the University, and to society. As such, the privilege to teach continues to be a enormous source of personal reward and inspiration for me.
Just like any other human relationship, a successful relationship between a student and a teacher requires mutual respect and communication. I commit to interacting with you in a professional manner, and I expect the same in return. Also, to make this relationship work for each one of us, I have pledged to accept the following responsibilities and have also asked that you accept several specific responsibilities below.
My Responsibilities:
|
|
I will be prepared for every class. |
|
|
I will attempt to answer any questions that you have, if not on the spot, as soon as possible thereafter. |
|
|
I will do my best to be fair in my assignment of grades. |
|
|
I will try to continuously improve this class. If there is something that I can do to make the class better during the semester, I will try to make changes. And I welcome and will respond to suggestions from the students' end of semester evaluations as well. |
Responsibilities of Each Student:
|
|
I expect that you will come to class. Your presence in the classroom benefits you, your classmates, and me. |
|
|
I expect that you will plan your schedule appropriately to allow sufficient time to be successful in this course. This course requires a large amount of work outside the classroom. There is a lot of reading and preparation required. Even after many years of work in this literature, it still takes me several hours to read a paper for the first time, and so you should expect to need at least 20-25 hours per week in preparation for class. I know of no way to learn this material other than through plentiful, careful, painstaking study. |
|
|
I expect that you will ask questions of me and of your colleagues when you do not understand something you read, something I said, or something one of your colleagues said in class. Many of the concepts and skills you will encounter this semester are very difficult. You will be frequently confused by things you read and things you hear in class. It is imperative that your confusion be as temporary as possible. |
|
|
If you do not feel comfortable asking your questions in class, I expect that you will ask your classmates or me outside of class. Asking questions is one of the most important ways to learn. |
|
|
I expect that you will abide by the University's Academic Honesty Policy, as outlined in the booklet "Undergraduate Rights and Responsibilities." |
I love teaching this class. I look forward to our discussions of these papers and discovering your unique insights on the topics. I hope this is a successful semester for all of us.
Below is an outline of the topics that we will discuss this semester, including a list of readings for each weekly meeting of the seminar. Several of the items are marked as "Background reading." Such articles can be considered optional but you are encouraged to read them as well, if not during this semester, as part of your continuing education. We will make every effort to stick with the schedule as organized below, but there may be deviations at times as well as changes in the list, when appropriate.
NOTE: Links below are directly to PDF files located within UMass Library databases. You must be affiliated with UMass and have a valid OIT account for these links to work.
Introduction (September 7)
|
|
Nichols, C., and J. Wahlen. 2004. "How Do Earnings Numbers Relate to Stock Returns? A Review of Classic Accounting Research." Accounting Horizons 18(4): 263-286. |
|
|
Easton, P., and M. Zmijewski, 1989. "Cross-Sectional Variation in the Stock Market Response to Accounting Earnings Announcements." Journal of Accounting and Economics 11(2-3):117-141. |
|
|
Kothari, S. P., and R. Sloan. 1992. "Information in Prices About Future Earnings." Journal of Accounting and Economics 15(2-3): 143-172. |
|
|
Hayn, C. 1995. "The Information Content of Losses." Journal of Accounting and Economics 20(2): 125-153. |
|
|
Dietrich, J. R., K. Muller, and E. Riedl. 2004. "Asymmetric Timeliness Tests of Accounting Conservatism." Working paper. |
|
|
Bamber, L., and Y. Cheon. 1995. "Differential Price and Volume Reactions to Accounting Earnings Announcements. The Accounting Review 70(3): 417-441. |
|
|
Background reading: Ball, R., and P. Brown. 1968. "An Empirical Evaluation of Accounting Income Numbers. Journal of Accounting Research 6(2): 159-178. |
|
|
Background reading: Easton, P. 1999. "Security Returns and the Value Relevance of Accounting Data." Accounting Horizons 13(4): 399-412. |
|
|
Background reading: Basu, S. 1997. "The Conservatism Principle and the Asymmetric Timeliness of Earnings." Journal of Accounting and Economics 23(1): 3-38. |
|
|
Background reading: Freeman, R.. and S. Tse. 1992. "A Nonlinear Model of Security Price Responses to Unexpected Earnings." Journal of Accounting Research 30(2): 185-209. |
|
|
Bartov, E., D. Givoly, and C. Hayn. 2002. "The Rewards to Meeting or Beating Earnings Expectations." Journal of Accounting and Economics 33(2): 173-204. |
|
|
Botosan, C., and M. Plumlee. 2002. "A Re-examination of Disclosure Level and the Expected Cost of Equity Capital." Journal of Accounting Research 40(1): 21-40. |
|
|
Richardson, S., S. Teoh, and P. Wysocki. 2004. "The Walk-down to Beatable Analyst Forecasts: The Role of Equity Issuance and Insider Trading Incentives." Contemporary Accounting Research 21(4): 885-924. |
|
|
Cheng, Q. and T. Warfield. 2005. "Equity Incentives and Earnings Management." The Accounting Review 80(2): 441-476. |
|
|
Bowen, R., A. Davis, and D. Matsumoto. 2005. "Emphasis on Pro Forma versus GAAP Earnings in Quarterly Press Releases: Determinants, SEC Intervention, and Market Reactions." The Accounting Review 80(4): 1011-1038. |
|
|
Beaver, W., M. McNichols, and K. Nelson. 2003. "Management of the Loss Reserve Accrual and the Distribution of Earnings in the Property-Casualty Insurance Industry." Journal of Accounting and Economics 35(3): 347-376. |
|
|
Background reading: Healy, Paul, and James Wahlen. 1999. "A Review of the Earnings Management Literature and its Implications for Standard Setting." Accounting Horizons 13(4): 365-383. |
|
|
Background reading: Schrand, Catherine, and Beverly Walther. 2000. "Discretionary Reporting of Earnings Components." The Accounting Review 75(2): 151-177. |
|
|
Background reading: Healy, P., and K. Palepu. 2001. "Information Asymmetry, Corporate Disclosure, and the Capital Markets: A Review of the Empirical Disclosure Literature." Journal of Accounting and Economics 31: 405-440. |
|
|
Background reading: Schipper, Katherine. 1989. "Earnings Management." Accounting Horizons 3:91-102. |
|
|
Background reading: Graham, J., C. Harvey, and S. Rajgopal. 2005. "The Economic Implications of Corporate Financial Reporting." Journal of Accounting and Economics 40(1-3): 3-73. |
|
|
Background reading: Skinner, Douglas. 1994. "Why Firms Voluntarily Disclose Bad News." Journal of Accounting Research 32(1): 38-61. |
Can (or How Can) Accounting Numbers Be Used to Forecast Future Performance and to Value Equities? (October 12 & October 19)
|
|
Lundholm, R. J. 1995. "A Tutorial on the Ohlson and Feltham/Ohlson Models." Contemporary Accounting Research 11(2): 749-761. |
|
|
Dechow, P., A. Hutton, and R. Sloan. 1999. “An Empirical Assessment of the Residual Income Valuation Model,” Journal of Accounting and Economics 26:1-34. |
|
|
Beaver, W. 1999. "Comments on 'An Empirical Assessment of the Residual Income Valuation Model'." Journal of Accounting and Economics 26: 35-42. |
|
|
Penman, S., and X. Zhang. 2002. "Accounting Conservatism, the Quality of Earnings, and Stock Returns." The Accounting Review 77(2): 237-264. |
|
|
Fairfield, P., S. Whisenant, and T. Yohn. 2003. "The Differential Persistence of Accruals and Cash Flows for Future Operating Income Versus Future Profitability." Review of Accounting Studies 8(2-3): 221-243. |
|
|
Barth, M., D. Cram, and K. Nelson. 2001. "Accruals and the Prediction of Future Cash Flows." The Accounting Review 76(1): 27-58. |
|
|
Background reading: Ohlson, J. 1995. "Earnings, Book Values, and Dividends in Security Valuation." Contemporary Accounting Research 11(2): 661-687. |
|
|
Background reading: Lee, C. 1999. "Accounting-Based Valuation: Impact on Business Practices and Research." Accounting Horizons 13(4): 413-425. |
|
|
Background reading: Fairfield, P., S. Ramnath, and T. Yohn. 2004. "Does Industry-Level Analysis Improve Profitability Forecasts?" Working paper. |
|
|
Background reading: Penman, S. Financial Statement Analysis and Security Valuation, 3rd edition, Irwin/McGraw-Hill, 2007. |
How Do Financial Analysts Use Accounting Numbers to Forecast Future Performance and to Value Equities? (October 26 and November 2)
|
|
Plumlee, M. 2003. "The Effect of Information Complexity on Analysts' Use of that Information." The Accounting Review 78(1): 275-296. |
|
|
Mikhail, M., B. Walther, and R. Willis. 2003. "The Effect of Experience on Security Analyst Underreaction." Journal of Accounting and Economics 35(1): 101-116. |
|
|
O'Brien, P., M. McNichols, and H. Lin. 2005. "Analyst Impartiality and Investment Banking Relationships." Journal of Accounting Research 43(4): 623-650. |
|
|
Gintschel, A., and S. Markov. 2004. "The Effectiveness of Regulation FD." Journal of Accounting and Economics 37(3): 293-314. |
|
|
Bradshaw, M. 2004. "How Do Analysts Use Their Earnings Forecasts in Generating Stock Recommendations?" The Accounting Review 79(1): 25-50. |
|
|
Abarbanell, J., and R. Lehavy. 2003. "Biased Forecasts or Biased Earnings? The Role of Reported Earnings in Explaining Apparent Bias and Over/Underreaction in Analysts' Earnings Forecasts." Journal of Accounting and Economics 36(1-3): 105-146. |
|
|
Background reading: Schipper, K. 1991. "Analysts' Forecasts." Accounting Horizons 5:105-121. |
|
|
Background reading: Abarbanell, J. 1991. "Do Analysts' Earnings Forecasts Incorporate Information in Prior Stock Changes?" Journal of Accounting and Economics 14: 147-165. |
How Do Investors Use Accounting Numbers to Value Equities? (November 9)
|
|
Rangan, S., and R. Sloan. 1998. "Implications of the Integral Approach to Quarterly Reporting for the Post-Earnings-Announcement Drift." The Accounting Review 73(3): 353-371. |
|
|
Dechow, P., and W. Ge. 2006. "The Persistence of Earnings and Cash Flow and the Role of Special Items: Implications for the Accrual Anomaly." Review of Accounting Studies 11(2-3): 253-??. |
|
|
Abarbanell, J., and B. Bushee. 1998. “Abnormal Returns to a Fundamental Analysis Strategy.” The Accounting Review 73(1): 19-45. |
|
|
Background reading: Kothari, S. P. 2001. "Capital Markets Research in Accounting." Journal of Accounting and Economics 31: pp. 186-207 only. |
|
|
Background reading: Lee, C. 2001. "Market Efficiency and Accounting Research: A Discussion of 'Capital Markets Research in Accounting' by S. P. Kothari." Journal of Accounting and Economics 31: 233-253. |
|
|
Background reading: Bernard, Victor, and Jacob Thomas. 1990. "Evidence that Stock Prices do not Fully Reflect the Implications of Current Earnings for Future Earnings." Journal of Accounting and Economics 13: 305-340. |
|
|
Background reading: Fama, E., and K. French. 1996. "Multifactor Explanations of Asset Pricing Anomalies." Journal of Finance 51(1): 55-84. |
|
|
Background reading: Sloan, R. 1996. "Do Stock Prices Fully Reflect Information in Accruals and Cash Flows about Future Earnings?" The Accounting Review 71(3): 289-315. |
|
|
Background reading: Lev, B. and S. R. Thiagarajan. 1993. “Fundamental Information Analysis,” Journal of Accounting Research 31(2): 190-215. |
|
|
Background reading: Abarbanell, J., and B. Bushee. 1997. “Fundamental Analysis, Future Earnings and Stock Prices.” Journal of Accounting Research 35: 1-24. |
No class November 16 or 23
What Insights Can Markets-Based Accounting Research Provide to Regulators? (November 30)
|
|
Barth, M., M. Clement, G. Foster, and R. Kasznik. 1998. "Brand Values and Capital Market Valuation." Review of Accounting Studies 3: 41-68. |
|
|
Picconi, M. 2006. "The Perils of Pensions: Does Pension Accounting Lead Investors and Analysts Astray?" The Accounting Review 81(4): 925-955. |
|
|
Nelson, K. 1996. "Fair Value Accounting for Commercial Banks: An Empirical Analysis of SFAS No. 107." The Accounting Review 71(2): 161-182. |
|
|
Background reading: Holthausen, R.., and R. Watts. 2001. "The Relevance of the Value-Relevance Literature for Financial Accounting Standard Setting." Journal of Accounting and Economics 31(1-3): 3-75. |
|
|
Background reading: Barth, M., W. Beaver, and W. Landsman. 2001. "The Relevance of the Value Relevance Literature for Financial Accounting Standard Setting: Another View." Journal of Accounting and Economics 31(1-3): 77-104. |
|
|
Ball, R.., S.P. Kothari, and A. Robin. 2000. "The Effect of International Institutional Factors on Properties of Accounting Numbers." Journal of Accounting and Economics 29(1): 1-51. |
|
|
Lang, M., K. Lins, D. Miller, and C. Leuz. 2003. "ADRs, Analysts, and Accuracy: Does Cross Listing in the United States Improve a Firm's Information Environment and Increase Market Value?" Journal of Accounting Research 41(2): 317-345. |
|
|
Desir, R., and R. Pfeiffer. 2006. "The Reward to Meeting or Beating Earnings Expectations: Is There a Premium for Cross-Listed Firms?" Working paper. |
|
|
Francis, J., R. LaFond, P. Olsson, and K. Schipper. 2005. "The Market Pricing of Accruals Quality." Journal of Accounting and Economics 39(2): 295-327. |
|
|
Ashbaugh-Skaife, H., D. Collins, and R. LaFond. 2006. "The Effects of Corporate Governance on Firms' Credit Ratings." Journal of Accounting and Economics 42(1-2): 203-243. |
|
|
Bowen, R., Rajgopal, and Venkatachalam, M. 2005. "Accounting Discretion, Corporate Governance, and Firm Performance." Working paper. |