This introductory course is designed to provide you with an opportunity to learn about empirical research concerning financial accounting information and the capital markets, and also to learn how to conduct your own research in this area.
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Instructor: |
Ray Pfeiffer, Ph.D., CPA; Associate Professor of Accounting |
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| 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. |
This course has the following goals:
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To introduce you to theories relevant to the investigation of financial-accounting- and capital-markets-related questions. |
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To help you develop and integrate methodological tools necessary to conduct high-quality original research. |
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To help you develop you critical thinking abilities. |
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To expose you to a range of topics in the accounting literature and to familiarize you with the state of knowledge in the literature. |
The goals above 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:
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an understanding of the relevant theories of the discipline that inform thinking about the researchable problems at hand; |
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an understanding of what has gone before, what "facts" can be relied upon, and how a given undertaking relates to prior and contemporaneous research; |
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sufficient intrinsic interest and intellectual curiosity to facilitate the development of new testable hypotheses; |
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research design tools sufficient to implement effective and efficient tests of hypotheses; |
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effective critical thinking skills and logical reasoning skills that enable evaluation of previous research, hypothesis development, and careful application of the research design; and |
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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 articles. 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 will try to supplement the osmosis process where possible and 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. At each class meeting, I will ask students at random to act as the primary discussants for each paper. I expect the discussant to facilitate discussion of the issues raised and addressed by the paper, including summarizing and evaluating the motivation, methodology, and inferences of the paper. You should expect to be asked to be discussant for one or two papers each week. The primary discussant will distribute a typed discussion outline and where useful, will prepare overhead transparencies to help make key points about the tables or other important issues. You are strongly encouraged to work together 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:
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The motivation -- Why is this research being done? What is the missing link in the (then) current state of the literature that this paper is trying to address? |
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The research objectives/questions -- What is (are) the specific research question(s)? |
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The theory -- What is the underlying theoretical framework? What assumptions are made in constructing the arguments? |
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The specific hypotheses. Do you agree that the hypotheses follow from the logical development of the arguments? |
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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? |
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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. |
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What were the key research design choices made? What were the alternatives? Did the author(s) make the best choice? |
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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? |
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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? |
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Future research issues suggested by this research. What questions remain unanswered? What new questions are raised? |
The accounting literature continues to grow very rapidly while the length of a semester hasn't yet changed. This causes me to 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 papers for the course based on the relative prominence of an area in recent volumes of the top three accounting research journals and the relative importance of the papers in that area. I try to pay attention to the history, development of knowledge, and also the state of the art in an 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 subjective bias is based on 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.
Education:
Stroudsburg High School, Stroudsburg Pennsylvania, June 1983
Moravian College, Bethlehem, Pennsylvania: B.A. (Accounting) 1987
University of North Carolina, Chapel Hill, North Carolina — Ph.D. (Accounting) 1994
Work experience:
Associate Professor, University of Massachusetts, 2000-present
Assistant Professor, 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 are available on my web page.
My goals as a teacher are to (1) inspire my students to learn; and (2) to challenge them to reach their fullest potential. To help the students achieve these goals, I embrace the following philosophy regarding my teaching:
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:
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I will be prepared for every class. |
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I will attempt to answer any questions that you have, if not on the spot, as soon as possible thereafter. |
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I will do my best to be fair in my assignment of grades. |
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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:
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I expect that you will come to class. Your presence in the classroom benefits you, your classmates, and me. |
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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 6-8 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. |
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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. |
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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. |
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I expect that you will abide by the University's Academic Honesty Policy, as outlined in the booklet "Undergraduate Rights and Responsibilities." |
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 researchers in the markets area. Also, the project will help you to develop skills that will be useful to you in your future courses and in your dissertation.
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. 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.
Introduction (September 9)
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Course outline |
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A very broad overview of financial reporting/capital markets/positive accounting research |
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What is getting published lately in the top academic journals? |
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Preview of next week |
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Discussion of Kinney, W. "Empirical Accounting Research Design for Ph.D. Students." The Accounting Review 56(2): 338-350. |
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How to build an empirical research paper (teaching notes). |
Does Accounting Matter? Relations Between Accounting Earnings and Stock Returns (September 16)
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Pfeiffer, R. 1998. "Econometric Exercise" (teaching notes). |
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Ball, R., and P. Brown. 1968. "An Empirical Evaluation of Accounting Income Numbers. Journal of Accounting Research 6(2): 159-178. |
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Beaver, W., R. Clarke, and W. Wright, “The association between unsystematic security returns and the magnitude of earnings forecast errors,” Journal of Accounting Research 17(2): 316-340. |
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Kothari, S. P., and R. Sloan. 1992. "Information in Prices About Future Earnings." Journal of Accounting and Economics 15(2-3): 143-172. |
Measuring the Relation Between Accounting Earnings and Stock Returns (September 23)
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Collins, D., and S. P. Kothari. 1989. "An Analysis of Intertemporal and Cross-Sectional Determinants of Earnings Response Coefficients." Journal of Accounting and Economics 11: 143-181. |
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Basu, S. 1997. "The Conservatism Principle and the Asymmetric Timeliness of Earnings." Journal of Accounting and Economics 23(1): 3-38. |
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Lipe, R., L. Bryant, and S. Widener. 1998. "Do Nonlinearity, Firm-Specific Coefficients, and Losses Represent Distinct Factors in the Relation Between Stock Returns and Accounting Earnings?" Journal of Accounting and Economics 25: 195-214. |
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Liu, J., and J. Thomas. 2000. "Stock Returns and Accounting Earnings." Journal of Accounting Research 38(1): 71-102. |
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Background reading: Easton, P. 1999. "Security Returns and the Value Relevance of Accounting Data." Accounting Horizons 13(4): 399-412. |
Accounting-Based Valuation: The Residual Income Valuation Model (September 30)
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Ohlson, J. 1995. "Earnings, Book Values, and Dividends in Security Valuation." Contemporary Accounting Research 11(2): 661-687. |
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Lee, C. 1999. "Accounting-Based Valuation: Impact on Business Practices and Research." Accounting Horizons 13(4): 413-425. |
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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. |
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Beaver, W. 1999. "Comments on 'An Empirical Assessment of the Residual Income Valuation Model'." Journal of Accounting and Economics 26: 35-42. |
Accounting-Based Valuation: Fundamental Analysis (October 7)
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Lev, B. and S. R. Thiagarajan. 1993. “Fundamental Information Analysis,” Journal of Accounting Research 31(2): 190-215. |
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Abarbanell, J., and B. Bushee. 1997. “Fundamental Analysis, Future Earnings and Stock Prices.” Journal of Accounting Research 35: 1-24. |
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Abarbanell, J., and B. Bushee. 1998. “Abnormal Returns to a Fundamental Analysis Strategy.” The Accounting Review 73(1): 19-45. |
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Piotroski, J., 2000. “Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers,” Journal of Accounting Research 38 (Supplement): 1-41. |
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Guay, W. 2000. "Discussion of Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers." Journal of Accounting Research 38 (Supplement): 43-51. |
Evidence Regarding Efficiency of Stock Prices With Respect to Accounting Information (October 14)
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Background reading: Kothari, S. P. 2001. "Capital Markets Research in Accounting." Journal of Accounting and Economics 31: pp. 186-207 only. |
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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. |
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Fama, E., and K. French. 1996. "Multifactor Explanations of Asset Pricing Anomalies." Journal of Finance 51(1): 55-84. |
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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. |
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Sloan, R. 1996. "Do Stock Prices Fully Reflect Information in Accruals and Cash Flows about Future Earnings?" The Accounting Review 71(3): 289-315. |
Strategic Financial Reporting: Analysts' Role as Information Providers (October 21)
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Background reading: Schipper, K. 1991. "Analysts' Forecasts." Accounting Horizons 5:105-121. |
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Abarbanell, J. 1991. "Do Analysts' Earnings Forecasts Incorporate Information in Prior Stock Changes?" Journal of Accounting and Economics 14: 147-165. |
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Shroff, P., R. Venkataraman, and B. Xin. 2003. "Leaders and Followers Among Security Analysts: Analysis of Impact and Accuracy." Working paper, May 2003. |
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Plumlee, M. 2003. "The Effect of Information Complexity on Analysts' Use of that Information." The Accounting Review 78(1): 275-296. |
Strategic Financial Reporting: Disclosure choices (October 28)
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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. |
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Skinner, Douglas. 1994. "Why Firms Voluntarily Disclose Bad News." Journal of Accounting Research 32(1): 38-61. |
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Graham, J., C. Harvey, and S. Rajgopal. 2004. "The Economic Implications of Corporate Financial Reporting." Working paper, April 2004. |
Strategic Financial Reporting: Disclosure choices, continued (November 4)
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Botoson, C., and M. Plumlee. 2002. "A Re-Examination of Disclosure Level and Expected Cost of Equity Capital." Journal of Accounting Research 40(1): 21-40. |
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Schrand, Catherine, and Beverly Walther. 2000. "Discretionary Reporting of Earnings Components." The Accounting Review 75(2). |
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Moore, E., and R. Pfeiffer. 2004. "The Effects of Restatements on Firms' Accounting Choices." Working paper. |
Strategic Financial Reporting: Earnings Management (November 18)
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Background reading: Schipper, Katherine. 1989. "Earnings Management." Accounting Horizons 3:91-102. |
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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. |
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Dechow, P., R. Sloan, and A. Sweeney. 1995. "Detecting Earnings Management." The Accounting Review 70(2): 193-225. |
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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. |
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Beaver, W., M. McNichols, and K. Nelson. 2003. "An Alternative Interpretation of the Discontinuity in Earnings Distributions." Working paper. |
Strategic Financial Reporting: Earnings Management, continued (December 2)
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Chan, K., N. Jegadeesh, and T. Sougiannis. 2003. "The Accrual Effect on Future Earnings." Working paper, September, 2003. |
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Francis, J., R. LaFond, P. Olsson, and K. Schipper. 2003. "Earnings Quality and the Pricing Effects of Earnings Patterns." Working paper. |
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Moehrle, S. 2002. "Do Firms Use Restructuring Charge Reversals to Meet Earnings Targets?" The Accounting Review 77(2): 397-414. |
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Moore, E. 2004. Title TBD. |
Management Compensation (December 9)
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Jensen, M., and K. Murphy. 1990. "Performance Pay and Top Management Incentives." Journal of Political Economy 98: 225-264. |
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Erickson, M., M. Hanlon, and E. Maydew. 2004. "Is There a Link Between Executive Compensation and Accounting Fraud?" Working paper, February 24, 2004. |
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Efendi, J., A. Srivasta, and E. Swanson. 2004. "Why Do Corporate Managers Misstate Financial Statements? The Role of Option Compensation, Corporate Governance, and Other Factors." Working paper, May 2004. |
Accounting Choice - Positive Accounting Theory (December 16)
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Watts, R., and J. Zimmerman. 1990. "Positive Accounting Theory: A Ten-Year Perspective." The Accounting Review 65(1): 131-156. |
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Fields, T., T. Lys, and L. Vincent. "Empirical Research on Accounting Choice." Journal of Accounting and Economics 31: 255-307. |
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Pittman, J., and S. Fortin. 2004. "Auditor Choice and the Cost of Debt Capital for Newly Public Firms." Journal of Accounting and Economics 37(1): 113-136. |
Methodological Issues and Miscellaneous (Time permitting)
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Baber, W. and S-H. Kang. 2002. "Is Meeting the Consensus EPS Good News or Bad News? Stock Splits and the Accuracy of Analysts' Forecast Data." Working paper. |
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Payne, J., and W. Thomas. 2003. "The Implications of Using Stock-Split Adjusted I/B/E/S Data in Empirical Research." The Accounting Review 78(4): 1049-1068. |
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Bhojraj, S., C. Lee, and D. Oler. 2002. "What's My Line? A Comparison of Industry Classification Schemes for Capital Market Research." Journal of Accounting Research 41(5): 745-774. |
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Easton, P. and G. Sommers. 2002. "Scale and the Scale Effect in Market-Based Accounting Research." Working paper. |
Finally...
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.