Why financial appearances might matter: an explanation for "dirty pooling" and some other types of financial cosmetics
Article Abstract:
Financial statement beautification, particularly in preparation for mergers, still seems to matter despite the fact that market participants are aware that financial cosmetics are being applied. Companies employ accounting methods such as pooling and smoothing earnings through the use of reserves to make their financial statements more attractive, They must continue to do so because the market assumes that their financials are beautified. Arbitrageurs do not correct these mispricings because of information costs and anticipated future investor behavior.
Publication Name: Delaware Journal of Corporate Law
Subject: Law
ISSN: 0364-9490
Year: 1997
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An extended interpretation of the Howey test finds that viatical settlements are investment contracts
Article Abstract:
The US District Court for the District of Columbia erred in SEC v. Life Partners, Inc. in finding that viatical settlement contracts are investment contracts subject to the reporting and disclosure requirements of the Securities Act of 1933. The court misapplied the test from SEC v. W.J. Howey Co. and failed to give proper weight to policy considerations. The US Court of Appeals for the D.C. Circuit has since ruled on the case. It found that the lower court misapplied the "effort of others" component of the Howey test and overturned the decision.
Publication Name: Delaware Journal of Corporate Law
Subject: Law
ISSN: 0364-9490
Year: 1997
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Informational asymmetry and OTC transactions: understanding the need to regulate derivatives
Article Abstract:
Mandatory disclosure requirements should be imposed on derivatives and over-the-counter transactions to address the informational asymmetries that exist between sellers and purchasers and management and shareholders. Because derivatives and customized contracts are so complex, buyers are often unaware of the risks underlying these investments. Buyers and their shareholders respond with litigation and misrepresentation charges. To reduce these litigation risks, disclosure of derivative investments and their risk profiles must be mandatory.
Publication Name: Delaware Journal of Corporate Law
Subject: Law
ISSN: 0364-9490
Year: 1997
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