Recognition versus disclosure in the oil and gas industry

Article Abstract:

The pricing consequences of recognition and disclosure in the oil and gas industry are investigated. A sample of 21 full cost firms recognizing a write-down and a sample of 50 successful effort firms disclosing an as-if write-down in their footnotes are analyzed. The test is considered powerful since concentration is on a single industry where the value of product reserves is important for firms' valuations. Cross-sectional regression data reveal a significant negative market response to firms recognizing a write-down. No significant market response to firms disclosing a write-down was observed at the 10-K filing date. The results therefore show that whether a write-down is recognized or disclosed significantly affects firms' values.

Natural Gas Distribution, PETROLEUM AND COAL PRODUCTS, Petroleum, Petroleum and Coal Products Manufacturing, Gas Production and Distribution, Gas, Commercial Use, Accounting and auditing, Petroleum industry, Gas industry, Commercial buildings, Disclosure (Securities law), Gas utilization

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Repeated accounting write-offs and the information content of earnings

Article Abstract:

The information content of earnings in the presence of significant nonrecurring or unusual charges against earnings is investigated. The increasing frequency of reported write-offs, the tendency of firms to report multiple large write-offs and the impact of multiple write-offs on valuation are documented by categorizing firm-quarters according to the frequency of large write-offs during the period 1975-1994. Results show that earnings response coefficients normally decrease in the presence of write-offs and remain relatively low after a period. Results also reveal that unexpected earnings before write-offs are more important in explaining market-adjusted security returns.

Wages, Wages and salaries

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The effect of financial statement classification of hybrid financial instruments on financial analysts' stock price judgments

Article Abstract:

The impact of the balance sheet classification of financial statements characterized by both debt and equity on the stock price judgments of buy-side financial analysts is investigated. An experiment in which buy-side financial analysts predict the price of a firm's publicly traded common stock immediately after news of a new offering of mandatorily redeemable preferred stock (MRPS) is performed. Results suggest that stock price judgments are affected by differential accounting classification. Analysts provided with MRPS-liability balance sheets estimated common stock prices significantly higher than those predicted by analysts using MRPS-equity balance sheets.

Stock price forecasting, Hybrid instruments (Finance), Hybrid instruments (Securities)

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