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40 Cards in this Set
- Front
- Back
What is the prospect theory
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seperate evaluations of gain and losses
disposition effect causes earnings mgmt |
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what is the effect called where investors interpret gains and losses different ally (not a linear result)
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disposition effect
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what theory does Burgshahler and Dichev present
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earnings management (kinky graph )
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Who proposed the idea that earnings management graph have a kinky relationship
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Burgstaler and Dichev
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Explain the earnings management theory
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Earnings Management does in fact exist (without man made interference earnings distribution would be normal. This is consistent with the prospect theory. Managers behave rationally and thus lenders demand high i/r from firms that report losses.
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Post-Announcement Drift was by who and what happened
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Bernard Thomas
Replicated Ball and Brown with quarterly data Abnormal share returns drift upwards and and downwards for several months after B-news and good news firms. |
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What are the sloan studies
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accrual anomoly
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What is the accrual anomoly
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market should properly react to high and low accrual firms (immediately) it takes time. (Apple and Crazy Eddie)
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what famous person are associated with the stock options
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Steve Jobs
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what company reported change in accounting estimates
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Crysteler
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· what company reported Change of acct estimate
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(delta)
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what is the equation for net income
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= OCF + net accruals
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what does sloan argue
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If capital markets were efficient there would be a difference between low accrual and high accrual firms
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what is the investment strategy return from a high eq firm to a low
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short low eq after announcement and buy high and hold for a 10% return - 3 % fees
year |
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why is the abnormal return an anomoly
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you can make money
out of publically available info |
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what are the possible explanations for anomolies
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behavior bias
transaction costs rational investors take time to figure out whether expected earnings power has changed |
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what are methods of managing stock options
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pump and dump it down to spring loading back time
pump and dump manipulate price downwards late timing (back timing options) steve jobs options backdating |
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Managing reported earnings
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R eal variable
A ccounting adoption D iscretionary accruals A ccounting policy change C apitalizing operating expenses A ccounting estimate change S PE's |
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who uses
1) SPES 2) capitalized operating expenses 3) accounting adoptions |
1) enron
2) worldcom 3) chrystler |
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what is the equation for discretionary accruals
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NI+ OCF+ net non-discretionary accruals + net discretionary accruals
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what are some examples of discretionary accruals
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actual - predicted
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what are the 3 theories of the positive accounting theory
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Bonus plan hypothesis, Debt covenant hypothesis. Political cost hypothesis
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Does the jones model predict discretionary or non-discretionary accruals
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predicts non-discretionary accruals then discretionary accruals= actual- predicted
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Signs of earning management
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1. A history of one-time charges/special items
2. Large fourth-quarter adjustments 3. Repeated asset sales 4. Any qualified audit opinions 5. Related party transactions 6. Complex financial structure 7. SPE’s/ partnerships 8. sell receivables with recourse |
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what does the modified jones model do
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adjusts jones model to exclude growth in credit sales identified in manipulation years
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what is big bath
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in accounting is an earnings management technique whereby a one-time charge is taken against income in order to reduce assets, which results in lower expenses in the future.[1
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problems at sunbean
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1. Wrote down inventory to 0 in 96
2. Increase prepaid expenses in 96 (blend in to large restructuring cost) 3. Decrease long term and other current liabilities 4. Write down value of PPE 5. Capitalize product development and advertising in 97 – violation 6. Decrease in allowance for doubtful accounts 7. Channel stuffing 8. Inventory explosion |
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is channel stuffing/ bill and hold a violation of GAAP/ Real earnings mgmt
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bill and hold is both
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is restructuring charges real earnings mgmt
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potentially
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is o Conservative accounting. Rapid amortization of assets real EM / violation of gaap
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only real EM
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is allocation of purchased goodwill real em?
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no real EM
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what is cookie jar accounting
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o It is an accounting practice in which a company uses generous reserves from good years against losses that might be incurred in bad years.
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what return can be expected from post earnings announcement drift
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hold 60 days annualized 18% return
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what are some accounts for discretionary accruals
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allowance for doubtful accounts, warranty provisions provisions for restructuring, layoffs
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who observes discretionary accruals
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not investors directly
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why hypothesis does jones model support
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political cost hypothesis
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what should happen to accruals ina decling growth company
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should fall as sales from the past should be raking in cash
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in the jones model what is the focus on
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epsilon
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what are bonuses generally paid on?
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core earnings investors ignore non recurring earnings
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what is Burgtahler and dichevs theory consistent with
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its the earnings distribution (all slightly positive theory)... and its consistent with the prospect theory because small losses hurt more
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