财务会计理论英文课件 (8)
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– Enron, WorldCom financial reporting scandals
• Concerns over “pump and dump” behaviour
– Renewed pressure to expense ESOs – In Canada and internationally, ESOs expensed from 2004 – In U.S., ESOs expensed from June, 2005
• Use Black/Scholes formula with expected time to exercise
© 2006 Pearson Education Canada Inc.
8-8
Employee Stock Options, Cont’d
• More recent developments
© 2006 Pearson Education Canada Inc.
8-4
Employee Stock Options
• APB 25 (1972)
– ESOs usually issued with zero intrinsic value, so that no expense recorded
• FASB Exposure Draft (1993)
– Fair value of ESOs to be expensed
• Fair value based on an option pricing formula, such as Black/Scholes • Fair value amortized over vesting period
– Healy (1985)
• Examine Specific Accounts
– Accounts receivable & allowance
• McNichols & Wilson (1988)
© 2006 Pearson Education Canada Inc.
8-17
Estimating Discretionary Accruals, Cont’d
© 2006 Pearson Education Canada Inc. 8-9
Successful Efforts (SE) Accounting in Oil and Gas
• Recall Full Cost v. SE Controversy
– SE tends to lower reported earnings, especially for actively exploring companies
– But may be inside information about manager effort and ability (moral hazard problem) – A second major role for financial reporting-to report on manager effort and ability
© 2006 Pearson Education Canada Inc.
8-2
Recall From Efficient Securities Market Theory
• Beaver (1973) Argued That Accounting Policy Choices Do Not Affect Firms’ Security Prices, if No Cash Flow Effects and if Chosen Policies are Fully Disclosed • This Argument Implies That Accounting Policies Do Not Matter
© 2006 Pearson Education Canada Inc. 8-10
Positive Accounting Theory (PAT)
© 2006 Pearson Education Canada Inc.
8-11
What is PAT?
• Studies Managers’ Accounting Policy Choices, As Part of the Overall Process of Corporate Governance • That Is, Accounting Policies are Chosen
Employee Stock Options, Cont’d.
• Problems Of Black/Scholes Applied To ESOs
– Black/Scholes assumes freely traded American options – ESOs cannot be exercised until they vest
– – – – Lower share prices, higher cost of capital? Inadequate employee motivation? Reduced innovation? Low reliability?
© 2006 Pearson Education Canada Inc. 8-6
– Derives from debt contracts
• Political Cost Hypothesis
– Very large firms minimize political “heat”
• NB: Contacts are Rigid
© 2006 Pearson Education Canada Inc. 8-14
© 2006 Pearson Education Canada Inc.
8-3
Another Efficient Securities Market Anomaly?
• Answer: No • Economic Consequences Can Be Reconciled With Efficient Securities Market Theory • But First, We Illustrate Existence of Economic Consequences
© 2006 Pearson Education Canada Inc. 8-13
The 3 Hypotheses of PAT
• Bonus Plan Hypothesis
– Derives from managerial incentive contracts
• Debt Covenant Hypothesis
• Managers are Rational (Like Investors) Conflict (Between Interests of Managers and Investors) • Efficient Securities Market • Efficient Managerial Labour Market
Strategically
• Positive, Not Normative. Tries to Understand and Predict Ma.
© 2006 Pearson Education Canada Inc. 8-12
ASSUMPTIONS OF PAT
© 2006 Pearson Education Canada Inc. 8-15
Managing Reported Earnings Through Discretionary Accruals
• NI = OCF ± Net Accruals = OCF ± Net Non-Discretionary Accruals ± Net Discretionary Accruals • Examples of Discretionary Accruals
– May overstate fair value (Huddart (1994), Marquardt (2002))
© 2006 Pearson Education Canada Inc.
8-7
Employee Stock Options, Cont’d
• FASB Backs Down
– SFAS 123: Disclosure in notes allowed
– Allowance for doubtful accounts – Provision for reorganization
© 2006 Pearson Education Canada Inc. 8-16
Estimating Discretionary Accruals
• Use Total Accruals as Proxy
Chapter 8 Economic Consequences and Positive Accounting Theory
© 2006 Pearson Education Canada Inc.
8-1
Economic Consequences, a Simple Definition
Accounting Policies Matter (Especially to Managers)
© 2006 Pearson Education Canada Inc. 8-5
Employee Stock Options, Cont’d
• Management’s Negative Reaction to 1993 FASB Exposure Draft, Despite No Direct Effect on Cashflows
• The Jones Model
– – – – TAjt = αj + β1jΔREVjt + ß 2jPPEjt + εjt Estimate by least-squares regression Discretionary accruals = actual - predicted The s and ß s are coefficients to be estimated. No relation to a share’s beta
© 2006 Pearson Education Canada Inc.
8-18
2 Versions of PAT
• Opportunistic Version
– Managers choose accounting policies for their own benefit
Managing Reported Earnings
• Ways to Do It
– – – – Changing accounting policies Managing discretionary accruals Timing of adoption of new accounting standards Changing real variables--R&D, advertising, repairs & maintenance – SPEs (Enron), capitalize operating expenses (WorldCom) –
• Note no effects on cash flows
– SFAS 19 (1977) exposure draft
• Required SE • Strong manager objections • Lev (1979) documented negative share price reaction for affected firms. Why? • Today, firms can use either method
• Exposure draft proposed using expected time to exercise in Black/Scholes • Time to exercise is highly variable (early exercise) • Leads to low reliability
• Concerns over “pump and dump” behaviour
– Renewed pressure to expense ESOs – In Canada and internationally, ESOs expensed from 2004 – In U.S., ESOs expensed from June, 2005
• Use Black/Scholes formula with expected time to exercise
© 2006 Pearson Education Canada Inc.
8-8
Employee Stock Options, Cont’d
• More recent developments
© 2006 Pearson Education Canada Inc.
8-4
Employee Stock Options
• APB 25 (1972)
– ESOs usually issued with zero intrinsic value, so that no expense recorded
• FASB Exposure Draft (1993)
– Fair value of ESOs to be expensed
• Fair value based on an option pricing formula, such as Black/Scholes • Fair value amortized over vesting period
– Healy (1985)
• Examine Specific Accounts
– Accounts receivable & allowance
• McNichols & Wilson (1988)
© 2006 Pearson Education Canada Inc.
8-17
Estimating Discretionary Accruals, Cont’d
© 2006 Pearson Education Canada Inc. 8-9
Successful Efforts (SE) Accounting in Oil and Gas
• Recall Full Cost v. SE Controversy
– SE tends to lower reported earnings, especially for actively exploring companies
– But may be inside information about manager effort and ability (moral hazard problem) – A second major role for financial reporting-to report on manager effort and ability
© 2006 Pearson Education Canada Inc.
8-2
Recall From Efficient Securities Market Theory
• Beaver (1973) Argued That Accounting Policy Choices Do Not Affect Firms’ Security Prices, if No Cash Flow Effects and if Chosen Policies are Fully Disclosed • This Argument Implies That Accounting Policies Do Not Matter
© 2006 Pearson Education Canada Inc. 8-10
Positive Accounting Theory (PAT)
© 2006 Pearson Education Canada Inc.
8-11
What is PAT?
• Studies Managers’ Accounting Policy Choices, As Part of the Overall Process of Corporate Governance • That Is, Accounting Policies are Chosen
Employee Stock Options, Cont’d.
• Problems Of Black/Scholes Applied To ESOs
– Black/Scholes assumes freely traded American options – ESOs cannot be exercised until they vest
– – – – Lower share prices, higher cost of capital? Inadequate employee motivation? Reduced innovation? Low reliability?
© 2006 Pearson Education Canada Inc. 8-6
– Derives from debt contracts
• Political Cost Hypothesis
– Very large firms minimize political “heat”
• NB: Contacts are Rigid
© 2006 Pearson Education Canada Inc. 8-14
© 2006 Pearson Education Canada Inc.
8-3
Another Efficient Securities Market Anomaly?
• Answer: No • Economic Consequences Can Be Reconciled With Efficient Securities Market Theory • But First, We Illustrate Existence of Economic Consequences
© 2006 Pearson Education Canada Inc. 8-13
The 3 Hypotheses of PAT
• Bonus Plan Hypothesis
– Derives from managerial incentive contracts
• Debt Covenant Hypothesis
• Managers are Rational (Like Investors) Conflict (Between Interests of Managers and Investors) • Efficient Securities Market • Efficient Managerial Labour Market
Strategically
• Positive, Not Normative. Tries to Understand and Predict Ma.
© 2006 Pearson Education Canada Inc. 8-12
ASSUMPTIONS OF PAT
© 2006 Pearson Education Canada Inc. 8-15
Managing Reported Earnings Through Discretionary Accruals
• NI = OCF ± Net Accruals = OCF ± Net Non-Discretionary Accruals ± Net Discretionary Accruals • Examples of Discretionary Accruals
– May overstate fair value (Huddart (1994), Marquardt (2002))
© 2006 Pearson Education Canada Inc.
8-7
Employee Stock Options, Cont’d
• FASB Backs Down
– SFAS 123: Disclosure in notes allowed
– Allowance for doubtful accounts – Provision for reorganization
© 2006 Pearson Education Canada Inc. 8-16
Estimating Discretionary Accruals
• Use Total Accruals as Proxy
Chapter 8 Economic Consequences and Positive Accounting Theory
© 2006 Pearson Education Canada Inc.
8-1
Economic Consequences, a Simple Definition
Accounting Policies Matter (Especially to Managers)
© 2006 Pearson Education Canada Inc. 8-5
Employee Stock Options, Cont’d
• Management’s Negative Reaction to 1993 FASB Exposure Draft, Despite No Direct Effect on Cashflows
• The Jones Model
– – – – TAjt = αj + β1jΔREVjt + ß 2jPPEjt + εjt Estimate by least-squares regression Discretionary accruals = actual - predicted The s and ß s are coefficients to be estimated. No relation to a share’s beta
© 2006 Pearson Education Canada Inc.
8-18
2 Versions of PAT
• Opportunistic Version
– Managers choose accounting policies for their own benefit
Managing Reported Earnings
• Ways to Do It
– – – – Changing accounting policies Managing discretionary accruals Timing of adoption of new accounting standards Changing real variables--R&D, advertising, repairs & maintenance – SPEs (Enron), capitalize operating expenses (WorldCom) –
• Note no effects on cash flows
– SFAS 19 (1977) exposure draft
• Required SE • Strong manager objections • Lev (1979) documented negative share price reaction for affected firms. Why? • Today, firms can use either method
• Exposure draft proposed using expected time to exercise in Black/Scholes • Time to exercise is highly variable (early exercise) • Leads to low reliability