‘Big Bath Accounting’ Using Extraordinary Items Adjustments: Australian Empirical Evidence

Walsh, Paul; Craig, Russell; Clarke, Frank

doi:10.1111/j.1468-5957.1991.tb00587.x

Cited by 75 publications

(52 citation statements)

References 10 publications

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“…All bad news is released at once because "when circumstances are bad, making things just a little worse by cleaning out the rubbish does little harm to either reputation or prospects" (Walsh, Craig, & Clarke, 1991: 174). This approach allows managers to reserve funds for future periods to demonstrate a comparative increase in profit (Walsh et al, 1991), signal to shareholders that they have aggressively dealt with past problems (Strong & Meyer, 1987: 644), and to lower the future performance benchmark (Elliott & Shaw, 1988 Q:3 ). Other examples of negative expectancy violations that may trigger the use of big bath accounting include bankruptcy or earnings misstatements.…”

mentioning

confidence: 99%

Ready, AIM, Acquire: Impression Offsetting and Acquisitions

Graffin¹,

Haleblian

Kiley

2016

AMJ

116

103

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Drawing on expectancy violation theory, we explore the effects of anticipatory impression management in the context of acquisitions. We introduce impression offsetting, an anticipatory impression management technique organizational leaders employ when they expect a focal event will negatively violate the expectations of external stakeholders. Accordingly, in these situations, organizational leaders will announce the focal event contemporaneously with positive, but unrelated information. We predict impression offsetting will generally occur in the context of acquisitions, but also more frequently for specific acquiring firms and acquisitions that are more likely to lead to an expectancy violation. We also posit that offsetting will effectively inhibit observers' perceptions of events as negative expectancy violations by positively influencing shareholder reactions to acquisition announcements. Consistent with our hypotheses, in a sample of publicly traded acquisition targets, we find evidence for impression offsetting, in which characteristics of both acquirers and their announced acquisitions predict its frequency of use. We also find evidence that impression offsetting is efficacious; on average, it reduces the negative market reaction to acquisition announcements by over 40%, which translates into approximately $246 million in market capitalization.

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mentioning

confidence: 99%

Ready, AIM, Acquire: Impression Offsetting and Acquisitions

Graffin¹,

Haleblian

Kiley

2016

AMJ

116

103

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“…Walsh et al (1991) find that abnormal accruals are positively correlated with the degree of the big bath by analyzing Australian data. Yoon and Miller (2002) suggest that Korean firms will manage their earnings when they are at a loss, and the firms with big losses are more likely to take a big bath.…”

Section: Literature Reviewmentioning

confidence: 92%

A research on impairment of assets in listed firms with negative earnings in China

De-ming

Mao

Fan

2007

Front. Bus. Res. China

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Economic factors, such as the adverse change of the industry and performance of firms, are associated with the impairment of assets reported by these firms. Listed firms with negative earnings were more likely to write off substantial assets in consecutive years, but not in the initial years of loss. However, the relationship between the impairment of assets and economic factors is insignificant after the individual effect of the firms is taken into consideration, while earnings management factors still have a significant effect on the impairment of assets, yet the difference between loss years and profitable years is insignificant. Keywords

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“…Such ratios are usually a poor guide to future financial prospects. The numerators and denominators of such ratios are calculated from information emerging from the application of an oftentimes counter-intuitive and bizarre set of rules which produce measures lacking in any reasonable sense of contemporary monetary equivalence ( ) Chambers, 1973;O'Connor, 1973;Bird & McHugh, 1977 . The Guide is based on an outdated, largely discredited view of the role and usefulness of conventionally-prepared published financial statements and the extent to which those statements reflect current market ( measures; have information content, even narrowly-defined Ball & Brown, ) 1968;Beaver, 1968 ; are the product of earnings management and dis-( cretionary accounting policy choice Beidleman, 1973;Eckel, 1981;Worthy, ) 1984;Craig & Walsh, 1989;Merchant & Rockness, 1994, among others ; ( ) indulge in '' foozles'' and feral accounting Clarke et al, 1997 andbig ( bath accounting Greene, 1986;Weberman, 1986;Elliott & Shaw, 1988; ) Walsh et al, 1991 and adopt other dubious and highly idiosyncratic practices. Many of these limitations are captured in the various critiques ( of accounting offered over the years, most prominently by Briloff 1972 Thus, reading the IBM Guide is like being put in a time warpᎏ in a ''cone of ignorance''.…”

Section: Technical and Rhetorical Featuresmentioning

confidence: 98%