On the Asymmetric Recognition of Good and Bad News in France, Germany and the United Kingdom

Inchausti, Begoña Giner; Rees, William

doi:10.1111/1468-5957.00416

Cited by 246 publications

(181 citation statements)

References 9 publications

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“…France, Italy and the UK all have negative income in more than 10% of the cases, whereas at the other extreme German firms report negative income less than 5% of the time -despite having the lowest mean earnings when standardized by price. This is consistent with prior evidence that German firms tend to smooth earnings whereas French and especially British firms are eager to incorporate bad news into transient losses (Giner and Rees, 2001). …”

Section: Datasupporting

confidence: 91%

The Valuation of European Financial Firms

Danbolt

Rees

2002

Review of Accounting and Finance

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We extend the recent literature concerning accounting based valuation models to investigate financial firms from six European countries with substantial financial sectors: France, Germany, Italy, Netherlands, Switzerland and the UK. Not only are these crucial industries worthy of study in their own right, but unusual accounting practices, and inter‐country differences in those accounting practices, provide valuable insights into the accounting‐value relationship. Our sample consists of 7,714 financial firm/years observations from 1,140 companies drawn from 1989–2000. Sub‐samples include 1,309 firm/years for banks, 650 for insurance companies, 1,705 for real estate firms, and 3,239 for investment companies. In most countries we find that the valuation models work as well or better in explaining cross‐sectional variations in the market‐to‐book ratio for financial firms as they do for industrial and commercial firms in the same countries, although Switzerland is an exception to this generalization. As expected, the results are sensitive to industrial differences, accounting regulation and accounting practices. In particular, marking assets to market value reduces the relevance of earnings figures and increases that of equity.

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Section: Datasupporting

confidence: 91%

The Valuation of European Financial Firms

Danbolt

Rees

2002

Review of Accounting and Finance

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“…However , there is again a shift in the sign of the coef ficient for failed firms, consistent with more aggressive accounting policies when financial health is in trouble. The difference in the φ 2 and φ 3 coefficients between continuing firms and the dif ferent sets of failed firms is significant at conventional levels in the first and second year before failure when we calculate the significance of the dif ference between failed and continuing firms using the approach in Giner and Rees (2001). When we use the more standard (and more restrictive) Chow test, we obtain similar results.…”

Section: Conditional Conservatism In Ex-post Failed Firmsmentioning

confidence: 55%

“…t-statistics are White (1980) heteroskedasticity-consistent. We estimate the statistical significance of the differences between coefficients from different regressions using two procedures: a) As in Giner and Rees (2001), we use the following statistic (distributed as a student t): θ 1 -θ 2 divided by where θ i is the estimated coefficient and σ i the standard error for variable i. b) The more standard Chow (W ald) test. This specification is based on running a pooled regression with dummy variables to identify the different samples (in our case, failed vs continuing).…”

Section: Notesmentioning

confidence: 99%

“…If we allow the sample to differ between Tables 6 and 7, we increase substantially the sample size to estimate model 7 (as we have more stringent data requirements for model 6, Table 6), obtaining up to 514 firm-year observations for failed firms. Results of tests using this larger sample do not dif fer significantly from those reported in Table 7. least at a 1% level when using the Giner and Rees (2001) approach. The Chow test of fers the same results, except for the good news coefficient in the year prior to failure, where the difference between failed and continuing firms is not significant.…”

Section: Notesmentioning

confidence: 99%

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Earnings quality in ex‐post failed firms

Lara

Osma²,

Neophytou

2009

Accounting and Business Research

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Abstract-This paper analyses earnings quality in ex-post failed firms. Using a lar ge sample of UK bankrupt firms, we find that failed firms manage earnings upwards in the four years prior to failure. This manipulation is achieved in two ways: (1) through accounting (accruals) manipulation; and (2) by implementing real operating actions that deviate from normal practice. We show that these two types of manipulation lead to reduced earnings reliability . We use conditional conservatism as a proxy for reliability , as prior literature links conditional accounting conservatism to better governance and positive economic outcomes. Our results show that conditional conservatism decreases substantially in the years prior to failure. Finally, we show that accruals manipulation is more pronounced in ex-post bankrupt firms with low ex-ante probability of failure, and that ex-post bankrupt firms with high ex-ante failure probability, having likely exhausted the opportunities for accrual manipulation, manipulate real operations more aggressively.

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“…Ball et al (2000) report that it increased significantly in France and Germany in the period 1990-1995. Giner & Rees (2001) suggest that the phenomenon, known as asymmetric conservatism, continued to increase during the period 1996-98 in France, Germany and the UK. Basu (2001) uses the development of capital markets in Europe to explain this phenomenon.…”

Section: Stakeholder/shareholder Modelsmentioning

confidence: 99%

Towards an understanding of the phases of goodwill accounting in four Western capitalist countries: From stakeholder model to shareholder model

Ding

Richard

Stolowy

2008

Accounting, Organizations and Society

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The objective of this paper is to illustrate that the change in shareholders' attitude towards firms (from stakeholder model to shareholder model) influences the accounting treatments of goodwill. Our study is based on four countries (Great Britain, the United States, Germany, and France) and covers more than a century, starting in 1880. We explain that all these countries have gone through four identified phases of goodwill accounting, classified as (1) "static" (immediate or rapid expensing), (2) "weakened static" (write-off against equity), (3) "dynamic" (recognition with amortization over a long period) and (4) "actuarial" (recognition without amortization but with impairment if necessary). We contribute several new features to the existing literature on goodwill: our study (1) is international and comparative, (2) spans more than a century, (3) uses the stakeholder/shareholder models to explain the evolution in goodwill treatment in the four countries studied. More precisely, it relates a balance sheet theory, which distinguishes four phases in accounting treatment for goodwill, to the shift from a stakeholder model to a shareholder model, which leads to the preference for short-term rather than long-term profit, (4) contributes to the debate on whether accounting rules simply reflect or arguably help to produce the general trend towards the shareholder model, (5) demonstrates a "one-way" evolution of goodwill treatment in the four countries studied, towards the actuarial phase.

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On the Asymmetric Recognition of Good and Bad News in France, Germany and the United Kingdom

Cited by 246 publications

References 9 publications

The Valuation of European Financial Firms

The Valuation of European Financial Firms

Earnings quality in ex‐post failed firms

Towards an understanding of the phases of goodwill accounting in four Western capitalist countries: From stakeholder model to shareholder model

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