Executive Stock Options and Dividend Policy
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Discretionary Accruals and the Predictive Ability of Earnings in the Forecast of Future Cash Flows: Evidence from Australia
Corporate Ownership & Control / Volume 9, Issue 1, 2011, Continued - 6 DISCRETIONARY ACCRUALS AND THE PREDICTIVE ABILITY OF EARNINGS IN THE FORECAST OF FUTURE CASH FLOWS: EVIDENCE FROM AUSTRALIA Shadi Farshadfar*, Reza Monem** Abstract We examine whether discretionary and non-discretionary accruals improve the predictive ability of earnings for forecasting future cash flows in an Australian context. Using both within-sample and out- of-sample forecasting tests, we demonstrate that discretionary accruals improve the predictive abilty of earnings in the forecast of future cash flows. Further, discretionary and non-discretionary accruals and direct method cash flow components together are more useful than (i) aggregate earnings, (ii) aggregate cash flow from operations and total accruals, and (iii) aggregate cash flow from operations, discretionary accruals and nondiscretionary accruals. Keywords: Discretionary Accruals, Nondiscretionary Accruals, Cash Flow, Earnings, Future Cash Flows, Australia JEL Classification: M41 *Corresponding Author, Ted Rogers School of Management, Ryerson University, 350 Victoria Street, Toronto, ON, M5B 2K3, Canada Tel: 1-416-9795000 Fax: 1-416-9795266 Email: [email protected] ** Griffith Business School, Griffith University, Brisbane, Australia 1. Introduction discretionary and non-discretionary accruals, most of the previous studies have used stock returns as a We investigate whether decomposing accruals into surrogate of future cash flows, rather than using future discretionary and non-discretionary components cash flows directly. improves the predictive ability of earnings for The forecasting of future cash flows is forecasting future cash flows. There are two fundamental to a firm‘s valuation and its investment perspectives in positive accounting theory about the analysis (e.g., Krishnan and Largay, 2000); as well, role of discretionary accruals in the usefulness of accounting standard-setters argue that forecasting earnings: signaling and opportunism. -
Liquidity and Asset Prices Liquidity and Asset Prices
Liquidity and Asset Prices Liquidity and Asset Prices Yakov Amihud Ira Leon Rennert Professor of Finance Stern School of Business New York University [email protected] Haim Mendelson The Kleiner, Perkins, Caufield & Byers Professor of Electronic Business and Commerce, and Management Graduate School of Business Stanford University Lasse Heje Pedersen Charles Schaefer Associate Professor of Finance Stern School of Business New York University Boston – Delft Foundations and Trends R in Finance Published, sold and distributed by: now Publishers Inc. PO Box 1024 Hanover, MA 02339 USA Tel. +1-781-985-4510 www.nowpublishers.com [email protected] Outside North America: now Publishers Inc. PO Box 179 2600 AD Delft The Netherlands Tel. +31-6-51115274 A Cataloging-in-Publication record is available from the Library of Congress The preferred citation for this publication is Y. Amihud, H. Mendelson, and L.H. Pedersen, Liquidity and Asset Prices, Foundation and Trends R in Finance, vol 1, no 4, pp 269–364, 2005 Printed on acid-free paper ISBN: 1-933019-12-3 c 2006 Y. Amihud, H. Mendelson, and L.H. Pedersen All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, mechanical, photocopying, recording or otherwise, without prior written permission of the publishers. Photocopying. In the USA: This journal is registered at the Copyright Clearance Cen- ter, Inc., 222 Rosewood Drive, Danvers, MA 01923. Authorization to photocopy items for internal or personal use, or the internal or personal use of specific clients, is granted by now Publishers Inc for users registered with the Copyright Clearance Center (CCC). -
Usefulness of Accounting Theory and Practices on Large Business Organizations in Nigeria
European Scientific Journal November 2018 edition Vol.14, No.31 ISSN: 1857 – 7881 (Print) e - ISSN 1857- 7431 Usefulness of Accounting Theory and Practices on Large Business Organizations in Nigeria Osho, Augustine E. PhD Akinola, Akinwumi O. Department of Accounting, Achievers University, Owo, Nigeria Doi:10.19044/esj.2018.v14n31p303 URL:http://dx.doi.org/10.19044/esj.2018.v14n31p303 Abstract The study was about the impact of accounting theory and practice on performance of large scale business in Nigeria. The objective of the study was to examine the effect and usefulness of accounting theory and practice on financial performance of large firms. The research was carried out, using Coscharis Group Limited as the case study. Primary Data was collected through simple random sampling and using self-administered questionnaires for 20 respondents. Secondary Data was gotten from the company's annual reports on return on equity for the period 2014-2016. The primary and secondary data were consolidated for analysis. Multiple Linear Regression was used to analyze the data to test for the relationship between the accounting theory and practice variables (Positive Accounting Theory(PAT), Financial Reporting(FR), Auditing Practice (AP) and Budgeting) and Financial Performance(Return on Equity). Findings revealed that accounting theory and practice have significant relationship with the financial performance of large companies in Nigeria. It further shows that variables of accounting practice have significant effect on financial performance of large firms in Nigeria. It is recommended that quoted and unquoted organizations should ensure there is consistency in the accounting theory and practice adopted in preparation of their records to enhance stability in their financial performance. -
Concentrated Stock Positions
EXPERIENCED AND INDEPENDENT ADVISORS WORKING PRIMARILY WITH ACCREDITED ENGINEERS, EXECUTIVES, AND ENTREPRENEURS 9237 Ward Parkway, Suite 320 | Kansas City, MO 64114 19 Essential Rules, Peter Vrooman, CFA®, CIMA®, CRPC® Jonathan Sarver, CPWA® Partner, Wealth Advisor Partner, Wealth Advisor Concepts, and Strategies Fundamental Choice Portfolio Manager Fundamental Choice Portfolio Manager 816-601-1152 816-601-1151 for Managing Concentrated [email protected] [email protected] Stock Positions and Stock Option Compensation MANAGING CONCENTRATED STOCK POSITIONS Rule #1 Buying a Hedged Put Option A put option affords an investor the right but not the obligation to sell a specified number of shares of the underlying stock, at a specified strike price, over a specified period of time, prior to expiration of the option. hedgedA put option is created when an investor owns a stock outright and pays a premium amount to purchases put options on the stock he or she owns to protect the stock price in the case of a decline (Knapp, 2001). Rule #2 Writing or Selling a Covered Call Option A call option provides an investor the right but not the obligation to buy a specified number of shares of the underlying stock, at a specified strike price, over a specified period of time, prior to expiration of the option. coveredA call option is created when an investor owns a stock outright and sells or writes call options on the underlying stock he or she owns, generating premium income, which is paid by the buyer of the call option. The covered call writer has the goal of modest appreciation and retention of the stock and income generation. -
Restricted Stock & Restricted Stock Units
Restricted Stock & Restricted Stock Units Bruce Brumberg, Editor-in-Chief myStockOptions.com [email protected] 617-734-1979 Copyright © myStockPlan.com, Inc. Please do not distribute or copy without permission. Restricted stock grant v. stock options • Historically, often part of senior executives’ comp, alongside options. • Popularity with institutional investors runs in cycles: restricted stock is often derided as having little motivational power (“pay for a pulse”). • Has been most useful in employee recruitment/retention when leaving behind valuable options or when the stock price is flat. • Big increases in grants at levels below senior management, although not as broadly granted as options. • Now the top alternative to stock options, whether granted instead of or in combination with options. • Accounting treatment becomes similar between types of equity compensation: “level playing field.” • Less dilution than with options because fewer granted. • Value in down and volatile markets: never underwater, gets dividends, but less upside compared with options. Bill Gates on the move from options to restricted stock at Microsoft: less risk for you than stock options • “When you win [with options], you win the lottery. And when you don't win, you still want it. The fact is that the variation in the value of an option is just too great.” • “I can imagine an employee going home at night and considering two wildly different possibilities with his compensation program. Either he can buy six summer homes or no summer homes. Either he can send his kids to college 50 times, or no times.” • “The variation is huge; much greater than most employees have an appetite for. -
Restricted Stock: What You Need to Know for Executive Recruitment
Bruce Brumberg, Editor-in-Chief [email protected] 617-734-1979 Copyright © 2013 myStockPlan.com Inc. Please do not distribute or copy without permission. Content, tools, and CE credits for companies, plan participants, and financial advisors Similar resources on nonqualified deferred comp for companies, plan participants, and financial advisors Key terms and definitions to know Trends in equity compensation Researching companies’ stock grants Key questions to ask clients, both to gather information and to sound knowledgeable Restricted stock/RSU grants; performance shares and units Taxes on restricted stock/performance shares Tax changes for 2013 Rule 10b5-1 trading plans and other features in stock grants to executives Stock options (NQSOs & ISOs) Stock appreciation rights Employee stock purchase plan (ESPP) Restricted stock Restricted stock units Performance shares or units Market Stock Units (MSOs) Restricted securities Long-term incentive plans (LTIPs) Stock options/SARs: Nonqualified stock options (NQSOs) remain the most common LTIP: Executives: 91% grant NQSOs & 56% grant ISOs Middle Management: 83% (NQS0) & 53% (ISO) Stock grants/awards (time-vested restricted stock or RSUs): 89% grant to executives; 85% to middle managers. Performance-based awards: 71% of companies now offer these awards, compared to 64% in the prior survey. 50% 47% 45% 45% 42% 43% 39% 40% 35% 33% 32% 27% 30% 27% 26% 25% 25% 21% 20% 16% 15% 13% 13% 14% 15% 13% 11% 10% 12% 11% 10% 7% 7% 5% 0% Stock Options/SARs Restricted Stock/RSUs Performance Awards Restricted stock/RSU grants: More common than stock options. 71% of companies grant these awards to employees, including managers. -
Regulatory Oversight and Reporting Incentives: Evidence from SEC Budget Allocations
Regulatory Oversight and Reporting Incentives: Evidence from SEC Budget Allocations Terrence Blackburne The Wharton School University of Pennsylvania 1300 Steinberg-Dietrich Hall Philadelphia, PA 19104 [email protected] November 2013 Abstract This study examines the determinants and consequences of regulatory oversight of corporate disclosures. I investigate the extent to which industry-level political activity influences the intensity of regulatory oversight, and whether variation in the intensity of oversight affects managers reporting incentives. I exploit variation in the allocation of budgetary resources between the SEC’s disclosure review offices as a source of variation in the oversight of financial reporting and disclosures. I find evidence of a significant relationship between industry-level political activity and visibility and the allocation of resources to each office. I then use the amount of budgetary resources allocated to each office as a proxy for the intensity of the SEC oversight that firms in a given industry face. I provide evidence that when SEC oversight is more intense managers report lower discretionary accruals, managers are less likely to issue financial reports that will be subsequently restated, and firms’ bid-ask spreads decrease. Overall, the results suggest that SEC oversight plays an important role in shaping managers’ reporting and disclosure incentives. I am deeply indebted to the members of my dissertation committee for their patient guidance and insightful comments: Wayne Guay, Luzi Hail, Chris Ittner, Cathy Schrand, and Dan Taylor. I also thank Jennifer Altamuro, Chris Armstrong, Karthik Balakrishnan, Paul Fischer, Nick Gonedes, Mirko Heinle, Bob Holthausen, John Robinson, Stephanie Sikes, and Ro Verrecchia for their thoughtful discussions. -
The Role of Accrual Accounting Basis in the Prediction of Future Cash Flows: the Nigerian Evidence
Research Journal of Finance and Accounting www.iiste.org ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol.6, No.4, 2015 The Role of Accrual Accounting Basis in the Prediction of Future Cash Flows: The Nigerian Evidence Oba Efayena Department of Accounting and Finance, Delta State University, P.M.B. 1, Abraka, Nigeria E-mail: [email protected] Abstract The study examines the role of past accrual based earnings derived from accrual accounting basis in comparison to cash flows in the prediction of future operating cash flows of quoted non-financial companies in Nigeria. Using a sample of 40 quoted non-financial companies in the Nigeria Stock Exchange, studied over a period of 13 years from 2001 – 2013, and employing the OLS regression technique, the results suggest that both past accrual based earnings and cash flows have predictive ability in forecasting future operating cash flows. The results show that cash flows are a better predictor of future operating cash flows than past earnings. Our findings do not support the assertion of the FASB (1978) and the IASB (1989) that earnings are a better predictor of future cash flows. The study recommends that the quality of accounting information produced by the accrual accounting basis should be improved upon by the urgent enforcement of international financial reporting standards (IFRS) in Nigeria. Keywords: past accrual based earnings; accrual accounting basis; cash flows; future operating cash flows; predictive ability; OLS regression 1. Introduction The two main approaches that have been used in predicting future cash flows are the accrual-basis accounting and the cash-basis accounting. -
Dividend Stickiness, Debt Covenants, and Earnings Management*
Dividend Stickiness, Debt Covenants, and Earnings Management* JAEWOO KIM, University of Rochester† KYEONG HUN LEE, Norwegian School of Economics ERIK LIE, University of Iowa ABSTRACT Consistent with the notion that dividends are very sticky, Daniel, Denis, and Naveen (2008) report evidence that firms manage earnings upward when pre-managed earnings are expected to fall short of dividend payments. However, we find that this evidence is not robust when controlling for firms’ tendency to manage earnings upward to avoid reporting earnings decli- nes; only firms with high leverage exhibit a statistically weak tendency to manage earnings to close deficits of pre-managed earnings relative to dividends. We further report that the deci- sion to cut dividends depends on whether reported earnings fall short of past dividends, but not on earnings management that eliminates a shortfall in pre-managed earnings relative to dividend payments. Overall, our evidence suggests that firms that face dividend constraints are more likely to cut dividends than to manage earnings to avoid dividend cuts. Persistance des dividendes, clauses restrictives et gestion du resultat RESUM E Conformement a la notion selon laquelle les dividendes sont tres persistants, Daniel, Denis et Naveen (2008) font etat de donnees indiquant que les societes gerent le resultat ala hausse lorsqu’elles s’attendent a ce que le resultat, prealablement gere, soit inferieur aux ver- sements de dividendes. Or, les auteurs constatent que ces donnees ne resistent pas au con- trole^ de la tendance des societes ag erer le resultat a la hausse pour eviter d’avoir a annoncer un flechissement des benefices; seules les societes qui ont un levier financier eleve affichent une tendance statistiquement faible ag erer le resultat afin de combler le deficit entre le resultat prealablement gere et les dividendes. -
The 21St Century Tontine Lookalike: Tax Aspects of Stock Protection Funds
The 21st Century Tontine Lookalike: Tax Aspects of Stock Protection Funds By Thomas Boczar and Mark Leeds* Thomas Boczar and Mark Leeds explore certain federal income tax considerations applicable to stock protection funds. ontine Trusts, initially devised in the 17th century by Lorenzo de Tonti to help governments fund war efforts, are making a 21st century resurgence.1 A tontine is an investment plan based on the principles of risk pooling, Tdesigned to mitigate the risk of running out of income during one’s lifetime. A new stock hedging technique recently invented by Brian Yolles,2 called the Stock Protection Fund or Stock Protection Trust,3 is now available in the market that provides a modern twist on the traditional tontine trusts. A Protection Fund creates a low-cost strategy for hedging concentrated equity exposure. This article explores certain federal income tax considerations applicable to Protec- tion Funds. As described in detail below, Protection Fund transactions avoid a number of tax challenges that are posed by traditional hedging techniques. Many individual investors own appreciated positions in publicly-traded stock. In many cases, these stock positions comprise a significant portion of the holder’s net worth. Such investors face a challenging environment. The stock market is at an all-time high, interest rates are ratcheting up, and risks seem to be lurking everywhere around the globe. Investors also face considerable tax uncertainty. Since 2013, the tax cost of selling outright has skyrocketed, with the capital gains tax rate increasing almost 60%.4 However, with President Trump in office and a Republican-controlled Congress, the possibility of significant tax reform THOMAS BOCZAR is the President and is “in the air,” which might include a reduction in the capital gains tax rate, the Chief Executive Officer of Intelligent elimination of the estate tax, and the loss of the tax-free step-up in tax cost basis Edge Advisors. -
Frequently Asked Questions Restricted Stock Awards and Restricted Stock Units
Frequently Asked Questions Restricted Stock Awards and Restricted Stock Units Table of Contents Grant Date Status Change (LOA, termination) Vesting Date Selling or Transferring Shares Miscellaneous Grant Date Q1 What is a restricted stock award (RSA)? RSAs are an award of HP shares, which is subject to certain restrictions. When you receive an RSA you have the rights associated with owning HP common stock, including voting at the annual meeting of HP stockholders and receiving dividends; however, you do not have the right to sell, pledge or otherwise transfer the shares for a specified period of time (the vesting period). Once the vesting period expires and the restrictions lapse, you receive the shares of HP common stock and are free to hold, sell or transfer the shares. RSAs are granted at no cost to you, therefore the total value of the award on any given day is equal to the stock price on that day multiplied by the number of shares you received. The value of the award will increase and decrease, with the stock price, during the vesting period. Q2 What is the restriction or vesting period? The restriction, or vesting period, is the length of time before the restrictions lapse. For example, if you were granted 1,000 shares with 50% vesting after one year and 50% vesting after three years, then 500 shares would vest one year after the grant date and the remaining 500 shares would vest three years after the grant date. You will find the vesting period specific to your award in your Stock Notification and Award Agreement. -
Cash Flows and Earnings in Predicting Future Cash Flows: a Study of Deposit Money Banks in Nigeria
Advances in Research 15(1): 1-13, 2018; Article no.AIR.41226 ISSN: 2348-0394, NLM ID: 101666096 Cash Flows and Earnings in Predicting Future Cash Flows: A Study of Deposit Money Banks in Nigeria Adebimpe Otu Umoren1* and Nsima Umoffong1 1Department of Accounting, Faculty of Business Administration, University of Uyo, Nigeria. Authors’ contributions This work was carried out in collaboration between both authors. Author AOU designed the study, performed the statistical analysis and wrote the first draft of the manuscript. Author NU managed the literature searches and read and amended the first draft of the manuscript. Both authors read and approved the final manuscript. Article Information DOI: 10.9734/AIR/2018/41226 Editor(s): (1) Alyona Maksymets, Professor, Department of International Business Management, Ukrainian National Forestry University, Ukraine. Reviewers: (1) Victoria. K. Senibi, Covenant University, Nigeria. (2) Elżbieta Szczepankiewicz, Poznan University of Economics and Business, Poland. (3) Charles Ngome Eke, Federal Polytechnic Nekede, Nigeria. Complete Peer review History: http://www.sciencedomain.org/review-history/24698 Received 25th February 2018 Accepted 2nd May 2018 Original Research Article Published 19th May 2018 ABSTRACT The researchers examined the abilities of past cash flows and past earnings in predicting future operating cash flows of Nigerian Money deposit banks. Ex-post facto design was used in conducting the study while sampling 13 out of the 14 deposit money banks listed on the Nigerian Stock Exchange from 2011 to 2016. The study employed Descriptive statistics, Pearson correlation and OLS regression techniques; where key findings revealed that past earnings has ability in predicting future operating cash flows than past cash flows.