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This study aims to examine how market participants changed the way they process earnings information after learning of the implementation of hedging activities.

Using a sample of derivative user and non‐user firms, this study empirically compares earnings predictability, forecast revision behavior, and the earnings response coefficients before and after the disclosure of sustained hedging activity.

The findings indicate that analysts’ forecast accuracy increased and that unexpected earnings were incorporated into subsequent earnings forecasts to a greater extent subsequent to disclosure of sustained hedging activity. Additionally, the findings indicate an increase in the earnings‐return relation in the hedging activity period.

This evidence empirically supports the claim that, when a company communicates that hedging activities have been started, market participants are better able to forecast earnings and view subsequent earnings announcements as providing greater information about future earnings. The results may be understated due to the minimal disclosures required during the sample period. Future research could revisit these tests for the SFAS 133 time period as a way of evaluating the usefulness of more detailed disclosures.

The models used in the tests of forecast revisions and earnings response coefficients could easily be adapted to other settings where the research question compares different time periods.

This study adds to the empirical evidence regarding the effects of hedging activity by providing direct evidence of analysts’ use of and investors’ reactions to earnings surprises following the disclosure of the implementation of hedging activities.

To develop theoretical frameworks to discuss high profile scandals, where responsible accountants and other executives could have saved themselves, many investors and others severe personal and financial loss by considering the costs of improper or immoral behavior. These cases emphasize the importance of ethics driving accountants' decisions.

The paper discusses these ethical lapses in light of applying Kohlberg's models, biblical examples from the Old and New Testaments and the Koran, and other ethical systems.

The paper shows that this concept is not new. Throughout history, people have taken actions that cost them their freedom, their money and most importantly, their good names. Upon reflection, many of these people are astounded at the seriousness of their action given what little they had to gain from continued involvement. In reinforcing lessons that should be learned from cases of business malfeasance and highlighting many well‐known accounting and other scandals, we develop recurrent themes in the nature of business scandals and show that many people are responsible for or complicit in the malfeasance. These individuals could have prevented the fraud or minimized any adverse impact if they had considered their behavior ex ante. We show that the employees portrayed demonstrated very low‐levels of ethical development and seemed to underestimate the probability of getting caught and the resulting punishment. We also elicit many reasons from several viewpoints for not becoming involved in fraud.

It is hoped that the next generation of business leaders and middle level staff alike will consider the results/messages of this paper when faced with ethical dilemmas.

The paper concludes that the best internal control in a business structure remains the hiring and training of morally upstanding employees and managers who recognize the values of their good names before temptations arise. Incentive plans can encourage ethical behavior.

Practitioners must consider fully the potential consequences of their actions no matter how small the perceived probability of a bad outcome.

This paper examines the assertion that the financial market pays fixed PE multiples and that the recognition of goodwill and subsequent amortization depresses earnings and stock prices, putting U.S. firms in a competitive disadvantage in the international merger and acquisition arena. Evidence from this study suggests that, contrary to common belief, price/earnings ratio expands by a sufficient amount in response to amortization, making amortization irrelevant to stock valuation.