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Article
Publication date: 16 July 2020

Dimu Ehalaiye, Mark Tippett and Tony van Zijl

The purpose of this paper is to investigate whether levels-classified fair values of US banks based on SFAS 157: Fair Value Measurements, as recognised in the quarterly…

Abstract

Purpose

The purpose of this paper is to investigate whether levels-classified fair values of US banks based on SFAS 157: Fair Value Measurements, as recognised in the quarterly financial statements of the banks over the period from 2008 until 2015, have predictive value in relation to the banks’ future financial performance measured by operating cash flows and earnings over a three-quarter horizon period. In addition, we consider whether the global financial crisis (GFC) impacted the relationship between SFAS 157–based levels‐classified fair values and bank future financial performance.

Design/methodology/approach

We develop hypotheses connecting the net levels-classified bank fair values based on SFAS 157 with banks’ future financial performance. We test the hypotheses by estimating three-period quarters’ ahead forecasting models. We also use these models to test for the impact of the GFC on the relationship between the fair values and future financial performance.

Findings

Our findings suggest that the levels-classified net fair values based on SFAS 157 have predictive value in relation to future cash flows for banks. There is significant variation, across the levels, in the predictive value of levels-classified net fair values for future performance. Our findings indicate that the GFC has limited impact on the predictive value for cash flows, but the GFC had a significant adverse impact on earnings, and, with allowance for the effect of the GFC, the Level 2 net fair values have predictive value for the future earnings.

Originality/value

The study provides the first direct empirical evidence on the relationship between the SFAS 157 levels-classified quarterly bank fair values recognised in publicly available financial statements and banks’ future performance. Our results are consistent with the findings from earlier research (Ehalaiye et al., 2017) using annual data disclosed in the supplementary notes to the financial statements of US banks based on SFAS 107. The study, makes a significant contribution to the question of frequency of reporting and to the disclosure vs recognition debate. The study has implications for policy makers, regulators and accounting standards setters such as the Securities and Exchange Commission and the Financial Accounting Standards Board in evaluating the use of fair value measurement in financial reporting.

Details

International Journal of Accounting & Information Management, vol. 28 no. 4
Type: Research Article
ISSN: 1834-7649

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Article
Publication date: 1 March 2015

Elizabeth Plummer and Terry K. Patton

This descriptive study shows how the government-wide financial statements can be used, with adjustments, to provide evidence on a state's fiscal sustainability. We compute…

Abstract

This descriptive study shows how the government-wide financial statements can be used, with adjustments, to provide evidence on a state's fiscal sustainability. We compute “adjusted total net assets(AdjTNA), which equals a state’s assets (not including its capital assets) minus the state's liabilities and obligations, including the UAAL for pension and OPEB not reported on the Statement of Net Assets. AdjTNA provides information about a state’s ability to sustain its current fiscal structure, given its current financial resources. Primary results suggest that 40 states have a negative AdjTNA value, with a median -$6.7 billion per state (-$5,230 per household). Sensitivity analysis suggests 48 states have a negative AdjTNA value, with a median -$20.7 billion per state (-$16,200 per household). The paper discusses the important policy implications of these results.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. 27 no. 2
Type: Research Article
ISSN: 1096-3367

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Article
Publication date: 31 July 2007

Luis Enrique Valladares Soler and Diego Jesús Cuello de Oro Celestino

The paper seeks to discuss empirically and contrast the hypothesis of the Theory of Intellectual Capital, which maintains that the difference between the market value of a…

Abstract

Purpose

The paper seeks to discuss empirically and contrast the hypothesis of the Theory of Intellectual Capital, which maintains that the difference between the market value of a firm and its book value can be explained exclusively in terms of internal, intangible assets that are peculiar to the firm.

Design/methodology/approach

The paper takes the form of a conceptual discussion, graphical analysis, basic descriptive statistics and basic correlational statistics.

Findings

Not all overvaluation of corporate assets can be explained by intangible assets of an internal nature. A significant portion can be explained by external factors, unrelated to the management of the firm, such as the general economic cycle or the sector of economic activity in which the firm is active. Hence, any economic importance that intellectual capital might hold for business management is bounded.

Research limitations/implications

The research is limited to the upper echelons of the largest US firms according to their ranking and the database of the Fortune 500 magazine. Subsequent phases in the research will attempt to observe other populations of firms.

Practical implications

The purpose of the new accountancy of the firm in the information and knowledge society must not be to balance financial positions with the market valuation of the firm. There are external factors that are beyond management's control. Prudent accounting practices preserve their value. Corporate leadership must focus its action on the internal assets that are open to management, on those that are a source of value creation.

Originality/value

This article reviews, discusses and empirically contrasts a fundamental hypothesis of the Theory of Intellectual Capital and points to a more reasonable path through which to establish the relation between intangible assets and the difference between the market value and the book value of a firm.

Details

Journal of Intellectual Capital, vol. 8 no. 3
Type: Research Article
ISSN: 1469-1930

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Abstract

Details

Harold Cecil Edey: A Collection of Unpublished Material from a 20th Century Accounting Reformer
Type: Book
ISBN: 978-1-78973-670-0

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Article
Publication date: 27 July 2010

Norhana Salamudin, Ridzwan Bakar, Muhd Kamil Ibrahim and Faridah Haji Hassan

This study examines the intangible assets value of the Malaysian market. It measures the relationship between intangible assets and corporate market value of Malaysian…

Abstract

Purpose

This study examines the intangible assets value of the Malaysian market. It measures the relationship between intangible assets and corporate market value of Malaysian firms and whether they are consistent with findings in other advanced markets.

Design/methodology/approach

Firstly, the development of intangible assets of Malaysian companies over 2000 to 2006 were measured statistically using Landsman's balance sheet identity model. Then, cross‐sectional multi‐regression procedure was used to ascertain the relationship between intangible assets and financial performance.

Findings

The findings reveal that the Malaysian market developed intangible assets at a rather slow pace, with significant development from year 2004 onwards. It also reveals that the book value of net assets (BVNA) are still dominant in Malaysian corporate valuation but this trend is declining as greater interest has now been developed in employing intangible assets and earnings as important variables. Furthermore, the results indicate that there is a positive trend in intangible assets development in Malaysia, consistent with those of advanced markets such as the US, Europe and Australia. However, the Malaysian market lags by about 20 years as compared to the more advanced ones.

Research limitations/implications

The limitations of this paper are as follows: the time frame for this study was seven years and it looked at the post‐financial crisis period. A longer time frame may be desirable covering both pre‐ and post‐crisis periods. Secondly, this study did not look into intangible assets at the micro‐level perspective. Unless solid definition, classification, measurement and valuation of intangible assets have been ascertained, it is not worth dwelling on individual assets, such as brand, research and development (R&D), and human capital.

Originality/value

The main contribution of this study is that it provides empirical evidence that intangible assets or intellectual assets are strategic assets that require close attention in line with development of the knowledge‐based economy.

Details

Journal of Intellectual Capital, vol. 11 no. 3
Type: Research Article
ISSN: 1469-1930

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Article
Publication date: 1 July 1994

Alexandros P. Prezas

The question whether the use of an asset will be terminated before its physical life expires is of interest to financial managers. In other words, purchasing an asset does…

Abstract

The question whether the use of an asset will be terminated before its physical life expires is of interest to financial managers. In other words, purchasing an asset does not necessitate its use until the end of its physical life. An asset might be terminated because it is inefficient to continue operating, or because it can be replaced. Thus, in a single cycle problem, the objective is to determine how long an asset should be employed before termination. In a replacement problem, the focus is on determining how long the asset should be held before being replaced with a similar one.

Details

Managerial Finance, vol. 20 no. 7
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 1 March 2013

John F. Sacco and Gerard R. Busheé

This paper analyzes the impact of economic downturns on the revenue and expense sides of city financing for the period 2003 to 2009 using a convenience sample of the…

Abstract

This paper analyzes the impact of economic downturns on the revenue and expense sides of city financing for the period 2003 to 2009 using a convenience sample of the audited end of year financial reports for thirty midsized US cities. The analysis focuses on whether and how quickly and how extensively revenue and spending directions from past years are altered by recessions. A seven year series of Comprehensive Annual Financial Report (CAFR) data serves to explore whether citiesʼ revenues and spending, especially the traditional property tax and core functions such as public safety and infrastructure withstood the brief 2001 and the persistent 2007 recessions? The findings point to consumption (spending) over stability (revenue minus expense) for the recession of 2007, particularly in 2008 and 2009.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. 25 no. 3
Type: Research Article
ISSN: 1096-3367

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Article
Publication date: 6 May 2014

Alessandro Mura and Gianluigi Roberto

The purpose of this paper is to focus on alternative accounting treatments over time to assess their impact on the level of conservatism in a comparison between Italian…

Abstract

Purpose

The purpose of this paper is to focus on alternative accounting treatments over time to assess their impact on the level of conservatism in a comparison between Italian local accounting standards and USA generally accepted accounting principles.

Design/methodology/approach

A case study approach is adopted to investigate the accounting adjustments applied to net income and shareholders’ equity as included in the Form 20-F reconciliations reported by all Italian firms that were listed on a US market over the period 1999-2008. The methodology first introduced by Gray (1980) and frequently applied over 30 years to several international accounting comparisons is adapted to recognise a multi-period dimension of the accounting choice. In particular, the paper focuses on the temporal dimension of such adjustments in order to capture their attitude to reverse or become permanent over time.

Findings

The results show that the level of conservatism is visible in the measurement of net assets and is shaped by the prevailing directional effect of accounting adjustments that become permanent as their cumulative reversal is persistently delayed. Such a phenomenon arises and intensifies when the accounting differences relate to recurring operations and/or to long-term assets and liabilities. Amongst them those violating the clean surplus relation are the most controversial as they not only generate a permanent effect in the measurement of net assets, but also an opposite permanent effect in the measurement of earnings.

Research limitations/implications

Future empirical research confirming the finding in different contexts might overcome the limitations of a relatively poor number of observations in the case study.

Practical implications

Identifying the duration of alternative accounting treatments is relevant to assess their potential influence on stakeholders decision-making process as this may steadily influence the future of a firm.

Originality/value

The propositions express a sequence of the timing effects of alternative accounting treatments that highlight the primary role of permanent differences in persistently shaping the value of net assets and help to provide a less erratic interpretation of the level of conservatism.

Details

Journal of Applied Accounting Research, vol. 15 no. 1
Type: Research Article
ISSN: 0967-5426

Keywords

Content available
Article
Publication date: 26 August 2020

David Ellerman

This paper will discuss two problems that have plagued the literature on the Ward-Domar-Vanek labor-managed firm (LMF) model, the perverse supply response problem and the…

Abstract

Purpose

This paper will discuss two problems that have plagued the literature on the Ward-Domar-Vanek labor-managed firm (LMF) model, the perverse supply response problem and the horizon problem. The paper also discusses the solution to the horizon problem and the alleged “solution” of a membership market.

Design/methodology/approach

This is a conceptual paper so it analyzes the two problems and shows how they can be resolved. It also shows how one alleged “solution” (membership market) is based on several conceptual mistakes about the structure of rights in a democratic firm.

Findings

The perverse supply response is based on the assumption that the members of a democratic firm can expel for no cause some members when it would benefit the remaining members. It is shown that the same perverse behavior happens conceptually and historically in a conventional firm under the same assumptions. The horizon problem is resolved by the system of internal capital accounts (ICAs) that has been independently invented at least four times.

Research limitations/implications

The idea of a democratic firm is quite often dismissed by conventional economists: “At first it seems like a good idea but unfortunately it is plagued by structural problems such as the perverse supply response and the horizon problem.” Hence it is important to see that the first is not a problem under ordinary assumptions and that the second is a solved problem.

Practical implications

The perverse supply response problem can be reproduced in a conventional firm under similar assumptions, and the horizon problem is real problem for social or common ownership firms but is solved in the Mondragon-type worker cooperatives by the system of ICAs. This has been known and published since the early 1980s, but conventional economists ignore the solution and still cite it as an inherent structure problem of a democratic firm.

Originality/value

It has not been previously shown in the LMF literature that the perverse supply response can be reproduced in a conventional corporation under similar assumptions since the maximand for the conventional firm is not total market value but that value per current shareholder. The solution to the horizon problem using ICAs has long been “known” but never acknowledged in the conventional literature as if it was a necessary feature of workplace democracy. The idea of a membership market is analyzed and criticized.

Details

Journal of Participation and Employee Ownership, vol. 3 no. 2/3
Type: Research Article
ISSN: 2514-7641

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Book part
Publication date: 27 October 2020

Elizabeth A. M. Searing, Daniel Tinkelman and

In 2009 and 2010, the Financial Accounting Standards Board (FASB) adopted new accounting standards for nonprofit mergers and acquisitions. The new accounting standards are…

Abstract

In 2009 and 2010, the Financial Accounting Standards Board (FASB) adopted new accounting standards for nonprofit mergers and acquisitions. The new accounting standards are an example of the constitutive role accounting can play in how people think about economic events, since the FASB defined a new concept (the “inherent contribution”) and required valuation of intangible assets that were often previously unrecognized.

The FASB’s stated goals included minimizing “pooling” accounting and maximizing transparency regarding fair value information, acquired identifiable intangible assets, and the relation between consideration paid and the fair values of identifiable assets acquired. The FASB expected many combinations would involve little or no consideration. It also expressed concern that some organizations would undervalue assets acquired, especially intangible assets.

For a sample of 2012–2017 nonprofit hospital combinations, we find general agreement with the FASB’s expectations. Almost all combinations were accounted for as acquisitions, not mergers, even though there was frequently no consideration paid. More acquirers recorded “inherent contributions” than goodwill, because the net fair value of the acquired hospital’s identifiable assets exceeded the consideration paid. Acquirers ascribed value to assets, such as intangible assets, that would have gone unreported under the prior accounting rules, although lower levels of intangible assets were recognized in nonprofit business combinations, relative to total non-goodwill assets acquired, than in public companies’ acquisitions.

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