Skantz, Terrance R.

Under Rule 10b-5 of the Securities Exchange Act of 1934, investors are provided a cause of action for losses resulting from management's intentionally deceptive disclosure or non-disclosure of information. Since lawsuits are costly, managers should be motivated to avoid a securities fraud class action. Prior research argues that managers attempt to mitigate the adverse effects of class actions by preempting negative eamings surprises (Skinner 1994 ). However, this study argues that when a firm is overvalued, managers have incentives to avoid value reducing disclosure, which may lead to the violation of securities fraud laws. I investigate this assertion by testing associations between overvalued equity and the two outcomes of a securities fraud class action: dismissals and settlements. Other relevant factors related to overvalued equity are also tested and measured. These other factors include cases where the lead plaintiff is an institution, the length of the class period, the intrinsic value of exercisable CEO in-the-money stock option holdings, and corporate governance as measured by a corporate governance score and the occurrence of a GAAP violation. Findings show that the likelihood of a non-dismissal increases when an institution is the lead plaintiff and CEOs of overvalued firms hold higher amounts of in-the-money options. In addition, results suggest that for overvalued firms, stronger governance increases the probability of a non-dismissal.

Auditor independence has been a long-standing issue for regulators resulting in numerous studies on the subject on how to enhance it and numerous rules that attempt to ensure it (e.g. Cohen Report 1978; ASR 250 1978; SEC Rule 2-01 2000). One of regulators' most recent attempts to shore up auditor independence is evident in the provisions of the Sarbanes-Oxley Act of 2002 (SOX). As a test of two competing theories of auditor independence, and to determine whether SOX mandates have successfully enhanced financial reporting quality, I examine post-SOX changes in non-audit fees (as a proxy for changes in quasi-rents) and the extent of changes in two measures of financial reporting quality. Results suggest that SOX mandates have been effective, and that the proposition of DeAngelo (1981b) that non-audit services may impair auditor independence may more-closely describe the relationship between changes in quasi-rents and changes in financial reporting quality than does the theory of Lee and Gu (1998). Further, supplemental analyses suggest that, as proposed by the theories, the amount of low-balling is positively related to the amount of quasi-rents.

This paper examines the association between the employment of industry specialist auditors, and the degree of information asymmetry and the cost of debt of a client company. Unlike auditors without industry expertise, auditors with industry expertise can better improve the credibility of financial statements (Krishnan 2003; Balsam et al. 2003) and verify management forecasts, thereby minimizing management's discretion in applying accounting principles and standards (Kwon 1996). This suggests that industry specialist auditors can enhance audit quality. Consequently, clients of industry specialist auditors are expected to achieve more significant economic benefits than clients of nonspecialist auditors. Based on product differentiation theory and signaling theory, it is hypothesized in this study that clients of industry specialist auditors are more likely to enjoy a lower level of information asymmetry and a lower cost of debt than clients of nonindustry specialist auditors. In addition, this study hypothesizes that the marginal economic value added by auditor industry specialization varies between financially troubled clients and financially healthy clients that seek external financing. The results indicate that clients of specialists experience a lower information asymmetry level than clients of nonspecialists. This economic value provided by specialists is important and more pronounced for unregulated firms than for regulated firms. This inference, however, does not hold when information asymmetry is measured using analyst forecast dispersion. In addition, clients hiring specialists enjoy better credit ratings and lower cost of debt than clients of nonspecialists, and this economic value is more significant for financially troubled firms than for financially healthy firms. However, these findings do not hold for each proxy of auditor industry specialization.

This dissertation examines the stock market reaction to 474 announcements of hiring chief information officers (CIOs) in the 1987--2002 period, and firm performance for periods up to two years following the CIO appointment. The study reports that the announcements are associated with significantly positive abnormal returns (0.48 percent). The returns are more pronounced when the new CIO is hired from an IT leader firm (1.94 percent). Abnormal returns are significantly positive related with the CIO's level of education and high-technology firms, and negatively related with firm size. In addition, there is no significant difference in market reaction between the announcements that publicize the creation of a new position and those that imply the filling of an existing position with new hires. Further, the study finds an association between the appointment of the new CIO and subsequent improvement in the accounting measures of profitability. Findings reveal that CIO firms outperform their matched firms and their industry counterparts for the two years following the announcements relative to the year prior to the CIO appointment.

This study examines whether accounting standards or institutional factors are the prime determinants of differences in value relevance of accounting numbers across countries. The motivation for this study arises from ongoing accounting harmonization efforts to increase the comparability of financial reporting across countries. Proponents of harmonization agree that investors support the need for comparability. Opponents, on the other hand, argue that efforts toward a common set of accounting standards worldwide may not achieve comparability as long as economical, cultural, and political differences exist across countries. So, the question is whether the application of common accounting standards result in enhanced comparability of financial statements, given that firms operate in different countries with different regulatory and cultural influences. This study examines the relationship between reported financial figures and both stock prices and returns across Saudi, Kuwait, the U.S., and U.S. listed firms that use international accounting standards (IAS-sample) to determine whether there are differences in the value relevance of their accounting numbers. Saudi and Kuwait have similar environments. However, they use different GAAPs. Saudi uses U.S. GAAP and Kuwait uses IAS. As a benchmark, this study uses samples of firms that use U.S. GAAP, and that use IAS, with both samples listing in the U.S. capital market. To determine whether accounting standards play a large role in differences in value relevance across these countries, four comparisons are performed: (1) Saudi and the U.S.; (2) Kuwait and IAS-sample; (3) Saudi and Kuwait; and (4) the U.S. and IAS-sample. The results show that there are significant differences in the value relevance between countries that apply the same standards but have different institutional factors. On the other hand, there are no significant differences, in most cases, in the value relevance between countries that apply different standards but operate in a similar environment. Moreover, this study attempts to determine whether earnings conservatism differs across these countries. This study provides evidence that institutional factors affect the differences in earnings conservatism. The findings of this study suggest that international harmonization of accounting standards may not be easily accomplished because institutional factors play an influential role in information dissemination.