Course Objectives

The primary objective of this course is to acquaint students with the basic concept of research design and the various research methodologies which are useful in empirical accounting research. Another equally important objective is to introduce the major ongoing and emerging research areas in financial accounting.

Grading Basis

Critique Replication Research Proposal Class Participation Total

20 25 35 20 100

Critique:
One written critique should be handed in, on a selected financial accounting paper to be presented at Rutgers' Accounting Workshop. Some class time will be devoted to the discussion of those papers prior to the workshop. The critique will be the summary of the writer's view plus the comments made by others in the class and the workshop.

Replication:
Each student should replicate the results of one empirical study such as Easton and Harris (1991), or any other empirical study with the instructor's approval.

Research Proposal:
A research proposal should be presented and handed in prior to the end of the semester. The proposal should include: (1) Identification of research issue(s), (2) Survey of relevant literature, (3) Hypothesis development, (4) Research design, and (5) Expected contribution. Please take this proposal seriously, since it can be the basis of the doctoral thesis or a publishable paper.

Class Participation:
Active participation in class discussion is expected.

1/21 Introduction

Beaver, W.H. "Directions in Accounting Research: NEAR and FAR." Accounting Horizons (June 1996): 113-124.

*Bernard, V.L. "Capital Markets Research in Accounting During the 1980s: A Critical Review" in University of Illinois Accountancy Ph.D. Program Golden Jubilee Symposium, 1989.

Survey of Financial Accounting Databases and Computer Statistical Software.

1/28 Research Design

Abdel-khalik, R. and B.B. Ajinkya, Empirical Research in Accounting: A Methodological Viewpoint (Chapters 2 and 3, pp. 9-48), Accounting Education Series, Vol. No. 4, American Accounting Association (1979).

Example Evaluations of Papers.

2/4 Basic Earnings/Price Research

Ball, R. and P. Brown. "An Empirical Evaluation of Accounting Income Numbers." Journal of Accounting Research (Autumn 1968): 159-178.

Brown, P. "Ball and Brown [1968]." Journal of Accounting Research (Supplement 1989): 202-217.

*Lev, B. "On the Usefulness of Earnings: Lessons and Directions from Two Decades of Empirical Research." Journal of Accounting Research (Supplement 1989): 153-192.

2/11 Event Studies

Fama, E. L. Fisher, M. Jensen, and R. Roll, "The Adjustment of Stock Prices to New Information." International Economic Review (February 1969): 1-21.

Brown, S.J. and J.B. Warner, "Using Daily Stock Returns: The Case of Event Studies." Journal of Financial Economics (March 1985): 3-32.

2/18 Return Model

Beaver, W.H., R. Lambert, and D. Morse. "The Information Content of Security Prices." Journal of Accounting and Economics (June 1980): 3-28.

Easton, P. and T. Harris, "Earnings as an Explanatory Variable for Returns." Journal of Accounting Research (Spring 1991): 19-36.

*Easton, P. and M.E. Zmijewski, "Cross-Sectional Variation in the Stock Market Response to Accounting Earnings Announcement." Journal of Accounting and Economics (1989): 117-141.

*Teets, W.R. and C.E. Wasley, "Estimating Earnings Response Coefficients: Pooled versus Firm-Specific Models." Journal of Accounting and Economics (1996): 279-295.

2/25 Price Model

Miller, M. and F. Modigliani, "Some Estimates of the Cost of Capital to the Electric Utility Industry." American Economic Review (June 1966): 333-391.

Barth, M. "Relative Measurement Errors Among Alternative Pension Asset and Liability Measures." The Accounting Review (July 1991): 433-463.

3/4 Evaluation of Price Model vs. Return Model

Kothari, S.P. and J.L. Zimmerman, "Price and Return Models." Journal of Accounting and Economics (September 1995): 155-192.

Christie, A.A. "On Cross-Sectional Analysis in Accounting Research." Journal of Accounting and Economics (December 1987): 231-258.

*Landsman, W. and J. Magliolo, "Cross-Sectional Capital Market Research and Model Specification." The Accounting Review (October 1988): 586-604.

3/11 Book Value Model

Bernard, V.L. "Accounting-Based Valuation Methods, Determinants of Market-to-Book Ratios, and Implications for Financial Statement Analysis." Working Paper, 1993.

Penman, S.H. "The Articulation of Price-Earnings Ratios and Market-to-Book Ratios and the Evaluation of Growth." Journal of Accounting Research (Autumn 1996): 235-260.

*Ohlson, J.A. "Earnings, Book Values, and Dividends in Equity Valuation." Contemporary Accounting Research (Spring 1995): 661-687.

3/18 Spring Break

3/25 Trading Rule Approach

Ou, J. and S. Penman. "Financial Statement Analysis and the Prediction of Stock Returns." Journal of Accounting and Economics (March 1989): 295-330.

Ball, R., S.P. Kothari, J. Shanken, "Problems in Measuring Portfolio Performance: An Application to Contrarian Investment Strategies." Journal of Financial Economics (March 1995): 79-107.

4/1 Discrete Dependent Variable

Zmijewski, M.E. "Methodological Issues Related to the Estimation of Financial Distress Prediction Models." Journal of Accounting Research (Supplement 1984): 59-86.

Shehata, M. "Self-Selection Bias and the Economic Consequence of Accounting Regulation: An Application of Two-Stage Switching Regression to SFAS No. 2." The Accounting Review (October 1991): 768-787.

*Maddala, G.S. "A Perspective on the Use of Limited-Dependent and Qualitative Variables Models in Accounting Research." The Accounting Review (October 1991): 788-807.

4/8 Market Inefficiency

Bernard, V.L. "Stock Price Reactions to Earnings Announcements: A Summary of Recent Analomous Evidence and Possible Explanations." in: R.H. Thaler, ed., Advances in Behavioral Finance. New York: Rusell Sage Foundation, 1993.

*Sloan, R.G. "Do Stock Prices Fully Reflect Information in Accruals and Cash Flows About Future Earnings?" The Accounting Review (July 1996): 289-316.

*Abarbanell, J.S. and B.J. Bushee, "Abnormal Returns to a Fundamental Analysis Strategy," Working Paper (1996).

4/15 Contextual Accounting Research

Beaver, W.H. and E. Engel, "Discretionary Behavior with respect to Allowances for Loan Losses and the Behavior of Security Prices." Journal of Accounting and Economics (forthcoming).

Bernard, V. and J. Noel, "Do Inventory Disclosures Predict Sales and Earnings?" Journal of Accounting, Auditing and Finance (Spring 1991): 145-181.

4/22 International Accounting

Alford, A., J. Jones, R. Leftwich, and M. Zmijewski, "The Relative Informativeness of Accounting Disclosures in Different Countries." Journal of Accounting Research (Supplement 1993): 183-223.

*Chan, K.C. and G.S. Seow, "The Association Between Stock Returns and Foreign GAAP Earnings versus Earnings Adjusted to U.S. GAAP." Journal of Accounting and Economics (February 1996): 139-158.

4/29 Presentation of Proposals

* Refers to papers that are relevant to the topic, but will not be discussed in class during to time constraint. These papers are highly recommended as supplemental reading.

3/25 Discrete Dependent Variable

Zmijewski, M.E. "Methodological Issues Related to the Estimation of Financial Distress Prediction Models." Journal of Accounting Research (Supplement 1984): 59-86.

3/28 Rashad Abdel-khalik's workshop at Camden

4/8 EBO Model (Continued) and Trading Rule Approach

Frankel, R. and C.M.C. Lee, "Accounting Information, Market Expectation, and the Book-to-Market Effect," working paper, 1996.

Bernard, V.L. "The Feltham-Ohlson Framework: Implications for Empiricists" Contemporary Accounting Research (Spring 1995): 733-747.

4/18 (at New Brunswick) Market Inefficiency and Contextual Accounting Research

Bernard, V.L. "Stock Price Reactions to Earnings Announcements: A Summary of Recent Analomous Evidence and Possible Explanations." in: R.H. Thaler, ed., Advances in Behavioral Finance. New York: Rusell Sage Foundation, 1993.

Beaver, W.H. and E. Engel, "Discretionary Behavior with respect to Allowances for Loan Losses and the Behavior of Security Prices." Journal of Accounting and Economics (1997).

4/22 International Accounting

Alford, A., J. Jones, R. Leftwich, and M. Zmijewski, "The Relative Informativeness of Accounting Disclosures in Different Countries." Journal of Accounting Research (Supplement 1993): 183-223.

Presentation of two proposals.

4/29 Presentation of Proposals (the remaining six)