Wayne R. Landsman

• PhD
• Professor at University of North Carolina at Chapel Hill

This study provides evidence that private loan issuance offers opportunities for borrowers to learn new information about their own risks and subsequently disclose such information in their risk factor disclosures (RFDs) to satisfy lenders’ demand for transparency about borrowers’ risks. This loan issuance effect on risk disclosures is more pronoun...

This study examines how equity market fragmentation affects firms’ capital investment decisions. Recent empirical research finds that market fragmentation lowers trading costs and thus improves market quality. We examine whether this increase in market quality translates into greater revelatory price efficiency, where stock prices reveal with great...

This study uses an information-asymmetry framework to examine the effect of initiation of credit default swaps (CDS) trading on firm dividend payout policy. We find evidence that CDS initiation is associated with increasing dividends, which is consistent with firms distributing excess free cash flow to mitigate exacerbated manager-equityholder agen...

This study examines how the market share of dark venues changes at earnings announcements. Our analysis shows a statistically significant increase in dark market share in the weeks prior to, during, and following the earnings announcement. We also predict and find evidence that increases in dark market share around earnings announcements are higher...

This study examines whether audit firms hire former PCAOB employees in response to negative PCAOB inspection reports, and whether such hiring leads to reductions in future inspection deficiencies and an increase in audit quality. We find that the number of PCAOB employees hired by large audit firms is positively related to the number of deficiencie...

We examine how product market competition affects the disclosure of innovation. Theory posits that product market competition can cause firms to increase their disclosure of innovation to deter product market competitors. Consistent with this reasoning, we find that patent applicants in more competitive industries voluntarily accelerate their paten...

In this study, we examine the effects of mandatory IFRS adoption on accounting-based prediction models of CDS spreads for a sample of 292 firms in 16 countries. In our examination, we estimate the models for both financial and nonfinancial firms before and after mandatory IFRS adoption. We find that mean and median absolute percentage prediction er...

We directly test the reliability and relevance of investee fair values reported by listed private equity funds (LPEs). In our setting, disaggregated fair value measurements are observable for funds’ investees; and investee accounting fundamentals are also publicly disclosed. We find that LPE fair value measurements reflect equity book value and net...

This study finds that greater asymmetric timeliness of earnings in reflecting good and bad news is associated with slower resolution of investor disagreement and uncertainty at earnings announcements. These findings indicate that a potential cost of asymmetric timeliness is added complexity from requiring investors to disaggregate earnings into goo...

This study analyzes whether fair value estimates of fund net asset values (NAVs) produced by private equity managers are accurate and unbiased predictors of future discounted cash flows (DCFs). We exploit the fact that private equity funds have finite lives to compare reported NAVs to DCFs based on realized cash flows for 384 Venture Capital (VC) f...

This study addresses whether voluntary IFRS adoption is associated with increased comparability of accounting amounts and capital market benefits. We find that after firms voluntarily adopt IFRS (“adopting” firms), their accounting amounts are more comparable to those of firms that previously adopted IFRS (“adopted” firms) and less comparable to th...

SYNOPSIS Whether fair value accounting should be used in financial reporting has been the subject of debate for many years. A key dimension to this debate is whether fair value earnings can provide information to financial statement users that is helpful in making their economic decisions. A criticism of fair value accounting is the contention that...

This study investigates the determinants of goodwill impairment decisions by firms applying IFRS based on a comprehensive sample of stock-listed firms from 21 countries. Multivariate logistical regression findings indicate that goodwill impairment incidence is negatively associated with economic performance, but also related to proxies for manageri...

Amendment of IAS 39 by the IASB in 2008 provided an option to reclassify investments from fair value to historical cost. We predict that too-important-to-fail (TITF) banks took less advantage of this option because the political protection they enjoyed insulated them from regulatory pressure. Banks that did not enjoy this protection had greater rea...

Our analysis of how banks’ responses to asset price changes can result in procyclical leverage reveals that, for banks with a binding regulatory leverage constraint, absent differences in regulatory risk weights across assets, procyclical leverage does not occur. For banks without a binding constraint, fair value and bank regulation both can contri...

This study examines whether key characteristics of analysts’ forecasts—timeliness, accuracy, and informativeness—change when investor demand for information is likely to be especially high, i.e., during periods of high uncertainty. Findings reveal that when uncertainty is high, analysts’ forecasts are more timely but less accurate. However, analyst...

This study shows that initiation of credit default swap (CDS) trading for an entity's debt increases the share of loans retained by loan syndicate lead arrangers and increases loan spread. These findings are consistent with CDS initiation reducing the effectiveness of a lead arranger's stake in the loan to serve as a mechanism to address the advers...

This study examines whether the Jumpstart Our Business Startups Act (JOBS Act) increases information uncertainty in IPO firms. The JOBS Act creates a new category of issuer, the Emerging Growth Company (EGC), and eases disclosure requirements for IPO firms with EGC status. Measuring information uncertainty using IPO underpricing and post-IPO equity...

This paper analyzes whether fund valuations produced by private equity managers are biased predictors of future discounted cash flows (DCF). Our research is based on an extensive set of timed cash flows and reported net asset values (NAVs) that relates to 645 funds spanning 1988-2014. Using an ex ante lens, we find that, on average, reported NAVs c...

This study addresses two related research questions concerning a new requirement in the United Kingdom that auditors disclose the materiality thresholds they apply when conducting the audit of listed companies. First, are cross-sectional differences in materiality thresholds associated with differences in the demands of financial statement users fo...

This study shows that the initiation of CDS trading for an entity’s debt increases the share of loans retained by loan syndicate lead arrangers and the incidence of sole lending loans. Further evidence shows this finding is consistent with CDS initiation reducing the effectiveness of a lead arranger’s stake in the loan to serve as a mechanism to ad...

This study examines whether the Jumpstart Our Business Startups Act (JOBS Act) increases information uncertainty in IPO firms. The JOBS Act creates a new category of issuer, the Emerging Growth Company (EGC), and eases disclosure requirements for IPO firms with EGC status. Measuring information uncertainty using IPO underpricing and post-IPO return...

This study examines the effects of mandatory IFRS adoption on accounting-based prediction models for CDS spreads for a sample of 357 firms in 16 IFRS-adopting countries. We do this by estimating accounting-based prediction models for CDS spreads separately for financial and non-financial firms before and after mandatory IFRS adoption. We find that...

This study determines whether voluntary adoption of IFRS is associated with increased comparability of accounting amounts and attendant capital market benefits. After “adopting” firms voluntarily adopt IFRS, their accounting amounts become more comparable to those of firms that “adopted” IFRS before them and less comparable to those of “non-adoptin...

We analyze how banks’ responses to asset gains and losses can result in procyclical leverage. The analysis reveals that absent differences in regulatory risk weights across assets, leverage cannot be procyclical. We test predictions from the analysis using a sample of US commercial banks and find that the procyclical relation between leverage chang...

This study examines whether key characteristics of analyst forecasts — timeliness, accuracy, and bias — change at a time when investor demand for information is likely to be especially high, i.e., during periods of high market uncertainty. Findings reveal that when market uncertainty is high, analysts’ forecasts are less timely as aggregate news be...

This study finds that higher asymmetric timeliness is associated with slower resolution of investor disagreement and uncertainty at earnings announcements. These findings indicate that a potential cost of asymmetric timeliness is less transparent earnings, which impedes equityholders’ ability to discern the valuation implications of earnings when t...

SYNOPSIS This paper summarizes changes that have taken place in banking, the attendant financial innovations, and the challenges these innovations pose for accounting standard setters and regulators. We focus on asset securitizations and the difficulties in accounting for such transactions, in particular their option-like features, and discuss how...

We find that the adjustments to net income resulting from mandatory 2005 adoption of IFRS in Europe are relevant to investors in financial as well as non-financial firms. However, we find differences in value relevance of the aggregate net income adjustment and adjustments relating to several individual IFRS standards for these two types of firms a...

This study examines whether application of IFRS by non-US firms results in accounting amounts comparable to those resulting from application of US GAAP by US firms. IFRS firms have greater accounting system and value relevance comparability with US firms when IFRS firms apply IFRS than when they applied domestic standards. Comparability is greater...

This study investigates the influence of managerial incentives to meet or beat the zero earnings benchmark on labor cost behavior of private Belgian firms. We posit that relative to managers of firms reporting healthy profits, managers meeting or beating the zero earnings benchmark will increase labor costs to a smaller extent when activity increas...

The collapse of the securitization market during the 2007-2008 Financial Crisis resulted from investors’ concern with the value of securitized assets and securities issued by special purpose entities (SPEs). Research has shown that prior to the Crisis, investors valued equity of sponsor-originator banks (S-Os) as if there were an implicit guarantee...

One of most significant empirical findings in the behavioral finance literature is that investor sentiment affects asset prices. However, the mechanism by which sentiment affects asset prices is not well understood. Individuals are widely believed to be more influenced by sentiment than other investors, and individual noise traders combined with li...

This study examines whether the information content of earnings announcements--abnormal return volatility and abnormal trading volume -- increases in countries following mandatory IFRS adoption, and conditions and mechanisms through which increases occur. Findings suggest information content increased in 16 countries that mandated adoption of IFRS...

  In this study, we document a significant shift over the past several years from stock option-based compensation to restricted stock-based compensation. Additionally, we evaluate whether stock option grants and restricted stock grants result in similar valuation consequences for firms. We estimate cross-sectional valuation equations that include t...

This study addresses simultaneity bias in piecewise linear forms of the earnings-return relation. We specify an overidentified system of simultaneous equations that incorporates both asymmetric earnings timeliness and asymmetric earnings persistence specifications, and implement two-stage least squares for this piecewise linear system. Estimation o...

This study addresses whether firms’ share prices correctly reflect two accounting measures, dirty surplus and really dirty surplus. Dirty surplus is readily observable from the financial statements, but really dirty surplus, which arises from recognizing equity transactions such as employee stock option exercises at other than fair market value, is...

We scrutinize the role financial reporting for fair values, asset securitizations, derivatives and loan loss provisioning played in the Financial Crisis. Because banks were at the center of the Financial Crisis, we focus our discussion and analysis on the effects of financial reporting by banks. We conclude fair value accounting played little or no...

We use equity market reactions to the announcement of impairments of retained interests arising from asset securitizations made by financial institutions during the Financial Crisis of 2007-2008 as a means of obtaining insights into the nature of the implicit guarantees associated with this form of financing. We use the market reaction to announcem...

In this paper, we distil essential insights about the regulation of financial reporting from the academic literature. The key objective is to synthesize extant theory to provide a basis for evaluating implications of pressures on the regulation of financial accounting following the recent financial crisis. We succinctly lay out arguments put forth...

The conference organisers asked Professor Landsman to provide reflections from an academic researcher's perspective on observations by practitioners made during the conference discussion. Professor Landsman's reflections also provide guidance to policy‐relevant questions of interest for future researchers in the field.

Using a comprehensive sample of switches to and from the largest auditors (i.e., the Big N), we examine empirically whether the sensitivity of Big N auditor switches to client risk and misalignment changed between the pre- and post-Enron periods. Although we find an increase in the sensitivity to client misalignment, the sensitivity to client risk...

We examine whether application of International Accounting Standards (IAS) is associated with higher accounting quality. The application of IAS reflects combined effects of features of the financial reporting system, including standards, their interpretation, enforcement, and litigation. We find that firms applying IAS from 21 countries generally e...

We present a comprehensive analysis of the association between stock returns, quarterly earnings forecast errors, and quarter-ahead and year-ahead earnings forecast revisions. We find that forecast errors and the two forecast revisions have significant effects on stock prices, indicating each conveys information content. Findings also show that the...

We provide evidence that firms with more transparent earnings enjoy a lower cost of capital. We develop an earnings transparency measure that captures cross-sectional and intertemporal variation in the extent to which earnings and change in earnings covary contemporaneously with stock returns. We find that firms with more transparent earnings have...

In financial reporting, US and international accounting standard-setters have issued several disclosure and measurement and recognition standards for financial instruments. The purpose of this paper is to review the extant capital market literature that examines the usefulness of fair value accounting information to investors. In conducting my revi...

We examine the determinants and consequences of the split of options between executive and nonexecutive employees. We find that the lower the proportion of options granted to executives is, the stronger firm governance is. For the sample as a whole, the relation between options and both operating income and valuation is weaker for executive options...

This study addresses three research questions relating to total exclusions, special items, and other exclusions. Are each of these pro forma exclusion components forecasting irrelevant? Are each of the exclusion components value irrelevant? Are the valuation multiples on the exclusion components justified by their ability to forecast future profita...

The multinational companies pay enormous money for making and auditing their accounting reports according to the different national regulations. For these multinational companies the aspects of maximizing the profit is significantly more important than the aspects of national interest or the geographical position. Because of this there is a demand...

Using a comprehensive sample of lateral switches among the largest auditors (i.e., the Big N) this study documents that the probability of a lateral switch in Big N audit firms increases significantly in both the audit and financial risk of the client in the pre-Enron period but not in the post-Enron period. In both periods, clients switching downw...

The longstanding debate over the proper definition of “earnings”—whether investors when setting stock prices focus primarily on GAAP earnings or other measures like operating cash flow—is both misguided and theoretically unresolvable. The biggest problem faced by investors in evaluating earnings reports is not their inability to understand the effe...

This study addresses whether asset securitizations are really asset sales or a form of secured borrowing, by estimating cross-sectional equity valuation regressions to assess whether the stock market treats securitized assets and liabilities held by a special purpose entity (SPE) as assets and liabilities of the sponsor-originator (S-O). Overall, w...

We use a residual income valuation framework to compare equity valuation implications of four approaches to employee stock options (ESOs) accounting: APB 25 “recognize nothing”, SFAS 123 (revised) “recognize ESO expense”, FASB Exposure Draft “recognize and expense ESO asset” and “recognize ESO asset and liability”. Theoretical analysis shows only g...

No abstract available.

I identify issues that bank regulators need to consider if fair value accounting is used for determining bank regulatory capital and when making regulatory decisions. In financial reporting, US and international accounting standard setters have issued several disclosure and measurement and recognition standards for financial instruments and all ind...

This study uses out-of-sample equity value estimates to determine whether earnings disaggregation, imposing linear information valuation model (LIM) structure and separate industry estimation of valuation model parameters aid in predicting contemporaneous equity values. We consider three levels of earnings disaggregation: aggregate earnings, cashfl...

This study uses Ohlson's (1995 and 2001) accounting-based equity valuation model to structure tests of four explanations for the anomalously positive pricing of dividends reported by Rees (1997) and Fama and French (1998). First, we find that dividends are not simply a proxy for publicly available information that helps predict future abnormal earn...

Abstract:  This study uses Ohlson's (1995 and 2001 ) accounting-based equity valuation model to structure tests of four explanations for the anomalously positive pricing of dividends reported by Rees (1997) and Fama and French (1998) . First, we find that dividends are not simply a proxy for publicly available information that helps predict future...

We examine the determinants and consequences of the split of options between executive and non-executive employees. We find that the proportion of options granted to executives is lower the stronger is firm governance. For the sample as a whole, the relation between options and both operating income and valuation is weaker for executive options tha...

This study examines how analysts respond to public information when setting their stock recommendations. Specifically, for a sample of stocks that experience large stock price movements, we model the determinants of analysts' recommendation changes. Using an ordered probit model based on all available IBES stock recommendations from 1993 to 1999, w...

We use the residual income valuation framework to compare the equity valuation implications of four approaches to employee stock options (ESOs) accounting proposed by regulators: APB 25 "recognize nothing", SFAS 123 preferred "recognize ESO expense", FASB Exposure Draft "recognize and expense ESO asset" and "recognize ESO asset and ESO liability"....

This study uses out-of-sample equity value estimates to determine whether earnings disaggregation, imposing valuation model linear information (LIM) structure, and separate industry estimation of valuation model parameters aid in predicting contemporaneous equity values. We consider three levels of earnings disaggregation: aggregate earnings, cash...

This paper provides evidence that will help stock market participants interpret sell-side analyst buy/sell recommendations. We examine whether recommendation levels (e.g. buy) correspond with traditional predictors of the underlying stock's performance, and whether recommendation revisions (e.g. an upgrade) are consistent with news analysts receive...

This study analyzes the relation between auditors' perceived business risk and audit fees to determine whether audit firms or their clients bear the expected legal costs of business risk. We predict that hourly audit fees and the number of audit hours are increasing in business risk. Using confidential survey data collected by a large international...