George Allayannis’s research while affiliated with University of Virginia and other places

This paper examines the conditional association between earnings smoothing via discretionary accruals and firms’ credit quality and value. We argue that the information environment is important in how the market assesses earnings smoothing. We construct a smoothing index that measures the impact on reported earnings per share volatility from the use of accounting discretion. We find confirming evidence of a stronger association between discretionary earnings smoothing and firms’ cost of debt and Tobin's Q when the information environment for the firm is weaker. We also document that during the pre-Reg FD period smoothing firms with a low information environment appear more systematic, suggesting that managers of more opaque firms are more able to capture hidden cash flows when using accounting discretion to smooth earnings.

This paper examines the impact of currency derivatives on firm value using a broad sample of firms from thirty-nine countries with significant exchange-rate exposure. Derivatives can be used for managers’ self-interest, for hedging or for speculative purposes. We hypothesize that investors can appeal to a firm’s internal (firm-level) and external (country-level) corporate governance to draw inferences on a firm’s motive behind the use of derivatives, since well-governed firms are more likely to use derivatives to hedge rather than to speculate or pursue managers’ self-interest. Consistent with this explanation, we find strong evidence that the use of currency derivatives for firms that have strong internal firm-level or external country-level governance is associated with a significant value premium.

While firms commonly benchmark corporate financial policies against industry peers, empirically, some firms consistently deviate to pursue “rogue” policies with either a conservative or an aggressive bias. Using a panel of large U.S. firms between 1975 and 2008, we study the incidence, joint frequency distribution, and valuation effect of conservative and aggressive financial policies across four policy dimensions: leverage, payout, liquidity, and risk management. Consistent with a hedging effect, we find that conservative (aggressive) financial policies are generally associated with higher (lower) valuations. In addition, consistent with hedging theories, we find that firms with high growth opportunities which also face financial constraints benefit more from conservative financial policies. We also observe a time-variation in the valuation effects. For example, we find that conservative liquidity policies are associated with lower valuation benefits during periods of high economic growth while most aggressive policies are associated with even lower valuations as the average level of the policy increases. Finally, our tests of joint rogue policies provide evidence consistent with agency explanations. For example, firms which pursue both conservative leverage and conservative liquidity policies are valued at a discount, even though those that pursue a conservative leverage or a conservative liquidity policy on its own are valued at a premium.

While corporate financial policies are commonly benchmarked against industry norms, empirically, some firms consistently deviate to pursue “rogue” policies with either a conservative or aggressive bias. Using a panel of large U.S. firms over the 1975 to 2008 period, we study the incidence, joint frequency distribution, and valuation effect of rogue financial policies across four policy dimensions: leverage, payout, liquidity, and risk management. We find that conservative (aggressive) financial policies tend to be generally associated with higher (lower) valuations. We also observe a time-variation in the valuation effects. For example, most aggressive policies are associated with even lower valuations, as the average level of the policy in the industry increases, and conservative liquidity strategies are associated with lower valuation benefits in the presence of high economic growth. Finally, our tests of joint rogue policies provide evidence consistent with agency explanations. For example, firms which pursue both conservative leverage and conservative liquidity policies are valued at a discount, even though those that pursue a conservative leverage or a conservative liquidity policy on its own are valued at a premium.

This paper examines whether earnings smoothing based on accounting discretion is positively associated with value when less information is otherwise available. We estimate a smoothing index which measures the decrease in earnings per share volatility related to the use of discretionary accruals, and proxy for a firm’s information environment using the number of analysts following the firm. In unconditional tests, we find a modest though statistically significant premium for firms that smooth earnings. However, consistent with our hypothesis, we find that this premium is concentrated among firms with low or no analyst following. On average, we find no relation between firm value and earnings smoothing for firms with a high analyst following. These findings are consistent with findings that earnings smoothing increases the informativeness of earnings.

This paper examines whether earnings smoothing based on accounting discretion is positively associated with value when less information is otherwise available. We estimate a smoothing index which measures the decrease in earnings per share volatility related to the use of discretionary accruals, and proxy for a firm’s information environment using the number of analysts following the firm. In unconditional tests, we find a modest though statistically significant premium for firms that smooth earnings. However, consistent with our hypothesis, we find that this premium is concentrated among firms with low or no analyst following. On average, we find no relation between firm value and earnings smoothing for firms with a high analyst following. These findings are consistent with findings that earnings smoothing increases the informativeness of earnings.

This technical note accompanies the case titled "Suntrust Acquisition of National Commerce" (UVA-F-1554) and describes the various capital ratios that are commonly used in the banking sector as well as gives an example of those ratios using a hypothetical bank. It also discusses briefly Basel I and Basel II which shaped capital regulations and ratios in the Banking sector.

This case is ideal for analyzing the currency, liquidity, operating, interest-rate and other types of risk that a bank faces, especially a bank in emerging markets as it was hit during the Asian crisis of 1997. The students can also learn and apply the KMV model to estimate bankruptcy risk.

This technical note describes some of the key issues that bank analysts, ratings agencies, and the market broadly examine to understand the financial health of a bank and ultimately to estimate its value. Specifically, the note discusses alternative credit quality, capital, liquidity, and profitability metrics and provides related terminology.

This technical note discusses issues related to carbon markets: Emissions Trading Approaches (Cap-and-Trade, Baseline-and-Credit, and Offsets), Regulatory Framework (Kyoto Protocol) and two key mechanisms of credits creation, Clean Development Mechanism and Joint Implementation, creation and trading of carbon credits (CERs) (markets such as OTC and organized exchanges like the Chicago Climate Exchange), examples of investors in the carbon market (carbon funds) and carbon indices established, and recent developments in the carbon markets in the United States such as the Regional Greenhouse Gas Initiative and the Western Climate Initiative, and investment considerations and factors affecting pricing in the carbon markets.