Jennifer Francis's research while affiliated with Duke University and other places

Publications (52)

Article
Full-text available
This paper investigates how data requirements often encountered in archival accounting research can produce a data-restricted sample that is a non-random selection of observations from the reference sample to which the researcher wishes to generalize results. We illustrate the effects of non-random sampling on results of association tests in a sett...
Article
We develop a conceptually grounded approach, based on the International Accounting Standards Board’s conceptual framework, to the accounting for the rights and obligations embodied in a cap-and-trade program. Under this approach, firms recognize allowances as intangible assets, initially measured at fair value with a credit to cash for purchased al...
Chapter
The Enterprise value of the firm is the total value of the firm. Total value includes the expected future cash flows generated by the firm’s assets, discounted to the present using an appropriate discount rate. Enterprise value focuses on the cash flows of the assets without regard to how those assets are financed (i.e., by debt or by equity or by...
Article
IPO firms' information precision is not only generally low, but also likely to be initially estimated with considerable error due to a lack of an information history. I find that the deviation between expected and realized information precision is predictably associated with the magnitude and the persistence of long-run abnormal returns after an IP...
Article
We examine how the criteria for choosing estimation samples affect the ability to detect discretionary accruals, using several variants of the Jones (1991) model. Researchers commonly estimate accruals models in cross-section, and define the estimation sample as all firms in the same industry. We examine whether firm size performs at least as well...
Article
Full-text available
We examine the association between CEO reputation (proxied by the extent of press coverage) and the quality of the firm's earnings (proxied by two accruals-based measures). We test three explanations for an association between these constructs: the efficient contracting hypothesis suggests that reputed CEOs are associated with good earnings quality...
Article
We analyze the ability of earnings and non-earnings performance metrics to explain the variability in annual stock returns for industries where we identify, ex ante, an allegedly preferred (for valuation purposes) summary performance metric. We identify three industries where earnings before interest, taxes, depreciation, and amortization (EBITDA)...
Article
We examine the market reactions to firms' voluntary announcements of emissions reductions plans, unconditional and conditional on whether the firm has joined one or more of four voluntary commitment mechanisms whose goal is the reduction of greenhouse gas emissions in the United States. Our aim is to shed light on whether, and to what extent, these...
Article
Although sell-side analysts privately forecast revenues and expenses when producing earnings forecasts, not all analysts choose to provide I/B/E/S with earnings forecasts disaggregated into revenues and expenses. We investigate the role of reputation in explaining this decision. We find that analysts without established reputations are more likely...
Article
ABSTRACT We investigate the relations among voluntary disclosure, earnings quality, and cost of capital. We find that firms with good earnings quality have more expansive voluntary disclosures (as proxied by a self-constructed index of coded items found in 677 firms' annual reports and 10-K filings in fiscal 2001) than firms with poor earnings qual...
Article
We examine whether rational investor responses to information uncertainty (IU) explain properties of and returns to the post-earnings-announcement-drift (PEAD) trading anomaly. Consistent with a rational learning explanation, we find that: (1) unexpected earnings (UE) signals that are characterized as having greater IU have more muted initial marke...
Article
We examine the properties of a returns-based representation of earnings quality, estimated from firm-specific asset-pricing regressions augmented by an earnings quality mimicking factor. The coefficient on the earnings quality factor (the "e-loading") captures the sensitivity of the firm's returns to earnings quality in a given year or quarter, ana...
Article
This review lays out a research perspective on earnings quality. We provide an overview of alternative definitions and measures of earnings quality and a discussion of research design choices encountered in earnings quality research. Throughout, we focus on a capital markets setting, as opposed, for example, to a contracting or stewardship setting....
Article
We examine the properties of a returns-based representation of earnings quality, estimated from firm-specific asset pricing regressions augmented by an earnings quality mimicking factor. The coefficient on the earnings quality factor (the "e-loading") captures the sensitivity of the firm's returns to earnings quality in a given year or quarter, ana...
Article
We extend Dechow and Dichev's [2002] model of current accruals quality (CAQ) to consider total accruals quality (TAQ). While the two measures are conceptually similar (both reflect the standard deviation of the residuals from the mapping of accruals into lead and lag cash flows), they differ in terms of the definitions of accruals and cash flows as...
Article
We examine whether unexpected levels of short interest are associated with subsequent downward revisions in fundamentals and/or subsequent upward revisions in risk. We use prediction errors from monthly models of short interest over 1992-2000 to proxy for unexpectedly high (and low) short interest positions, and we compare changes in fundamentals (...
Article
We reexamine prior studies' conclusion that accruals are less persistent than cash, focusing on two aspects of persistence that are crucial to determining its properties. The first (time specificity) refers to the fact that persistence describes how "current-period" shocks to income translate into next-period income. Traditional measures of accrual...
Article
We contrast the informativeness of earnings and dividends for firms with dual class and single class ownership structures. Results of both across-sample tests (which explicitly control for factors influencing ownership structure and informativeness) and within-sample tests (which implicitly control for factors associated with ownership structure) s...
Article
We analyze the link between financial reporting choices that affect accruals quality and firms' use of call options. Call options used in compensation arrangements (employee stock options or ESOs) create countervailing incentives for managers to affect accruals quality: while poorer accruals quality is associated with greater returns volatility (wh...
Article
We investigate whether investors price accruals quality, our proxy for the information risk associated with earnings. Measuring accruals quality (AQ) as the standard deviation of residuals from regressions relating current accruals to cash flows, we find that poorer AQ is associated with larger costs of debt and equity. This result is consistent ac...
Article
We examine the relation between the cost of equity capital and seven attributes of earnings: accrual quality, persistence, predictability, smoothness, value relevance, timeliness, and conservatism. We characterize the first four attributes as accounting-based because they are typically measured using accounting information only. We characterize the...
Article
We re-examine the effects of regulation fair disclosure (Reg FD) using ADRs (who are exempt from Reg FD) to control for confounding events which affected all traded firms. Tests based on public information metrics (returns volatility, informational efficiency and trading volume) and on analyst information metrics (forecast dispersion and accuracy)...
Article
We examine the relation between the cost of equity capital and seven attributes of earnings: quality, persistence, predictability, smoothness, value relevance, timeliness and conservatism. We refer to the first four attributes as accounting-based because measures of these constructs are typically based on accounting information only. We refer to th...
Article
We examine whether pricing effects associated with three earnings patterns (increasing annual earnings, quarterly earnings that consistently meet or exceed analyst forecasts, and smooth earnings) are related to each other and, separately, to the quality of the underlying earnings. We identify distinctly-priced incremental elements of increasing ear...
Article
We examine whether rational investor responses to information uncertainty explain properties of and returns to accounting-based trading anomalies. We proxy for information uncertainty with two measures of earnings quality: the standard deviation of the residuals from a Dechow and Dichev [2002] model relating accruals to cash flows, and the absolute...
Article
Bayesian learning implies decreasing weights on prior beliefs and increasing weights on the accuracy of the analyst's past forecast record, as the number of forecast errors comprising her forecast record (its length) increases. Consistent with this model of investor learning, empirical tests show that investors’ reactions to forecast news are incre...
Article
We provide large sample evidence on whether the equity and debt markets impound information about the quality of earnings. We examine eight proxies for earnings quality (four based on the modified Jones approach to estimating abnormal accruals; three based on the Dechow and Dichev [2002] approach which relates working capital accruals to cash flows...
Article
We investigate whether competing information, primarily analyst reports, reduces the usefulness of earnings announcements. Inconsistent with the view that information in analyst reports substitutes for earnings announcements, we find a positive relation between absolute abnormal returns to the two types of disclosures. This positive relation also c...
Article
We investigate three explanations for prior studies' finding that the usefulness of earnings announcements, as measured by their absolute market responses, has increased over time. We confirm this increase for a sample of 426 relatively large, stable firms over 1980-1999. We find no evidence that this over-time increase in the magnitude of the mark...
Article
This paper compares the reliability ofvalue estimates from the discounted dividend model, the discounted free cash flow model and the discounted abnormal earnings model. Using a large sample of Val ...
Article
This discussion considers four aspects of the survey paper on empirical accounting choice research by Fields, Lys and Vincent: implications of the authors’ selection of an expansive definition of accounting choice and their decision to classify this research by managerial motives; implications of the authors’ decision to include implementation deci...
Article
Baber, Kim and Kumar unite and extend research on analysts' earnings forecasts (and their revisions) with research on the existence and magnitude of intra-industry information transfers. Specifically, they test whether analysts' forecast revisions appear to be affected by information transfers, where the information being transferred is contained i...
Article
This paper examines the benefits from communications made at corporate presentations to securities analysts. We examine whether firms benefit by increasing analyst following or by correcting mispricing, and whether analysts gain by acquiring information that improves the frequency or quality of their forecasts. The results show significant increase...
Article
This paper examines the benefits from communications made at corporate presentations to securities analysts. We examine whether firms benefit by increasing analyst following or by correcting mispricing, and whether analysts gain by acquiring information that improves the frequency or quality of their forecasts. The results show significant increase...
Article
We analyze the ability of earnings and non-earnings performance metrics to explain stock returns for industries where we identify, ex ante, an allegedly preferred (for valuation purposes) performance metric. We identify three industries each where earnings before interest, taxes, depreciation and amortization (EBITDA) and cash from operations are p...
Article
Taking as given the discretionary accruals models that exist in the literature, we examine how the selection of peer firms affects the researcher's ability to detect earnings management. Researchers commonly estimate accruals models in cross section, and define the peer set (the firms used to estimate the cross section) as all firms in the same ind...
Article
We examine how the amount and configuration of firm-specific news events affects inferences about the informativeness of eight types of firm-specific announcements. After establishing that confounding news events are neither infrequent nor random around these announcements, we investigate how the presence of confounding news events affects measures...
Article
Full-text available
This paper demonstrates that conservative aggregation in accounting often improves the overall quality of information produced, and therefore enhances the welfare of ac-counting information users. We study the optimal accounting policy when a …rm can control the quality of accounting information through costly and noncontractible action. In our mod...
Article
We examine whether rational investor responses to information uncertainty (IU) explain properties of and returns to several financial anomalies (post-earnings announcement drift, value-glamour, and accruals anomalies). Consistent with a rational learning explanation, we find that: (1) higher IU signals have more muted initial market reactions; (2)...
Article
The application of the fraud on the market presumption to security analysts' forecasts requires that those forecasts materially influence share prices in an efficient market. We provide evidence on the pervasiveness of reliably (i.e., statistically significant at conventional levels) unusual (larger than movements that occur on non-event days) pric...

Citations

... The justification for doing so, which was in line with negative advice coming from the European Financial Reporting Advisory Group (EFRAG), was that the prescribed accounting treatment created mismatches in financial statements. EFRAG and extensive previous literature (Bebbington & Larrinaga-González, 2008;Black, 2013;Ertimur, Francis, Gonzales & Schipper, 2017;Giner-Inchausti, 2014;Lovell et al., 2013;MacKenzie, 2009;Steenkamp, Rahman, & Kashyap, 2011;Veith, Zimmermann, & Werner, 2009;Warwick & Ng, 2012) had pointed out that the mismatches introduced by IFRIC 3 were mainly due to a discordant measurement of the assets (the EAs) and the liabilities (GHG emissions), because the EAs were measured at cost, or a revaluation amount, while the liability was at fair value, which would result in an artificial volatility in the reported earnings and would not reflect the economic reality of the companies. ...
... In the final step, for every treatment firm, we identify, with replacement, a control firm that has the closest propensity score. A common practice in the literature (e.g., Irani and Oesch 2013;Ecker et al. 2021), matching with replacement "recycles" a best-fit control observation among multiple treatment observations, so it generally yields better covariate balance than matching without replacement, to which our results are also robust. 12 The matched sample includes 3778 loan observations, with 1952 treatment loans (389 firm-mergers from 268 firms) and 1826 control loans (243 firm-years from 151 firms). ...
... For example, these firms improve their financial reporting transparency and adopt more conservative accounting standards to be consistent with their shareholders' interests (Koh, 2011). Other scholars, on the contrary, find that firms controlled by celebrities tend to engage in more opportunistic behaviors such as earnings management (Fombrun, 1996;Francis et al., 2008;Malmendier & Tate, 2009) or tax evasion activities (Duan et al., 2018). Some prominent firms even engage in illegal activities to meet stakeholders' expectations (Mishina et al., 2010). ...
... A short window around the revision date (such as [−1,+1]) therefore captures both the news and the analyst's revision, and any significant reaction might be caused by the news and not the revision. The primary corporate news events that have been noted which can cause this problem are earnings announcement dates (Malmendier and Shanthikumar 2007) and management guidance dates (Chen et al. 2005). Bradley et al. (2008) argue that dates with revisions from multiple analysts on the same stock are also more likely associated with a significant news event. ...
... Applying this theory to managerial guidance, the foreign firms with ADRs in U.S. markets may be willing to adapt to the guidelines applicable to other U.S. firms, and therefore may satisfy the Regulation FD guidelines even though they are not required to abide by the regulation. Moreover, Francis, Nanda, and Wang (2006) suggest that if Regulation FD caused U.S. firms to be more transparent, U.S. investors would be enticed to dedicate more time to analyzing U.S. firms instead of ADRs. Foreign firms with ADRs may be motivated to follow Regulation FD guidelines in order to ensure that their transparency is not jeopardized, and therefore they are still considered by U.S. investors. ...
... Further, we address the concern that the ICE estimated using analyst's forecasted EPS is biased. This follows the growing literature that debates whether analysts are biased in providing EPS (Hou et al. 2012;Abarbanell and Bushee 1997;Francis et al. 2000). To negate this concern, we compute ICE using cross-sectional models instead of analysts-supplied EPS. ...
... To illustrate, the bulk of evidence on the association between CoE and information quality is based on tests that use the Dechow and Dichev (2002) accruals model to capture earnings quality (e.g. Francis et al., 2004Francis et al., , 2005Ecker et al., 2006). However, Wysocki (2009, 1-2) finds that 'accounting quality measures derived from the DD model (and its extensions) show weak and often contradictory associations with other measures of accounting quality for U.S. and international firms' and concludes that 'overall, the DD model does not appear to reliably capture "high quality accruals" and, in some settings, will even reverse rank firms "earnings quality"'. ...
... Dechow, Weili, & Shrand (2011) argue that standards setters, legislators, and auditors regard earnings as high quality when they are disclosed according to Generally Accepted Accounting Principles (GAAP); however, creditors regard earnings as high quality when they can be converted into cash flows. Francis et al. (2006) have reported that executive managers' reputations are not only linked to profits, but also to the EQ level: 1) high EQ is important for rationalizing decision-making processes; 2) EQ is used to evaluate managers' abilities and competence and reflects creditor concerns regarding the real financial capacity of firms to meet debt covenants on time; and 3) EQ-as proved by Dechev et al. (2012)-is an appealing performance indicator for many other stakeholders such as clients, suppliers, employees, standard setters, governments, and competitors. ...
... Sejak akhir 1950-an, penelitian tentang modifikasi relevansi nilai dari ukuran-ukuran ini mengidentifikasi pengurangan relevansi nilai laba, yang telah digantikan oleh relevansi nilai yang tinggi dari nilai buku. Secara umum, pengurangan relevansi nilai terintegrasi dari kedua ukuran ini belum terungkap (Collins et al., 1997;Francis & Schipper, 1999). ...
... Under the cap-andtrade system, firms' carbon emissions must meet their rights, and they could also sell or buy carbon rights to meet their emissions. Because purchase and selling of carbon emission rights can affect the production cost, accounting standard setters argue that firms should disclose and report their carbon liabilities [12]. Besides, capital investment in manufacture or production industry is affected by carbon emission costs [13]. ...