Len Skerratt’s research while affiliated with University of Manchester and other places

We examines post-earnings announcement drift in the Greece, modelling it as a "selected event" in the spirit of Daniel, Hirshleifer, Subrahmanyam (1998).

A large literature now reports the evidence for the profitability of contrarian trading strategies. We investigate the stability of such contrarian trading strategies and their ability to generate large, potentially ruinous, losses for their users. Specifically, we ask are the annual profits earned by contrarian strategies sufficiently stable and loss-free to keep their adherents in the game and capable of reaping returns to such long-run trading strategies? We present tests with more statistical power than hitherto, reflecting practical aspects of the operation of contrarian strategies. Specifically, the strategies are implemented only for years in which the mean return of stocks in the buy portfolio exceeds that of the sell portfolio; in addition, for each strategy, we calculate the Calmar ratio as a measure of downside risk.

This paper revisits the presence of post-earnings-earnings-announcement drift in Greece. It confirms its presence in the Greek market and links it to the size of the firm and the liquidity of the stock, as captured by its bid-ask spread.

Purpose Since the UK Companies Act 1981, different reporting standards have developed for different classes of company to reduce the reporting burden on non-listed companies. There are now different regimes for listed, large private, medium-sized, small and micro companies. This strategy raises the issue of whether earnings quality across the different classes of company is comparable. The paper aims to discuss this issue. Design/methodology/approach The paper uses the smoothness of earnings to measure reporting quality across the different types of companies from 2006 to 2013, based on 514,000 observations. Smoothness is an indicator of poor quality. Findings The authors find that listed companies have the highest earnings quality, closely followed by small and micro companies. In contrast, large private and medium-sized companies have much lower earnings quality. Overall, the authors find companies which switch between reporting regimes have lower earnings quality. The authors also find that earnings quality is not affected by the small company exemption from audit. Research limitations/implications Companies filing abbreviated accounts are excluded since they do not file an income statement. The recent revisions to UK GAAP (FRS 102 and FRS 105) are not examined due to insufficient data. Practical implications The Financial Reporting Council’s (FRC) strategy of reducing the financial reporting and auditing obligations for small companies seems not to have significantly affected earnings quality. However, the FRC may need to review the reporting requirements of large private and medium-sized companies and also the option of companies to switch between reporting regimes; in these settings earnings quality appears to be weaker. Originality/value The paper studies the effect of earnings quality across the different reporting regimes in the UK. Novel and important features of the study are that the sample covers a wide variety of small and micro companies which have not been analyzed previously; the results are disaggregated by year, for assurance that the results are not driven by a single rogue year; and the authors also address the small company exemption from audit, and the flexibility of non-listed companies to switch between regimes.

Drawing on secondary data, we examine the transposition of the Accounting Directive 2013 into UK GAAP with a specific focus on references to IFRS. The process involved consultation and regulatory impact assessment on the options in the Accounting Directive and proposed changes to accounting standards for non-publicly accountable entities. This led to an IFRS-based approach from 2016 with three tiers: EU-adopted IFRS for group listed companies and other publicly accountable entities, an adaptation of IFRS for SMEs for non-publicly accountable entities, and a simplified version for micro-entities incorporating the requirements of the Accounting Directive. This outcome is not surprising since the UK was one of the founding members of the original IASC and a strong proponent of little GAAP. Indeed, the UK’s former Financial Reporting Standard for Smaller Entities provided a model for the IFRS for SMEs. In the past, there were few references to IFRS by the UK’s enforcement and interpretation bodies. Today, guidance is taken from the IFR Interpretations Committee. We contribute to the literature by describing the main processes involved in implementing the Accounting Directive and the move to an IFRS-based approach in UK GAAP. Our analysis should be of interest to researchers and policy makers alike.

Prior to 2007, in order to encourage international investment, China operated two parallel financial reporting systems, one based on Chinese GAAP for domestic investors and the other based on IFRS for international investors. In 2007, after a series of reforms to harmonise Chinese GAAP with IFRS, this system was replaced by a single set of standards for both classes of investor. We evaluate the impact of this significant change on earnings quality for stocks quoted on the Shanghai and Shenzhen stock exchanges for the period 2003–2013. Using tests of earnings smoothing and early loss recognition, we identify three key features. Firstly, earnings quality improved consistently over the period. Secondly, prior to the reforms of 2007, IFRS earnings were of superior quality to Chinese GAAP earnings. A third and important finding is that earnings quality under Chinese GAAP after the 2007 reforms is comparable to that under pre-2007 IFRS.

Since the UK Companies Act 1981, there has developed a multi-tier framework for financial reporting. IFRS is designed for listed companies, there is a GAAP for large private and medium sized companies, and the FRSSE is designed for small companies, which also are exempt from mandatory audit. The recent EU Accounting Directive reinforces this strategy and recognises a new class of company, the micro company. However, it is not clear how the quality of reporting is affected by this multi-regime approach, and by the ability to switch between regimes. The purpose of this paper is to assess the smoothness of earnings between the different types of company from 2006-2013, based on 594,000 observations. We find that the earnings of listed companies are the most informative (least smooth), closely followed by small and micro companies. In contrast, the earnings of large private and medium sized companies are much smoother, suggesting that they are under regulated. The results are inconsistent with the equalisation of earnings quality across all groups, and with the discipline of regulation reflecting the size, complexity of companies and their agency issues. Small companies do not exploit the audit exemption to smooth earnings.