Nordic Accounting Research Network

NHH, Bergen
Instructor: Ole-Kristian Hope (CFA, CPA, CMA), Deloitte Professor of Accounting
E-mail: okhope@rotman.utoronto.ca

August 11-15, 2009

First, please note that this course will be taught entirely in English. Second, please note
the session times (when I say 9, I mean 9 and not 9:15, etc.). Third, please note that I do
not appreciate laziness – hence do come prepared.

Course objectives

The objective of this course is to provide you with a brief introduction to the empirical
financial accounting literature. (As such, note that at NHH, this is not considered a stand-
alone course but rather is taken in conjunction with other accounting seminars.) We will
focus on topics in disclosure “and international accounting.” Instead of studying
“classics,” we will instead primarily read and discuss current papers. In addition to
discussing papers, an important part of the course is informal discussion related to how to
conduct research and publish papers, as well as related career issues. We will not have
much time (if any) to discuss methodological issues; thus it is imperative that you acquire

methodological skills through other courses.
We will concentrate on papers that attempt to shed light on the factors underlying firms’
disclosure choices as well as studies that attempt to demonstrate the economic effects
associated with differences in firms’ disclosure behavior. For obvious reasons, there is
currently great interest in the effects of IFRS adoptions throughout the world, and thus
we will cover some such studies.

I do not apologize for including some of my own papers. I am not claiming that these are
in any sense better than alternative papers; however, it makes sense for me for an
instructor to focus on his strengths. More generally, we will not try to memorize the
individual papers, but rather try to learn from them about topics, research design,
methodology, the research process, etc. In fact, we should anticipate to learn more from
each other than from the papers themselves.

Course style

This course will be conducted primarily as a seminar/workshop with only intermittent
“lectures” given by the instructor. Although course participants are responsible for
reading the assigned papers for each class, the responsibility for leading the discussion
will rotate among us. The discussion leader is not only to summarize the papers, but also
to help facilitate an in-depth understanding of the methodological innovations and
problems in the paper.

Discussion Leader

Papers have been assigned to a student who will prepare a written summary (approx.
two pages) that will be given to all participants at the beginning of that session, and
which may serve as a reference during the discussion. This student will begin class
discussion by summarizing the paper and placing it in context. I may interject and ask
questions to the discussion leader or other participants at any time (i.e., expect “cold
calling”). An outline for the written summary might include the following (compare also
note on how to critique empirical papers):
• research question and its importance
• research method (model, sample, statistical analysis)
• results
• critique
• contribution (relative to closely related papers – and related to overall importance of
topic)

For some of the (more involved) papers we also have a back-up. He/she will not present
the paper, but will be available to answer detailed questions regarding the content of the
paper. (As a practical matter, I also use the back-ups as a way to “equalize” the work load
among participants.)

Other students

Every participant is expected to read all assigned papers carefully and to participate in
our discussions. Each student ought to prepare questions and comments on each assigned
paper.

Papers marked as Supplementary

Read if you’re interested in this line of research. Otherwise skim quickly or skip. We will
generally not go through these papers. However, I may refer to some of them. (If you’re a
serious PhD student, you should read these and many, many more…)

Course grade

Your grade will be based on the following:
1. Class participation, including presentations (67%). Course credit will not be
granted unless you participate fully.
2. Research proposal (33%). This will be a maximum five page document (with
reasonable font size, line spacing and margins) that contains a description of an
original research idea pertaining to the (preferably empirical financial) accounting
literature. In particular, you should describe the research question, its potential
contribution to the extant literature, the proposed research design, etc.

Venue: Our sessions will be held in Karl Borch auditorium (close to the cafeteria).

Monday 1-4: Introduction and background (general; introducing each other;
research tools; research process; dissertation and publishing) plus one disclosure
paper

Lang and Lundholm. 1996. Corporate disclosure policy and analyst behavior.
Accounting Review Vol. 71 No. 4: 467-492. Simple and well-cited paper. [PETER]

Supplementary reading:

Ball. 2008. “What is the actual economic role of financial reporting?” Accounting
Horizons.
Verrecchia. 2001. Essays on disclosure. Journal of Accounting and Economics Vol. 32:
97-180 (especially 141-175).
Healy and Palepu, 2001, Information Asymmetry, corporate disclosure, and the capital
markets: A review of the empirical disclosure literature. Journal of Accounting and
Economics 31: 405-441. Worth a quick skim.

Tuesday 10-12: Disclosure variations and cost of capital effects

Botosan. 1997. Disclosure Level and the Cost of Capital. Accounting Review Vol. 72
No. 3: 323-349. A simple but very well cited paper (first in this line of research).
[TAYLAN]
Francis, Nanda, and Olsson. 2008. “Voluntary Disclosure, Earnings Quality, and Cost of
Capital.” Journal of Accounting Research. [Since this is a long paper, the write-up and
discussion should focus on main issues and tests and briefly describe sensitivity
analyses.] [CONNY] [BACK-UP: TONNY]

Supplementary reading:

Leuz, Triantis, and Wang. 2008. “Why Do Firms Go Dark? Causes and Economic
Consequences of Voluntary SEC Deregistrations.” Forthcoming, Journal of Accounting
and Economics.

Tuesday 1:30 – 4: Focus on important form of disclosure: Segment disclosures
(agency cost perspective)

Berger and Hann. 2007. “Segment Profitability and the Proprietary and Agency Costs of
Disclosure.” Accounting Review. [Since this is a long (but very nice) paper, the write-up
and discussion should focus on main issues and tests and briefly describe sensitivity
analyses.] [MASARRA] [BACK-UP BY JARI]
Hope and Thomas. 2008. “Managerial Empire Building and Firm Disclosure.” Journal of
Accounting Research. [Note the research design employed in this paper.] [OLE-
KRISTIAN] [BACK-UP BY CRISTIANA]

Supplementary reading:

Line-of-business segment disclosures (valuation perspective):
Ettredge, Kwon, Smith and Zarowin. 2005. “The Impact of SFAS No. 131 Business
Segment Data on the Market’s Ability to Anticipate Future Earnings.” Accounting Review
July.

Bens, D., P. Berger, and S. Monahan. 2008. “Discretionary aggregation in external
reporting: An examination using U.S. manufacturing plants.” Working paper, University
of Arizona, University of Chicago, and INSEAD. A nice paper.
Hope, Thomas, and Winterbotham. 2008. “Geographic Earnings Disclosure and Trading
Volume.” Forthcoming, Journal of Accounting and Public Policy. This paper tests
economic theory (Kim and Verrecchia 1997), which I personally think is nice. [You
might also want to check out my paper forthcoming in JIBS, available via SSRN.]

Wednesday 9 – 11:30: Disclosure and GAAP variations and economic consequences

Hail, L. and C. Leuz. 2006. “International differences in the cost of equity capital: Do
legal institutions and securities regulation matter?” Journal of Accounting Research
[JARI] [BACK-UP BY PETER]
Francis, Khurana, and Pereira. 2005. Disclosure Incentives and Effects on Cost of Capital
Around the World.” Accounting Review Vol. 80 No. 4: 1125-1162. [AHMED]

Supplementary reading:

Hope, Kang, Thomas, and Yoo 2008. “Impact of excess auditor remuneration on cost of
equity capital around the world.” Forthcoming, Journal of Accounting Auditing and
Finance.
Leuz, C. 2003. “IAS versus US GAAP: Information Asymmetry-Based Evidence from
Germany’s New Market.” Journal of Accounting Research.

Wednesday 2-4: International variations

Burgstahler, D., L. Hail, and C. Leuz. 2006. “The importance of reporting incentives:
Earnings management in European private and public firms.” The Accounting Review.
[LIINA] [BACK-UP BY CONNY]
Covrig, DeFond, and Hung. 2007. Home bias, foreign mutual fund holdings, and the
voluntary adoption of International Accounting Standards. Journal of Accounting
Research. [A straightforward paper.] [TAYLAN]

Supplementary reading:

Bradshaw, M.T., B.J. Bushee and Miller, G.S. 2004. “Accounting choice, home bias and
U.S. investment in non-U.S. firms.” Journal of Accounting Research. [At least as good as
Covrig et al., but I chose the most recent of the two.]
Hope. “Disclosure practices, enforcement of accounting standards and analysts’ forecast
accuracy: An international study.” 2003. Journal of Accounting Research.

Thursday: 9:15 – 12: “Potpourri session” (working papers on international finance;
disclosure and monitoring; analysts and valuation). Brief presentations/seminars by
instructor with breaks between each paper

1. Hope, Thomas, and Vyas. “The Cost of Pride – Why Do Firms from Developing
Countries Bid Higher?”
2. De Franco, Hope, and Larocque. “The Effects of Disclosure on the Pay-
Performance Relation.”
3. Barniv, Hope, Myring, and Thomas. “Do Analysts Practice What They Preach?
The Effects of Regulations on How Analysts Use Earnings Forecasts in Setting
Stock Recommendations.”
[Possibly combined with companion paper titled “International evidence on
analyst stock recommendations, valuations, and returns.”]

Thursday 2-4: International variations, continued

Bae, Tan, and Welker. 2008. “International GAAP Differences: The Impact on Foreign
Analysts.” Accounting Review Vol. 83 No. 3. [CRISTIANA] [BACK-UP BY
MASSARRA]

Bradshaw, M.T. and Miller, G.S. 2008. “Will harmonizing accounting standards really
harmonize accounting? Evidence from non-U.S. firms adopting US GAAP.” Journal of
Accounting, Auditing and Finance Vol. 23 No 2. [LIINA]

Supplementary reading:

Leuz, Nanda, Wysocki. 2003. “Earnings management and investor protection: An
international comparison.” Journal of Financial Economics 69. Widely cited.
Lang, Ready, and Wilson. Earnings management and cross listing: Are reconciled
earnings comparable to US earnings? 2006. Journal of Accounting & Economics
We should have time to think about and discuss whether there still are interesting
financial reporting differences left to examine… Let’s try to brainstorm. For example,

what’s special about the Nordic countries (or Europe) with respect to accounting and institutional factors?

Friday 9 – 11:30: IFRS

Barth, Landsman and Lang. 2008. “International Accounting Standards and Accounting
Quality.” Journal of Accounting Research Vol. 46 No. 3. [TONNY]
Daske, Hail, Leuz, and Verdi. “Mandatory IFRS Reporting Around the World: Early
Evidence on the Economic Consequences.” Forthcoming, Journal of Accounting
Research. [AHMED (who will also talk briefly about his own work)]

Supplementary reading:

Ball. 2006. “IFRS – pros and cons for investors.” Accounting and Business Research. A
beautiful article!
Daske, Hail, Leuz, and Verdi. 2007. “Adopting a Label: Heterogeneity in the Economic
Consequences of IFRS Adoptions.” Working paper, Mannheim, Wharton, Chicago, and
MIT. [A very nice paper on voluntary adoptions I’d like to cover if more time!]

There are obviously a very large number of papers on IFRS adoption. Here’s a different type of paper that uses event-study methodology: Armstrong, Barth, Jagolinzer, and Riedl. 2008. “Market Reaction to the Adoption of IFRS in Europe.” Working paper, Wharton, Stanford, and Harvard. Hans Christensen (2006 student in this course) also has interesting papers.

Friday 1 – 3: Voluntary brief individual meetings to discuss your research and PhD
studies