This paper examines the market efficiency consequences of accounting disclosure in the context of stock markets as a Keynesian beauty contest, an influential metaphor originally proposed by Keynes (1936) and recently formalized by Allen, Morris, and Shin (2006). In such markets, public information plays an additional commonality role, biasing stock prices away from the consensus fundamental value toward public information. Despite this bias, I demonstrate that provisions of public information always drive stock prices closer to the fundamental value. Hence, as a main source of public information, accounting disclosure enhances market efficiency, and transparency should not be compromised on grounds of the Keynesian-beauty-contest effect.

Keynesian Beauty Contest, Accounting Disclosure, and Market Efficiency

Change in value-relevance of disclosed RPT across accounting regimes: Evidence from Malaysia

Expropriation through Related Party Transaction (RPT) has been identified as one of the key factors that led to the collapse of several firms globally. Hence, its regulation becomes necessary. This study examines the extent and the determinants of compliance with the disclosure requirements on RPTs by Malaysian listed firms. It also investigates the value-relevance of Malaysian Financial Reporting Standard (MFRS) 124 adoption, real earnings management (REM) in RPTs and the moderating effect of compliance with MFRS 124 on the relationship between REM in RPTs and firm value. The study uses the data collected from the firms with significant RPTs from 2009 to 2015. Findings from the weighted disclosure index indicate a moderate level of compliance with MFRS 124. Furthermore, the regression results reveal that board independence, audit committee financial expertise, family ownership, managerial ownership and firm growth have significant positive relationships with the compliance of MFRS 124. 
Moreover, the study documents that RPTs disclosure is value-relevant. Findings of price model provide evidence that with the adoption of MFRS 124, capital market participants value the EPS of the RPT firms over its BVPS. The study documents that firms use RPTs to perpetrate REM. The results of the Roychowdhury models show that RPTs firms are characterized by low cash flow from operations, high production costs and low discretionary expenditures. It is also established that capital market discounts the stock price of firms that perpetrate REM in RPTs. Also, compliance with disclosure requirements on RPTs mitigates the negative relationship between REM in RPTs and firm value. The study reveals the need for the relevant authorities to increase the level of enforcement to achieve full compliance which will result to increase transparency of financial reporting and investor protection. The results of this study contribute to the agency, resource dependency and capital market theories.

Related party transaction disclosure: compliance, determinants, value-relevance and real earnings management

Why haven’t U.S. GAAP and IFRS on insurance contracts converged? Evidence from an unsuccessful joint project

Purpose




This paper aims to examine the capital market effects and predominance of unregulated embedded value (EV) financial reporting in the life insurance industry in foreign domestic markets, and US markets for foreign firms that cross-list in the USA.




Design/methodology/approach




Recent empirical archival data are analyzed and evaluated to determine the incremental and relative value relevance of an unregulated valuation metric that is disclosed by life insurers.




Findings




The findings support the proposition that EV is valuable supplemental information in foreign domestic markets, and in US markets for foreign life insurers that cross-list in the USA. Given that International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) are engaged in projects to improve accounting standard for insurance companies, and have faced criticism with the existing drafts on this issue, the two institutions ought to consider the valuation relevance of EV disclosures. Moreover, this analysis strongly suggests that financial analysts in the USA should consider EV in valuing life insurers’ stocks.




Practical implications




The findings discussed in this paper are of special interest to financial reporting policy makers, financial analysts, firm compensation committees and managers, and academics.




Originality/value




This paper contributes to the extant literature by providing recent evidence that suggests that EV, an unregulated fair value market-driven metric, is more value-relevant than traditional earnings metrics such as earnings and book value. It is the only study that we are cognizant of that critically examines the recent empirical literature on this evolving issue.

Evolution of financial reporting of life insurers

Issues in Cross-Country Value Relevance Studies: Reply to Wilkins☆

Insurance companies increasingly augment their financial reports by releasing actuarial measures—the so-called embedded value—to supply information about the value of their life insurance activities. Both accounting and actuarial measures differ with respect to the timeliness of profit realisation and its reliability, and their performance in yielding information may differ. This paper asks if and how embedded values help in assessing risk premiums. We estimate multifactor market models in the spirit of Fama and French, and find that actuarial disclosures are superior to financial accounting in estimating these risk premiums. They further add information to financial reports as an estimator for growth opportunities.

Measuring Risk Premiums Using Financial Reports and Actuarial Disclosures

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Issues in Cross-Country Value Relevance Studies: Reply to Wilkins☆

Measuring Risk Premiums Using Financial Reports and Actuarial Disclosures