Economic consequences of financial reporting changes: diluted EPS and contingent convertible securities

Economic consequences of financial reporting changes: diluted EPS and contingent convertible... This paper examines the economic consequences of changes in the financial reporting requirements for contingent convertible securities (COCOs). Using a sample of 199 COCO issuers from 2000 to 2004, we find that issuers are more likely to restructure or redeem existing COCOs to obtain more favorable accounting treatment when the financial reporting impact on diluted earnings per share (EPS) is greater and when EPS is used as a performance metric in CEO bonus contracts. These results provide new evidence that managers are willing to incur costs to retain perceived financial reporting and compensation benefits. We also present evidence of significantly negative stock returns around event dates associated with the financial reporting changes, consistent with investor anticipation of the agency costs associated with the rule change. Review of Accounting Studies Springer Journals

Economic consequences of financial reporting changes: diluted EPS and contingent convertible securities

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Springer US
Copyright © 2007 by Springer Science+Business Media, LLC
Business and Management; Accounting/Auditing; Corporate Finance; Public Finance
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