In an article recently published by Contemporary Accounting Research, Brattle Senior Associate Dr. Adrienna Huffman and her coauthors present a new measure to better distinguish earnings manipulation from strategic changes. Their comprehensive approach is designed to reflect the concurrent use of multiple REM activities and other signals that indicate an elevated risk of manipulation. The authors compare their new approach to standard REM measures and find that it performs better than existing metrics across various dimensions, and may be particularly useful in research settings.

The full article, “A Simple Approach to Better Distinguish Real Earnings Manipulation from Strategy Changes,” is available below.

View Article

The post Dr. Adrienna Huffman and Coauthors Publish Article on Real Earnings Management Measures appeared first on Brattle.

The winners of the 2022 Brattle Group Prize in Corporate Finance are:

First Prize, $25,000: Andreas Fuster, Paul Goldsmith-Pinkham, Tarun Ramadorai, and Ansgar Walther
Predictably Unequal? The Effects of Machine Learning on Credit Markets
The Journal of Finance, February 2022

Distinguished Paper, $10,000: Asaf Bernstein
Negative Home Equity and Household Labor Supply
The Journal of Finance, December 2021

Distinguished Paper, $10,000: Isaac Hacamo and Kristoph Kleiner
Forced Entrepreneurs
The Journal of Finance, February 2022

The Brattle Group has funded this annual award for more than 20 years. These prizes are presented at the AFA’s annual meeting, and this year’s awards were announced at the AFA’s Annual Meeting 2023, which took place January 6–8 in New Orleans, LA. All papers published in issues of The Journal of Finance from the first five issues of the given year, and December of the previous year, are eligible. We congratulate the winners on their achievements!

View a complete list of past winners

More about the AFA

The post American Finance Association Announces 2022 Recipients of The Brattle Group Prizes in Corporate Finance appeared first on Brattle.

Associate Dr. Adrienna Huffman has coauthored an article, “Accruals Earnings Management Proxies: Prudent Business Decisions or Earnings Manipulation?” in the Journal of Business Finance & Accounting. The article presents a simple framework that defines the specific construct of “earnings manipulation” and places it within the context of the broader concept of “earnings management.” The authors also propose two simple empirical solutions that researchers can implement to capture the construct of earnings manipulation.

The full article can be found below (behind paywall).

The post Dr. Adrienna Huffman Coauthors Article on Accruals Earnings Management Proxies appeared first on Brattle.

First Prize, $25,000: Peter M. DeMarzo and Zhiguo He
Leverage Dynamics without Commitment
The Journal of Finance, December 2020

Distinguished Paper, $10,000: Itamar Drechsler, Alexi Savov, and Philipp Schnabl
Banking on Deposits: Maturity Transformation without Interest Rate Risk
The Journal of Finance, February 2021

Distinguished Paper, $10,000: Pat Akey and Ian Appel
The Limits of Limited Liability: Evidence from Industrial Pollution
The Journal of Finance, February 2021

The Brattle Group has funded this yearly award for more than 20 years. These prizes are presented at the AFA’s annual meeting, and this year’s awards were announced at the virtual 2022 ASSA/American Finance Association’s (AFA) Annual Meeting on January 7–9. All papers published in the prior year’s issues of The Journal of Finance are eligible. We congratulate the winners on their achievement!

View a Complete List of Past Winners

More about the AFA

The post American Finance Association Announces 2021 Recipients of The Brattle Group Prize appeared first on Brattle.

In the article, “Securities Litigation Implications of COVID-19 Impairments,” the authors note that there will likely be an uptick in goodwill impairments as the pandemic continues to affect the global economy. Based on the aftermath of the Great Recession, market-driven impairments are unlikely to yield successful plaintiff claims, especially if other companies in the same industry are impairing goodwill. However, if plaintiffs can show that a company intentionally delayed or hid the recognition of a goodwill impairment, for example, to protect senior management’s personal or financial circumstances, they might have more success.

The full article, “Securities Litigation Implications of COVID-19 Impairments,” is available below.

View Article

The post Brattle Economists Author Article on Goodwill Impairments Related to COVID-19 appeared first on Brattle.

Brattle Principal Bin Zhou, Associate Adrienna Huffman, and Senior Associate Chi Cheng have published a Law360 article that uses a new dataset to show how experts could potentially use data-driven quantitative methods to assess accounting materiality in accounting materiality disputes.

A December 2019 The Wall Street Journal article revealed a decade-long trend that more companies have been revising and fewer companies have been restating their financial statements. The new dataset that the article references now allows accounting professionals and litigators to use quantitative methods, in addition to qualitative methods, to help evaluate materiality. The three methods proposed by the Brattle authors are: a pure comparables approach, a regression-based prediction model of the revision versus restatement decision, and a regression-based model of predicted stock price reaction.

The full article, “How To Assess Accounting Materiality Amid Economic Crisis,” is located below.

View Article

The post Brattle Experts Author Article on Quantitative Materiality Assessment Methods appeared first on Brattle.

One of the very first signs of global economic stress was the disruption in global supply chains. These disruptions could result in breach of supply contract claims by aggrieved purchasers.

The mounting losses for businesses as a result of supply chain disruptions and reduced economic activity could mean that some businesses will look to their insurance companies for coverage of business interruption losses, which will likely lead to coverage disputes.

As for the companies that are unable to sustain themselves during this period of business interruption and economic stress, they will likely default on their corporate debt or file for bankruptcy. Both of those scenarios can generate lawsuits.

The stock market, which has begun to feel the effects of the global economic stress, has also become extremely volatile. Stock market declines generally lead to investor losses, which can in turn lead to investor lawsuits.

The full economic impact of COVID-19 still remains to be seen, but a worldwide recession would inevitably lead to many different areas of litigation.

View Article

The post Brattle Experts Author Article on Types of Litigation That May Arise as a Result of COVID-19 appeared first on Brattle.

The post Introduction to Capital Structure & Liability Management appeared first on Brattle.

The panel will discuss a 2019 perspective on the SEC’s financial fraud probes, emerging financial crime threats, and practical strategies to effectively deal with SEC probes.

Ms. Lim and Dr. Cheng will provide an in-depth analysis of the fundamentals, as well as recent developments, in the SEC’s financial fraud probes. They will also share best practices and effective preparatory tools to help business and organizations avoid potential risks and pitfalls.

To learn more or to register, please visit the event website.

The post Adoria Lim and Chi Cheng to Participate in Webinar on Preparing for the SEC’s Financial Fraud Probes appeared first on Brattle.

In a new Law360 article, Brattle Principal Adoria Lim and Associate Chi Cheng studied the correspondence between numerous companies and the SEC to identify and categorize the SEC’s hot buttons that may lead to enforcement actions, including litigation. Their article highlights how and when companies should disclose non-GAAP measures to avoid both SEC attention and sources of other potential litigation, such as securities class actions. Their analysis finds that the SEC frequently targets disclosures of adjusted EBITDA and adjusted earnings. Further, in addition to evaluating the purpose of disclosing non-GAAP measures, the SEC is often focused on ensuring that comparable GAAP measures are presented with greater or equal prominence.

Lim and Cheng conclude that it can still be valuable to include non-GAAP measures in financial reports, but there are specific ways to disclose them to avoid SEC scrutiny or litigation.

To read the full article, click the link below.

View Article

The post Non-GAAP Measures: Do’s and (Mostly) Don’ts appeared first on Brattle.