Fundamentals of Accounting Losses

By April Klein, Carol A. Marquardt. 2002

179 citations recorded by the source corpus.

This paper examines accounting and nonaccounting factors behind accounting losses over a 50‐year period. Using multivariate time‐series analysis, we report evidence that the annual percentage of losses for U.S. firms is significantly related to accounting conservatism, Compustat coverage of small firms, real firm performance as measured by cash flows from operations, and business cycle factors. We further find that nonaccounting factors tend to play the dominant role in explaining accounting losses over our sample period. Our results are robust to alternative definitions of macroeconomic productivity, as well as to varying model specifications. Our findings contribute to the literature on accounting losses and accounting conservatism and have implications for the use of accounting loss information in numerous settings.

Subfields: Accounting, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/f015f70680eb1620b6e4aaa6720187829d8d87ef

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Citations in the corpus

The Impact of Fundamentals on IPO Valuation (2009, unknown): “Instead, these losses reflect strategic expenditures such as marketing costs and other investments in intangible assets and growth options, consistent with Klein and Marquardt (2006) and Darrough and Ye (2007).”
Is the decline in the value relevance of accounting driven by increased conservatism? (2011, background): “First, the incidence of losses has increased over time (Hayn 1995; Givoly and Hayn 2000; Klein and Marquardt 2006 ), which likely lowers the goodness of fit of value relevance regressions, as losses tend to be less informative than profits.”
The Evolving Relation Between Earnings, Dividends, and Stock Repurchases (2008, unknown): “Papers that document the increasing prevalence of losses and/or negative special items include Hayn, 1995; Collins, Maydew and Weiss, 1997; Joos and Plesko, 2005; Klein and Marquardt, 2006.”
Valuation of loss firms in a knowledge-based economy (2007, unknown): “Recent research in accounting has documented a dramatic increase in the number of firms reporting losses (Givoly & Hayn, 2000; Klein & Marquardt, 2006; Joos & Plesko, 2005).”
More Evidence of Bias in the Differential Timeliness Measure of Conditional Conservatism (2011, unknown): “effect, Klein and Marquardt (2006) show how time-series variation in the fraction of loss firms is”
Corporate tax avoidance: data truncation and loss firms (2018, unknown): “…prior research on the valuation of losses emphasizes the importance of considering internally developed intangibles for loss firms, and suggests that book values do not adequately capture the underlying economics of the firm (Joos and Plesko 2005; Klein and Marquardt 2006; Darrough and Ye 2007).”
What do dividends tell us about earnings quality? (2009, unknown): “See also Hayn (1995), Basu (1997), Givoly and Hayn (2000), DeAngelo et al. (2004), Joos and Plesko (2005), Klein and Marquardt (2006).”
Matching and the Changing Properties of Accounting Earnings over the Last 40 Years (2008, background): “Leuz et al. (2003) posit that lower earnings volatility indicates excessive smoothing, and therefore lower earnings quality.”