• Companies seeking a potential sale or merger; the preliminary sales process in mergers & acquisitions
• The implications of financial reports, including accruals quality and disclosure choice, on capital markets

Conditionally accepted, Contemporary Accounting Research. Motivation: When a company seeks to sell itself in the M&A market, managers and directors must decide whether to publicly disclose the evaluation of strategic alternatives. Yet, little is known about the costs and benefits to the firm of publicly revealing this news. The benefits: The announcement leads to greater investor attention and a more robust M&A sales process, and ultimately, a valuation premium if a transaction is consumated. The costs: A public process consumes more resources, and the public news alienates stakeholders such as customers and employees, who withdraw their support from the company, leading to worse operating performance and lower employee growth. Although these negative consequences affect all anouncing firms, we observe the associated negative valuation impact only if the announcing firm is not acquired.

Motivation: Researchers and regulators interested in detecting managerial discretion in revenue recognition should examine specific revenue-related accruals, specifically accounts receivables and deferred revenues. The proposed revenue accruals model combines and extends Caylor's (2010) and Stubben's (2010) models. This new model exhibits greater goodness-of-fit, greater power, and less misspecification than extant models. The intuition is as follows: First, the origination of an accounts receivable accrual is explained by contemporaneous revenue, and the reversal is explained by future cash collections from customers. Second, the origination of a deferred revenue accrual is explained by contemporaneous cash collections from customers, and the reversal is explained by future recognized revenue.

ΔAccounts receivable_t = α₀ + α₁*1/Avg assets_t + α₂*ΔRevenueQ123_t + α₃*ΔRevenueQ4_t + α₄*ΔCash flow from sales_t+1 + e_t

ΔDeferred revenue_t = α₀ + α₁*1/Avg assets_t + α₂*ΔCash flow from sales_t + α₃*ΔRevenue_t+1 + e_t 

Motivation: The financial accounting and capital markets literature is storied and vast. This paper summarizes the main properties of earnings and its components, and how they are useful to investors and relate to stock prices. Select empirical findings in this area are extended to the present period, including price and volume reactions to accounting information, the value-relevance of various earnings measures, and portfolio returns to accounting-based trading strategies.

Motivation: The news that a company is evaluating strategic alternatives seems to trigger an irrational response marked by inefficient stock price movement. We propose that a cognitive bias known as the “availability heuristic" explains why investors are systematically overly optimistic upon seeing these types of corporate announcements.

Motivation: Before publicly revealing that the company is evaluating strategic alternatives, the corporate leaders should consider the potential benefits and drawbacks of the news affecting share prices, the M&A sales process, employees and customers. There is no correct 'one size fits all' approach, but the decision should weigh the individual company's circumstances. This article describes some key considerations.