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University of Texas at Dallas School of Management AIM. 7324.

001 PhD Seminar Financial Accounting Research Spring 2006 Professor Ashiq Ali Goal: The goal of this course is to expand your ability to perform financial accounting research. A prerequisite to this goal is learning to be a good and patient reader of accounting research. Superficial reading and discussion cannot accomplish this prerequisite. Rather, you must ask what makes a given paper tick: what are the research question and research design? How does the paper borrow from or expand on the related literature? What are the potential problems in model formulation or empirical inference? How can these problems be resolved? In addition, to perform accounting research, you must learn to identify important and unanswered research questions that are capable of adequate resolution. Requirements: The course will be conducted as a seminar/workshop, meeting from 2:15 to 5 on Tuesdays (two sessions with a 15 minute break in-between). One or two related papers will be discussed in a typical session. Each participant will be responsible for reading the assigned papers for each class and the responsibility for leading the discussion will rotate among the students. Classroom presentations (10% of the grade for first year students and 45% for the fourth year students) The discussion leader is not simply to summarize the papers, but rather should facilitate in depth understanding of the innovations and problems in the papers. Also, it is important that you try to identify important and unanswered research questions that are capable of adequate resolution. Contribution to Seminar Discussion (15% for both first and fourth year students) Each student is expected to participate in discussion at each class meeting. Quality of Questions Submitted (40% for the fourth year students) Before the class begins, each fourth year student is required to submit one question on each paper to be discussed. The question should be of sufficient importance to serve as the basis for additional research topic. Questions that attempt to integrate evidence from other studies or point out inconsistencies in the existing literature are most desirable. Paper Summaries (15% for the first year students) For each paper you are not presenting, prepare a one-page summary of the paper. The summary should consist of a description of the main issues, research design, and results in the paper. You should also include a significant criticism or improvement on the paper. This summary should be turned in at the beginning of the class in which the paper is discussed. Data analysis project (15% for the first year students) This project is an exercise designed to provide students with hands-on experience in using the COMPUSTAT and CRSP databases, and analyzing data using the SAS (or an equivalent) package. Students will have to learn the required programming on their own; they may use all the resources available to them including discussions with their classmates (Lilian is the TA for the course and she will be available to address your questions). However, the final analysis and write up has to be an individual effort. Replicate the results using only the data available on the recent databases. One to two-page write

up should accompany the results, explaining any difference in the results from the original study and the likely reasons for it. The projects will be due on February 21st. Additional details are provided below. 1. Replicate table 3 of "An Analysis of Intertemporal and Cross-sectional Determinants of Earnings Response Coefficients" by Collins and Kothari, JAE (July 1989). You will have to access both Compustat and CRSP for the required data. Term Paper (20% for the first year students) The term paper should consist of two parts. The first part should be a summary of the literature, along with discussion of unresolved issues that may be fruitful for future research. Select an area where there is an established recent thread of papers to look at. A good approach is to start with one recent paper (from JAR, JAE or AR) and use the references in that paper to work backward. Aim for about 4 to 5 pages for this part. The second part of the term paper (4 or 5 pages) should consist of your original idea for a research project in the area you select; discuss the research question, methodology and motivation for the project. Your methodology should be closely tied to that in an existing paper. Discuss how you modify the previously used method to suit your purpose. Finally, include a preliminary data analysis, unless the data has to be manually collected. Please discuss your topic with me before proceeding but in no event later than March 21. The paper is due on April 11. You will be required to present your term paper on April 18. Final Exam (25% for the first year students)

Reading List (1/18/2006) (This reading list is preliminary. I plan to drop (and may be add) some papers during the semester.) Accounting Data as Information 1. Beaver, Directions in Accounting Research: NEAR and FAR, Accounting Horizon, June 1996 2. Collins and Kothari, An analysis of intertemporal and cross-sectional determinants of earnings response coefficients, JAE (July 1989) 3. Barth, Beaver and Landsman, Relative valuation roles of equity book value and net income as a function of financial health, JAE (Feb 1998) 4. Basu, The conservatism principle and the asymmetric timeliness of earnings, JAE (Dec 1997) 5. Ball, Kothari and Robin, The effect of institutional factors on properties of accounting earnings: international evidence, Journal of Accounting and Economics (February 2000) 6. Watts, Conservatism in accounting part I: Explanations and implications, Accounting Horizon (Sept 2003) 7. Watts, Conservatism in accounting part II: Evidence and research opportunities, Accounting Horizon (Dec 2003) 8. Roychaudhary and Watts, Asymmetric timeliness of earnings, market-to-book and conservatism in financial reporting, Working paper 2005 9. Petersen, Mitchell, Estimating standard errors in finance panel data sets: comparing approaches, Working paper 2005 Accounting Data as Measurement 10. Ohlson, Earnings, book values, and dividends in equity valuation, CAR (Spring 1995) 11. Francis, Olsson and Oswald, Comparing the accuracy and explicability of dividend, free cash flow, and abnormal earnings equity value estimates, JAR (Spring 2000) Market Inefficiency 11. Richardson, Sloan, Soliman and Tuna, Accrual reliability, earnings persistence, and stock prices, JAE (Sept 2005) 12. Hirshleifer, Hou, Teoh and Zhang, Do investors overvalue firms with bloated balance sheets? JAE (Dec 2004) 13. Chordia and Shivakumar, Inflation illusion and post-earnings-announcement drift, JAR (Sept 2005) 14. Ali, Hwang and Trombley, Arbitrage risk and the book-to-market anomaly, JFE (Aug 2003) 15. Ali, Chen, Yao and Yu, Do mutual funds profit from accruals and NOA anomalies? Working Paper 2006 16. Hirshleifer and Teoh, Limited attention, information disclosure, and financial reporting, JAE (Dec 2003) Earnings Management 17. Healy and Whalen, A review in the earnings management literature and its implications for standard settings, AH (Dec 1999) 18. Dechow and Skinner, Earnings management: reconciling the views of accounting academics, practitioners, and regulators, AH (June 2000) 19. Burgstahler and Dichev, Earnings management to avoid earnings decreases and losses, JAE (Dec 1997)

20. Durrtschi and Easton, Earnings management? The shapes of the frequency distributions of earnings metrics are not evidence ipso facto, JAR (Sept 2005) 21. Klein, Audit committee, board of director characteristics and earnings management, JAE (August 2002) 22. Erickson and Wang, Earnings management by acquiring firms in stock for stock mergers, JAE (Apr 1999) 23. Graham, Harvey and Rajgopal, The economic implications of corporate financial reporting, JAE (Dec 2005) Voluntary Disclosures 24. 25. 26. 27. 28. Lang and Lundholm, Corporate disclosure policy and analyst behavior, AR (Oct 1996) Skinner, Why firms voluntarily disclose bad news, JAR (Spring 1994) Soffer, Thiagarajan and Walther, Earnings Preannouncement Strategies RAST (Mar 2000) Miller Gregory, Earnings performance and discretionary disclosure, JAR (Mar 2002) Ali, Chen and Radhakrishnan, Corporate Disclosures by Family Firm, Working paper 2006

Presentation of Research Proposals