Definitions
List It
Fill in the Blank
Examples
Fun Facts to Impress Your Friends
100
Define “lemons” in the Information Problem.
Lemons are the bad businesses in the marketplace.
100
List three ways that managers can disclosure firm information.
Financial Statements, Footnotes, MD&A, Press Conferences, Social Media
100
___________ and __________ are the two problems that create a need for disclosure.
Agency and Information
100
Give examples of two solutions to the Agency Problem.
Optimal Contracts, Board of Directors, Information Intermediaries
100
What month is International Accounting Day in?
November (November 10th)
200
Define the Litigation Cost Hypothesis.
The threat of litigation reduces the incentive for managers to disclosure information.
200
List two information intermediaries.
Financial analysts, Industry experts, Financial press
200
Capital providers require firms to hire a/an ______________ as a condition of financing, even when it is not required by regulation.
Independent auditor. Capital providers regard auditors as enhancing credibility.
200
Give two examples of ways financial analysts add value to market.
Collect information from public and private sources, Evaluat the current performance of firms that they follow, Make forecasts about their future prospects, Recommend that investors buy, hold, or sell the stock.
200
What unsuspected celebrity allegedly owns several acres of land near Marana, Arizona?
Justin Bieber
300
Define “noisy” disclosures
“Noisy” disclosures are disclosures that try to skew the investor’s opinion. Could be from the corporation, analysts, or the business press.
300
List two disclosure characteristics mentioned in the readings.
Precision, Venue, Horizon, Supporting Information, Inherent Plausibility
300
The ____________ technique is less credible. People are less likely to believe messages that are consistent with the source’s incentives.
“Playing to the crowd”
300
Give a pro and a con of releasing pro forma earnings.
PROS: Quantitative forecasts created by management, Evens the playing field for inexperienced investors CONS: May cause litigation if projections are inaccurate, Potential loss in investors’ confidence in management
300
Human noses, on average, have 5 million scent receptors. How many scent receptors does a Dachshund have? (Give or take a few million)
125 million
400
What creates the demand for financial reporting and disclosure?
Information asymmetry and agency conflicts between managers and outside investors
400
List two out of the four economic forces impacting disclosure.
1. Rapid technological innovations 2. The advent of network organizations 3. Changes in business economics of audit firms and analysts 4. Globalization
400
Voluntary disclosure leads to a ____________in demand for financial analysts
Decrease. If managers voluntary disclosure information, it is easier for investors to interpret, therefore decreasing the demand for financial analyst services.
400
Give an example of a political consideration that a manager may consider when choosing an accounting method.
Taxes, regulatory actions.
400
What famous rock star studied Accounting at the London School of Economics?
Mick Jagger
500
Define Abraham Briloff.
A financial analyst. When Briloff said something negative about a company, the company’s stock price would decrease on average of 8% on the day of the review.
500
List three out of the six hypotheses that affect managers’ decision to disclose.
1. Capital Markets Transactions Hypothesis 2. Corporate Control Contest Hypothesis 3. Stock Compensation Hypothesis 4. Litigation Cost Hypothesis 5. Management Talent Signaling Hypothesis 6. Proprietary Cost Hypothesis
500
Over the years, the relationship between book value and stock price has _____________.
Weakened. Investors are relying more on disclosure information rather than figures reported in financial statements.
500
Give two examples as to why a firm may voluntarily disclosure information.
To increase the price of their stock, lower interest rate on debt, build investor confidence.
500
How much debt did Will Smith owe the IRS right before he was cast as The Fresh Prince of Bel-Air?
$2.8 million, He had to pay the IRS 70% of his salary from the show for the first 3 years.
M
e
n
u