In relation to the short paper “Effects of Managerial Discretion in Fair Value Accounting Regulation and Motivational Incentives to “Go Along” with Management on Analysis’ Expectations and Judgments” much can be drawn when the paper is closely analysed as well as reviewed. To begin with, the paper presents a case study of 44 analysts with an average age of 32 years. Along with this, the analysts have an experience of 7.25 years along with the fact that the females were 15 while males 29. The study has incorporated the testing of the analyst in conditions of incentives and no incentive regarding fair value accounting of impairment loss. Additionally, conditions of misleading information issued by managers have been addressed while valuing an asset impairment loss.
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Following the study, results indicated that in a situation whereby misleading guidance is provided to the analysts by the management, the management recognise lower impairment loss as compared to when the truthful guidance is provided. At the same time, analysts that were tested under an incentive condition recognised a lower impairment loss in relation to the non-incentive condition. This is to suggest that when incentives are present, the analysts give accurate information and thus a low likelihood to be biased. Generally, the study established that analysts make use of misleading guidance provided by the management to make provision of inaccurate information. As well, it has been established in the study that analysts have a lower likelihood to make an adjustment of biased information from the management when presented with an incentive to go along with management.
From a broader point of view, the paper is dedicated towards establishing that motivation and incentives have a great role to play while making the valuation of impaired loss and reported stock pricing by analysts. Interestingly enough, governmental agencies such as FASB continually make rules in order to fight against corruption and ensure fair accounting valuation. However, their policies in this context prove to be an exercise in futility. This is given to the reason that they are limited to control the extent in which incentives bias analyst’s recommendations.
On the other hand, there is the short paper “Why individual investors want dividends”. In this connection, the paper basically presents a study that was done by the authors to establish the reason why investors prefer higher dividend paying stocks instead of capital gains. In their study, 555 responses out of the 2,723 presented proved useful. Some more common theories that show why individual investors prefer dividends have been brought into view. In relation to this, dividend irrelevance theory puts it that in a perfect market dividend policy is irrelevant as it has no impact as the investors can replicate any cash flow.
Another theory states that outside investors prefer high dividend payout policy. In the same line of thought, an obscure theory asserts that investors go for a higher dividend policy as they associate higher dividend companies with honesty and the fact that they do not engage in accounting mischief. Along with this, behavioural life cycle theory states that investors favour high paying dividends for current consumption.
Apart from this, free cash flow is based on the idea that investors more comfortably prefer companies with high free cash flow since it reduces cash flows and thus overinvestment into projects with negative net present value (NPV). From the larger point of view, companies have preferred stock dividends than cash dividends. As a way to lower transaction costs, results indicated that older investors, lower income along with less educated investors prefer cash dividends.
In line with this, investors also prefer stock dividends since they see them as to be less risky of which study reflected a contrast in that companies that pay dividends proved more risky. Neutrality in response was accordingly realized at the notion that dividend paying firms were safer from accounting mischief. The increased dividends of a firm were viewed as a profitable as well as paying high dividends being seen as risky. Arguably, the study reflected that most dividends investors do it by reinvesting.
At the same time, it was not well established the preference of stock dividends for cash. In this context, the paper concluded that investors have a strong preference for cash dividends and stock dividends in absence of cash than no dividends at all. Notably, the study did not support the uncertainty resolution and behavioural theories. Outstandingly, the dividends were found out to be preferred on transaction costs. Moreover, the study results concluded that inconsistency was realized with agency theories rather than signalling theories. Therefore, signalling theories were strongly supported by the study.
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