Key publications
Horton J, Serafeim G, Serafeim I (2013). Does mandatory IFRS adoption improve the information environment?.
Contemporary Accounting Research,
30(1), 388-423.
Abstract:
Does mandatory IFRS adoption improve the information environment?
More than 120 countries require or permit the use of International Financial Reporting Standards (IFRS) by publicly listed companies on the basis of higher information quality and accounting comparability from IFRS application. However, the empirical evidence about these presumed benefits is often conflicting and fails to distinguish between information quality and comparability. In this paper we examine the effect of mandatory IFRS adoption on firms' information environment. We find that after mandatory IFRS adoption consensus forecast errors decrease for firms that mandatorily adopt IFRS relative to forecast errors of other firms. We also find decreasing forecast errors for voluntary adopters, but this effect is smaller and not robust. Moreover, we show that the magnitude of the forecast error decrease is associated with the firm-specific differences between local GAAP and IFRS. This finding suggests that it is IFRS adoption rather than a correlated unobservable factor that is causing forecast errors to decrease. Exploiting individual analyst level data and isolating settings where analysts would benefit more from either increased comparability or higher quality information, we document that the improvement in the information environment is driven both by information and comparability effects. These results suggest that mandatory IFRS adoption has improved the quality of information intermediation in capital markets, and as a result firms' information environment, by increasing both information quality and accounting comparability. © 2012 the Canadian Academic Accounting Association. Abstract.
Full text.
Horton J, MacVe R, Serafeim G (2011). Deprival value vs. fair value measurement for contract liabilities: How to resolve the revenue recognition conundrum?.
Accounting and Business Research,
41(5), 491-514.
Abstract:
Deprival value vs. fair value measurement for contract liabilities: How to resolve the revenue recognition conundrum?
Revenue recognition and measurement principles can conflict with liability recognition and measurement principles. We explore here under different market conditions when the two measurement approaches coincide and when they conflict. We show that where entities expect to earn super profits (residual income) the conceptual conflict is exacerbated by the adoption of fair value (FV) as the measurement basis for assets and liabilities rather than the more theoretically grounded approach of deprival value/relief value (DV/RV) which better reflects the impact of, and rational management response to, varying market conditions. However, while the problems of balance sheet liability and revenue recognition, and the related problems of income statement presentation, can be resolved by the application of DV/RV reasoning, this is not sufficient fully to resolve issues of the appropriate timing of profit recognition. Performance measurement issues still need to be addressed directly. The standard setters' current projects on revenue recognition, insurance contracts and measurement therefore need broadening to consider the pervasive issue of accounting for internally generated intangibles. © 2011 Taylor & Francis Group, LLC. Abstract.
Full text.
Horton J, Serafeim G (2010). Market Reaction and Valuation of IFRS Reconciliation Adjustments: First Evidence from the UK.
Review of Accounting Studies,
15, 725-751.
Abstract:
Market Reaction and Valuation of IFRS Reconciliation Adjustments: First Evidence from the UK
We investigate the market reaction to, and the value-relevance of, information contained in the mandatory transitional documents required by International Financial Reporting Standards 1 (2005). We find significant negative abnormal returns for firms reporting negative earnings reconciliation. Although the informational content of the positive earnings adjustments is value-relevant before disclosure, for negative earnings adjustments it is value-relevant only after disclosure. This finding is consistent with managers delaying the communication of bad news until IFRS compliance. A finer model shows that adjustments attributed to impairment of goodwill, share-based payments, and deferred taxes are incrementally value-relevant but that only the impairment of goodwill and deferred taxes reveal new information. Our results indicate that mandatory IFRS adoption alters investors’ beliefs about stock prices. Abstract.
Publications by category
Books
Horton J, Macve R, Serafeim G (2007). Accounting for Life Insurance: the State of the Art., ICAEW.
Journal articles
Andreou PC, Antoniou C, Horton J, Louca C (2016). Corporate Governance and Firm-specific Stock Price Crashes.
European Financial ManagementAbstract:
Corporate Governance and Firm-specific Stock Price Crashes
© 2016 John Wiley & Sons, Ltd.We investigate whether ownership structure, accounting opacity, board structure & processes and managerial incentives attributes relate to future stock price crash risk. Principal component analysis on the 21 attributes that comprise these four corporate governance dimensions reveals that they can explain between 13.1% and 23.0% of a one standard deviation in crash risk. Transient institutional ownership, CEO stock option incentives and the proportion of directors that hold equity increase crash risk, whilst insiders' ownership, accounting conservatism, board size and the presence of a corporate governance policy mitigate crash risk. Overall these relationships are more pronounced in environments that accentuate agency risk. Abstract.
Full text.
Horton J, Serafeim G, Wu S (2015). How banking analysts' biases benefit everyone except investors. Harvard Business Review
Horton J, Serafeim G, Serafeim I (2013). Does mandatory IFRS adoption improve the information environment?.
Contemporary Accounting Research,
30(1), 388-423.
Abstract:
Does mandatory IFRS adoption improve the information environment?
More than 120 countries require or permit the use of International Financial Reporting Standards (IFRS) by publicly listed companies on the basis of higher information quality and accounting comparability from IFRS application. However, the empirical evidence about these presumed benefits is often conflicting and fails to distinguish between information quality and comparability. In this paper we examine the effect of mandatory IFRS adoption on firms' information environment. We find that after mandatory IFRS adoption consensus forecast errors decrease for firms that mandatorily adopt IFRS relative to forecast errors of other firms. We also find decreasing forecast errors for voluntary adopters, but this effect is smaller and not robust. Moreover, we show that the magnitude of the forecast error decrease is associated with the firm-specific differences between local GAAP and IFRS. This finding suggests that it is IFRS adoption rather than a correlated unobservable factor that is causing forecast errors to decrease. Exploiting individual analyst level data and isolating settings where analysts would benefit more from either increased comparability or higher quality information, we document that the improvement in the information environment is driven both by information and comparability effects. These results suggest that mandatory IFRS adoption has improved the quality of information intermediation in capital markets, and as a result firms' information environment, by increasing both information quality and accounting comparability. © 2012 the Canadian Academic Accounting Association. Abstract.
Full text.
Horton J, Millo Y, Serafeim G (2012). Resources or Power? Implications of Social Networks on Compensation and Firm Performance.
Journal of Business Finance and Accounting,
39(3-4), 399-426.
Abstract:
Resources or Power? Implications of Social Networks on Compensation and Firm Performance
Using a sample of 4,278 listed UK firms, we construct a social network of directorship-interlocks that comprises 31,495 directors. We use social capital theory and techniques developed in social network analysis to measure a director's connectedness and investigate whether this connectedness is associated with their compensation level and their firms overall performance. We find connectedness is positively associated with compensation and with the firm's future performance. The results do not support the view that executive and outside directors use their connections to extract economic rents. Rather the company compensates these individuals for the resources these better connections provide to the firm. © 2012 Blackwell Publishing Ltd. Abstract.
Horton J, MacVe R, Serafeim G (2011). Deprival value vs. fair value measurement for contract liabilities: How to resolve the revenue recognition conundrum?.
Accounting and Business Research,
41(5), 491-514.
Abstract:
Deprival value vs. fair value measurement for contract liabilities: How to resolve the revenue recognition conundrum?
Revenue recognition and measurement principles can conflict with liability recognition and measurement principles. We explore here under different market conditions when the two measurement approaches coincide and when they conflict. We show that where entities expect to earn super profits (residual income) the conceptual conflict is exacerbated by the adoption of fair value (FV) as the measurement basis for assets and liabilities rather than the more theoretically grounded approach of deprival value/relief value (DV/RV) which better reflects the impact of, and rational management response to, varying market conditions. However, while the problems of balance sheet liability and revenue recognition, and the related problems of income statement presentation, can be resolved by the application of DV/RV reasoning, this is not sufficient fully to resolve issues of the appropriate timing of profit recognition. Performance measurement issues still need to be addressed directly. The standard setters' current projects on revenue recognition, insurance contracts and measurement therefore need broadening to consider the pervasive issue of accounting for internally generated intangibles. © 2011 Taylor & Francis Group, LLC. Abstract.
Full text.
Horton J, Serafeim G (2010). Market Reaction and Valuation of IFRS Reconciliation Adjustments: First Evidence from the UK.
Review of Accounting Studies,
15, 725-751.
Abstract:
Market Reaction and Valuation of IFRS Reconciliation Adjustments: First Evidence from the UK
We investigate the market reaction to, and the value-relevance of, information contained in the mandatory transitional documents required by International Financial Reporting Standards 1 (2005). We find significant negative abnormal returns for firms reporting negative earnings reconciliation. Although the informational content of the positive earnings adjustments is value-relevant before disclosure, for negative earnings adjustments it is value-relevant only after disclosure. This finding is consistent with managers delaying the communication of bad news until IFRS compliance. A finer model shows that adjustments attributed to impairment of goodwill, share-based payments, and deferred taxes are incrementally value-relevant but that only the impairment of goodwill and deferred taxes reveal new information. Our results indicate that mandatory IFRS adoption alters investors’ beliefs about stock prices. Abstract.
Horton J (2007). Continuing Debates over Deprival Value and Relief Value. Accounting and Business Research, 37(3).
Horton J (2007). The value relevance of 'realistic reporting': evidence from UK life insurers.
Accounting and Business Research,
37(3), 175-197.
Abstract:
The value relevance of 'realistic reporting': evidence from UK life insurers
Even under the International Financial Reporting Standard 4 (IFRS 4), the current accounting regime for UK life insurance companies is oriented towards delaying the recognition and distribution of profit, and still remains largely rooted in traditional requirements for statutory solvency reporting. This paper tests empirically the value relevance of the alternative 'realistic reporting regime' of voluntary embedded value (EV) disclosures that has been generally adopted by leading UK and Continental European insurers. In recent years, EVs have also been used internally (but not disclosed) by many US life insurers. The results found here are consistent with value relevance and some implications for standard-setters are explored. Abstract.
Tonks I, Acker D, Horton J (2002). Accounting standards and analysts' forecasts: the impact of FRS3 on analysts' ability to forecast EPS. Journal of Accounting and Public Policy, 21(3), 193-218.
Horton J, Macve R (2000). 'Fair Value' for Financial Instruments: How Erasing Theory is Leading to Unworkable Global Accounting Standards for Performance Reporting. Australian Accounting Review, 11(2), 26-39.
Chapters
Horton J, Macve R, Struyven G (2004). Qualitative Research: Experience in Using Semi-Structured Interviews. In Humphrey C, Lee B (Eds.) The real life guide to accounting research, Elsevier Science.
Publications by year
2016
Andreou PC, Antoniou C, Horton J, Louca C (2016). Corporate Governance and Firm-specific Stock Price Crashes.
European Financial ManagementAbstract:
Corporate Governance and Firm-specific Stock Price Crashes
© 2016 John Wiley & Sons, Ltd.We investigate whether ownership structure, accounting opacity, board structure & processes and managerial incentives attributes relate to future stock price crash risk. Principal component analysis on the 21 attributes that comprise these four corporate governance dimensions reveals that they can explain between 13.1% and 23.0% of a one standard deviation in crash risk. Transient institutional ownership, CEO stock option incentives and the proportion of directors that hold equity increase crash risk, whilst insiders' ownership, accounting conservatism, board size and the presence of a corporate governance policy mitigate crash risk. Overall these relationships are more pronounced in environments that accentuate agency risk. Abstract.
Full text.
2015
Horton J, Serafeim G, Wu S (2015). How banking analysts' biases benefit everyone except investors. Harvard Business Review
2013
Horton J, Serafeim G, Serafeim I (2013). Does mandatory IFRS adoption improve the information environment?.
Contemporary Accounting Research,
30(1), 388-423.
Abstract:
Does mandatory IFRS adoption improve the information environment?
More than 120 countries require or permit the use of International Financial Reporting Standards (IFRS) by publicly listed companies on the basis of higher information quality and accounting comparability from IFRS application. However, the empirical evidence about these presumed benefits is often conflicting and fails to distinguish between information quality and comparability. In this paper we examine the effect of mandatory IFRS adoption on firms' information environment. We find that after mandatory IFRS adoption consensus forecast errors decrease for firms that mandatorily adopt IFRS relative to forecast errors of other firms. We also find decreasing forecast errors for voluntary adopters, but this effect is smaller and not robust. Moreover, we show that the magnitude of the forecast error decrease is associated with the firm-specific differences between local GAAP and IFRS. This finding suggests that it is IFRS adoption rather than a correlated unobservable factor that is causing forecast errors to decrease. Exploiting individual analyst level data and isolating settings where analysts would benefit more from either increased comparability or higher quality information, we document that the improvement in the information environment is driven both by information and comparability effects. These results suggest that mandatory IFRS adoption has improved the quality of information intermediation in capital markets, and as a result firms' information environment, by increasing both information quality and accounting comparability. © 2012 the Canadian Academic Accounting Association. Abstract.
Full text.
2012
Horton J, Millo Y, Serafeim G (2012). Resources or Power? Implications of Social Networks on Compensation and Firm Performance.
Journal of Business Finance and Accounting,
39(3-4), 399-426.
Abstract:
Resources or Power? Implications of Social Networks on Compensation and Firm Performance
Using a sample of 4,278 listed UK firms, we construct a social network of directorship-interlocks that comprises 31,495 directors. We use social capital theory and techniques developed in social network analysis to measure a director's connectedness and investigate whether this connectedness is associated with their compensation level and their firms overall performance. We find connectedness is positively associated with compensation and with the firm's future performance. The results do not support the view that executive and outside directors use their connections to extract economic rents. Rather the company compensates these individuals for the resources these better connections provide to the firm. © 2012 Blackwell Publishing Ltd. Abstract.
2011
Horton J, MacVe R, Serafeim G (2011). Deprival value vs. fair value measurement for contract liabilities: How to resolve the revenue recognition conundrum?.
Accounting and Business Research,
41(5), 491-514.
Abstract:
Deprival value vs. fair value measurement for contract liabilities: How to resolve the revenue recognition conundrum?
Revenue recognition and measurement principles can conflict with liability recognition and measurement principles. We explore here under different market conditions when the two measurement approaches coincide and when they conflict. We show that where entities expect to earn super profits (residual income) the conceptual conflict is exacerbated by the adoption of fair value (FV) as the measurement basis for assets and liabilities rather than the more theoretically grounded approach of deprival value/relief value (DV/RV) which better reflects the impact of, and rational management response to, varying market conditions. However, while the problems of balance sheet liability and revenue recognition, and the related problems of income statement presentation, can be resolved by the application of DV/RV reasoning, this is not sufficient fully to resolve issues of the appropriate timing of profit recognition. Performance measurement issues still need to be addressed directly. The standard setters' current projects on revenue recognition, insurance contracts and measurement therefore need broadening to consider the pervasive issue of accounting for internally generated intangibles. © 2011 Taylor & Francis Group, LLC. Abstract.
Full text.
2010
Horton J, Serafeim G (2010). Market Reaction and Valuation of IFRS Reconciliation Adjustments: First Evidence from the UK.
Review of Accounting Studies,
15, 725-751.
Abstract:
Market Reaction and Valuation of IFRS Reconciliation Adjustments: First Evidence from the UK
We investigate the market reaction to, and the value-relevance of, information contained in the mandatory transitional documents required by International Financial Reporting Standards 1 (2005). We find significant negative abnormal returns for firms reporting negative earnings reconciliation. Although the informational content of the positive earnings adjustments is value-relevant before disclosure, for negative earnings adjustments it is value-relevant only after disclosure. This finding is consistent with managers delaying the communication of bad news until IFRS compliance. A finer model shows that adjustments attributed to impairment of goodwill, share-based payments, and deferred taxes are incrementally value-relevant but that only the impairment of goodwill and deferred taxes reveal new information. Our results indicate that mandatory IFRS adoption alters investors’ beliefs about stock prices. Abstract.
2007
Horton J, Macve R, Serafeim G (2007). Accounting for Life Insurance: the State of the Art., ICAEW.
Horton J (2007). Continuing Debates over Deprival Value and Relief Value. Accounting and Business Research, 37(3).
Horton J (2007). The value relevance of 'realistic reporting': evidence from UK life insurers.
Accounting and Business Research,
37(3), 175-197.
Abstract:
The value relevance of 'realistic reporting': evidence from UK life insurers
Even under the International Financial Reporting Standard 4 (IFRS 4), the current accounting regime for UK life insurance companies is oriented towards delaying the recognition and distribution of profit, and still remains largely rooted in traditional requirements for statutory solvency reporting. This paper tests empirically the value relevance of the alternative 'realistic reporting regime' of voluntary embedded value (EV) disclosures that has been generally adopted by leading UK and Continental European insurers. In recent years, EVs have also been used internally (but not disclosed) by many US life insurers. The results found here are consistent with value relevance and some implications for standard-setters are explored. Abstract.
2004
Horton J, Macve R, Struyven G (2004). Qualitative Research: Experience in Using Semi-Structured Interviews. In Humphrey C, Lee B (Eds.) The real life guide to accounting research, Elsevier Science.
2002
Tonks I, Acker D, Horton J (2002). Accounting standards and analysts' forecasts: the impact of FRS3 on analysts' ability to forecast EPS. Journal of Accounting and Public Policy, 21(3), 193-218.
2000
Horton J, Macve R (2000). 'Fair Value' for Financial Instruments: How Erasing Theory is Leading to Unworkable Global Accounting Standards for Performance Reporting. Australian Accounting Review, 11(2), 26-39.
