Who Is Monitoring The Monitors?

Shivaram Rajgopal

Shivaram Rajgopal, Schaefer Chaired Professor in Accounting

Who’s monitoring the monitors? That’s the question investigated by Shiva Rajgopal, Schaefer Chaired Professor of Accounting at Emory University’s Goizueta Business School, and Roger White, a doctoral student in accounting at Georgia State University.

Rajgopal and White filed a Freedom of Information request to investigate the trading strategies of employees of the Securities and Exchange Commission (SEC). “After reviewing the buying and selling pattern of more than 7,000 trades in a two-year period, we found that SEC employees earned abnormally high returns on their SALE portfolios,” says Rajgopal.

“We considered three reasons for this: luck, skill of the traders, or access to non-public information,” he says.

“Luck aside, if skills explained these results, we would expect to observe abnormal returns on both buys and sells,” Rajgopal explains.

“Instead, we find that at least some of these SEC employee trading profits are information based, as employees tend to divest in the run-up to six SEC enforcement actions, thus profiting from the sale of stock before news of their investigation affects the market.”

According to Rajgopal, “the SEC has responded that each of these trades was approved and that staff assigned to an inquiry are required to sell its holdings in the targeted firm. Because the very act of an inquiry can cause stock prices to fall, is this policy reasonable and should SEC employees even be allowed to hold individual stocks?”

Watch more from Professor Rajgopal on his findings and their consequences.

Poet and Quants says Goizueta is one to watch

GBS2Poet & Quants recently published a comparison of the overall rank and peer rank for the top 20 business schools, using the U.S. News and World Report’s ranking.

In the article, Poet & Quants highlights Emory University’s Goizueta Business School as “a school to watch,” noting the school’s jump up the rankings nine positions to number 18 and the “highest placement rate and biggest increase in reported salary of any business school in 2012.”

Click here to read the complete article.

Goizueta’s students continue to achieve top employment numbers


98% of the class of 2013 reported job offers three months post-graduation.

As reported by Poets & Quants, “For the second consecutive year, Emory University’s Goizueta School of Business boasted the best MBA placement record of any U.S. business school in the Top 30, with 98.1% of the Class of 2013 reporting job offers three months after graduation.”

“Our career success is due, in large part, to our high caliber student population. We are pleased that Goizueta MBAs continue to be sought after by the world’s best companies,” says Wendy Tsung, associate dean & executive director of Goizueta’s MBA Career Management Center (CMC).

Goizueta’s CMC partners with students early in the course of their MBA experience, starting even before they arrive on campus. The team is staffed by a director, four full-time career coaches, and two employer relations staffers, an office manager and recruiting coordinator. Their dedication to offer students access to top companies is matched by a commitment to prepare students for every stage of the job search process.

“Since the school revamped its curriculum so that the core is taught in the first semester, students with full-time offers at the end of their internships have more than doubled. The early start, the one-semester core, the early outreach by the career staff along with their close follow-up has made a huge difference in the school’s outcomes,” reports Poets & Quants.

Click here to read more.

Relevance and reliability in financial statement assessments

Kathryn Kadous, professor of accounting

A significant marker of a leading business school is the creation of new knowledge. Goizueta faculty, using rigorous methodologies, focus on researching important problems that affect the practice of business.The following is a sampler of recently created new knowledge.

Kathryn Kadous, professor of accounting, Lisa Koonce (UT Austin), and Jane M. Thayer 08PhD (UGA) research how financial statement users apply the constructs of relevance and reliability (or “representational faithfulness”) as important qualities of financial information. Conducting experiments set within the fair value context, the researchers test the idea that financial statement users conflate these two constructs when judging the relevance of fair value measurement, and they find that users do not view relevance and reliability as independent constructs.

“The relationship between assessed relevance and assessed reliability is unidirectional,” the authors write, “in that factors underlying reliability influence judgments of relevance, but factors underlying relevance do not influence judgments of reliability.” The findings are important because inappropriate assessments of relevance can influence firm valuation; they are also particularly meaningful in the context of fair value, because such measurements can vary widely in reliability. The Accounting Review (July 2012).

Earnings guidance

Professor of accounting at Goizueta Business School, Shivaram Rajgopal was recently quoted in an article titled, “Earnings guidance: Companies’ forecasts can do them as much harm as good” by The Economic Times.

Using the company Infosys as an example, The Economic Times claims that breaking the “habit” of providing investors with a quarterly guidance, even in bad times, is uncalled for.  When Infosys decided not to give guidance for the July-September quarter of 2012 because they were “not sure” of the economic environment, unfolding events, and client decisions, their stock experienced an 8% drop.

To explain these findings, the article references a research paper titled “Is Silence Golden? An empirical analysis of firms that stop giving quarterly guidance” co-authored by Rajgopal.  According to the paper, firms are more likely to stop giving guidance if its managers are certain that they will have bad news in the future which leads to an increase in the variance of analysts forecasts and a drop in the accuracy of analyst forecasts.

As Rajgopal says in the article, quarterly guidance is like a treadmill you can’t get off. “Missing earnings guidance is like having the ‘cockroach problem’. If you walk into a house and find a cockroach, you believe there are more hidden. Analysts believe the same when a company misses its guidance or stops guidance.”

Shivaram Rajgopal joined Goizueta Business School in June 2010. Prior to joining Emory he was a chaired professor in the Foster School of Business of the University of Washington. Shiva’s research focuses in two areas: the investigation of the determinants and consequences of financial reporting strategies, and the exploration of the relationships between executive compensation (stock options) and the executive behavior such as risk taking.  He has been published in the several journals including the Journal of Accounting and Economics as well as the Journal of Financial Economics.

To see the full article in The Economic Times click here.

- Meredith Farahmand