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Monday, August 06 2012

Accounting matters!

Accounting matters!

Changes in accounting regulations could be the key to unlocking the information barrier between firms and their investors, according to Xanthi Gkougkousi. In her PhD dissertation ‘Empirical Studies in Financial Accounting', Gkougkousi examines the interaction between accounting information and capital markets. She finds that regulations could play a role in reducing information asymmetries between firms and their investors, resulting in increased gains for both. However, at the same time, these changes can have unintended adverse consequences on the firm’s activities. Her findings have important implications for regulatory bodies and standard setters and show that accounting matters.

In addition, her research draws attention to a valuable and often overlooked source of information –aggregate earnings. Aggregate earnings contain value-relevant information and can be used by investors to update their expectations about the growth of the economy.

Gkougkousi: “Theory suggests that in perfect capital markets, accounting is irrelevant. However, in the presence of market frictions, changes in accounting rules can have real intended and unintended consequences on firms' activities while accounting information can be used for valuation and contracting purposes. My research focuses on the following two questions. Can changes in accounting regulations impact firm operations? Do investors use aggregate accounting information to make investment decisions?”

The findings support the idea that changes in accounting regulations can have capital market consequences and can impact the real activities of firms. Of interest to accountants is the finding that the adoption of International Financial Reporting Standards (IFRS) has an impact on the cost of equity, liquidity, and risk exposure of adopting banks in Europe.

Gkougkousi will defend her dissertation on 6 September 2012 at 11.30 am at Rotterdam School of Management, Erasmus University (RSM). Her promoters are Prof. dr Erik Peek of RSM and Prof. dr Gerard Mertens, Dean of Faculty Management Sciences of the Open University.

Gkougkousi’s PhD research project is conducted within the Erasmus Doctoral Programme in Business & Management, organised by Erasmus Research Institute of Management (ERIM), the joint research institute of Rotterdam School of Management, Erasmus University (RSM), and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.

Thesis abstract
This dissertation contributes to the stream of literature that examines the role of accounting information in capital markets. The first two chapters deal with the economic consequences of changes in accounting regulations. The third chapter examines the relation between accounting information and asset prices. Chapter 1 studies the impact of International Financial Reporting Standards (IFRS) adoption on the cost of equity and liquidity of European banks. The adoption of IFRS is associated with lower cost of equity particularly for banks with low pre-adoption quality of information environment. Chapter 2 examines the effect of IFRS adoption on the risk exposure of banks in Europe. Gkougkousi’s analysis shows an increase in the risk exposure of banks after the mandatory adoption of the new accounting standards. She provides limited evidence that the increase in risk exposure is more pronounced for banks that operate in countries where accounting numbers are more likely to be used for contracting purposes. Chapter 3 focuses on the relation between aggregate earnings changes and corporate bond market returns. Gkougkousi finds that aggregate earnings changes are negatively related to investment-grade corporate bond market returns and unrelated to high-yield corporate bond market returns. Further, the earnings-returns relation is lower for high-rated and long-term corporate bonds. These findings suggest that aggregate earnings contain information about cash flows and discount rates. Overall, the essays in this thesis highlight the importance of changes in accounting regulations and the significance of accounting information for debt investors.

About Xanthi Gkougkousi
Xanthi Gkougkousi (Greece, 1984) obtained her BSc in Marketing and Communication from Athens University of Economics and Business in October 2005. Subsequently, she went on to work as a freelance accountant for two years. In September 2007, she started her MSc in Business Administration with specialisation in Finance and Investments at RSM, which she completed with distinction in August 2008. Immediately after, she joined RSM’s Accounting and Control department as a PhD candidate in Financial Accounting. Her research focuses on the relation between accounting numbers and capital markets and on the real effects of changes in accounting regulations. During her PhD, Gkougkousi spent four months as a visiting scholar at Columbia Business School. In addition, she has presented her work at various international conferences, such as the European Accounting Association Annual Congress and the American Accounting Association Annual Meeting. Further, Gkougkousi has been involved in teaching financial accounting and in supervising bachelor and master thesis projects. Alongside her PhD, Gkougkousi passed the exams of all three levels of the Chartered Financial Analyst (CFA) programme.

Rotterdam School of Management, Erasmus University is consistently ranked amongst the top 10 business schools in Europe. It is located in the international port city of Rotterdam where core Dutch values of openness, flexibility and acceptance of diversity have attracted businesses on a global scale. Our emphasis is on ground breaking research and practices relevant to business; our primary focus is on developing business leaders who carry their innovative ideas into a sustainable future. Our portfolio includes a broad array of bachelor, master, doctoral, MBA and executive education programmes. www.rsm.nl

For more information on this release, please contact Marianne Schouten, Media & Public Relations Manager for RSM, on +31 10 408 2877 or by email at mschouten@remove-this.rsm.nl.