Workshop Series: Ron Hofmann

10 August, 2012 - 10:30 to 12:00
Room 430 Joyce Ackroyd Building 37

Abstract:

This study investigates whether and to which extent bond investors in the financial institution sector use accounting signals in their decision-making process during economic downturns. The recent bank crisis provides a perfect setting to test whether financial institutions' accounting ratios related to the CAMEL framework of the U.S. Federal Bank Regulatory Agencies if at all, enter into the decision-making process of investors holding a portfolio of debt instruments in financial institutions. Applying a perfect foresight portfolio investment strategy (Abarbanell and Bushee 1998), I find evidence that cumulative monthly bond returns are associated with changes in "earning power" and changes in credit ratings only when financial markets are illiquid and not transparent. This is potentially attributable to the diverging interests of bank regulators and institutional bond investors during bank crisis periods with debtholders conceivably relying to a lesser extent on regulatory agencies' private information with regard to the supervision of the banking sector. Moreover, I provide insights on bond prices not fully anticipating accounting signals during periods of financial distress and illiquidity. To draw causal inferences, I also conduct an event study utilizing short-term windows centered on the U.S. Securities and Exchange Commission (SEC) EDGAR 10-K filings announcement dates and preliminary earnings announcement dates and report the value relevance of ratios related to changes in "earning power", liquidity, and capital adequacy for bond holders during the recent financial crisis period.

Dr Ron Hofmann, Maastricht University, The Netherlands

Ronny K Hofmann's research focuses on the value relevance of accounting signals in capital markets during the recent financial crisis, bank regulatory aspects, and predictive power of going concern opinions. Ronny has worked with KPMG Europe LLP and Deloitte, and has been involved in several teaching activities at Maastricht University (Netherlands) and Christian-Albrechts University (Germany). He is currently a Lecturer with UWA and will receive his PhD from Maastricht University in 2012. Ronny obtained an International MBA from the University of South Carolina and a MBA from the Vienna University of Economics and Business Administration.