Implications of FIN 46 for Accruals Quality and Investment Efficiency

The Financial Accounting Standards Board (FASB) issued Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities – An Interpretation of ARB No. 51, in January 2003 and revised it in December 2003, with the objective to improve the transparency of financial information. Under FIN 46, companies are required to consolidate variable interest entities (VIEs) on financial statements if they are the primary beneficiaries of the VIEs. This dissertation empirically examines whether the implementation of this new financial reporting guidance affects firms’ accruals quality and investment efficiency. A manually collected sample comprised of firms affected by FIN 46 and firms disclosing no material impact from FIN 46 is used in the empirical analyses.The first part of the dissertation investigates the effects of FIN 46 on accruals quality. By using different accrual quality measures in prior studies, this study found that firms affected by FIN 46 experienced a decrease in accrual quality compared to firms reporting no material impact from FIN 46. Among the firms affected by FIN 46, firms consolidating VIEs were compared with firms terminating or restructuring VIEs. The accruals quality of firms consolidating VIEs was found to be lower than that of firms terminating or restructuring VIEs. These results are consistent in tests using alternative control samples.The second part of this dissertation examines the effects of FIN 46 on investment efficiency. Mixed results were found from using two different proxies used in prior literature. Using the investment-cash flow sensitivity to proxy for investment efficiency, firms affected by FIN 46 experienced a decrease in investment efficiency compared to firms reporting no material impact. It was also found that higher investment-cash flow sensitivity for firms consolidating VIEs during post-FIN 46 periods compared to both the no-impact firms and the matched pair control sample. Contrasting results were found when the deviation from expected investment is used as another proxy for investment efficiency. Empirical analyses show that FIN 46 firms experienced improved investment efficiency measured by the deviation from expected investment after their adoption of FIN 46. This study also provides explanations for the opposite results from the two different proxies.

Adult education directors' perceptions of performance indicators for adult education programs in the state of Florida

Current demands for accountability in education emphasize outcome-based program evaluation and tie program funding to individual student performance. As has been the case for elementary and secondary programs, demands for accountability have increased pressure on adult educators to show evidence of the benefits of their programs in order to justify their financial support. In Florida, recent legislation fundamentally changes the delivery of adult education in the state by establishing a performance-based funding system that is based on outcomes related to the retention, completion, and employment of program participants.^ A performance-based funding system requires an evaluation process that stresses outcome indicators over indicators that focus on program context or process. Although the state has adopted indicators of program quality to evaluate its adult education programs, these indicators focus mostly on program processes rather than student outcomes. In addition, the indicators are not specifically tied to workforce development outcomes, a priority to federal and local funding agents.^ Improving the accountability of adult education programs and defining the role of these programs in Florida's Workforce Development System has become a priority to policy makers across the state. Another priority has been to involve adult education practitioners in every step of this process.^ This study was conducted in order to determine what performance indicators, as judged by the directors and supervisors of adult education programs in the state of Florida, are important and feasible in measuring the quality and effectiveness of these programs. The results of the study indicated that, both statewide and by region, the respondents consistently gave the highest ratings on both importance and feasibility to the indicators of Program Context, which reflect the needs, composition, and structure of the programs, and to the indicators of Educational Gain, which reflect learner progress in the attainment of basic skills and competencies. In turn, the respondents gave the lowest ratings on both importance and feasibility to the indicators in the areas of Return on State's Investment, Efficiency, Retention, and Workforce Training. In general, the indicators that received high ratings for importance also received high ratings for feasibility. ^