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.

Aerodynamic Testing of Variable Message Signs

The increasing nationwide interest in intelligent transportation systems (ITS) and the need for more efficient transportation have led to the expanding use of variable message sign (VMS) technology. VMS panels are substantially heavier than flat panel aluminum signs and have a larger depth (dimension parallel to the direction of traffic). The additional weight and depth can have a significant effect on the aerodynamic forces and inertial loads transmitted to the support structure. The wind induced drag forces and the response of VMS structures is not well understood. Minimum design requirements for VMS structures are contained in the American Association of State Highway Transportation Officials Standard Specification for Structural Support for Highway Signs, Luminaires, and Traffic Signals (AASHTO Specification). However the Specification does not take into account the prismatic geometry of VMS and the complex interaction of the applied aerodynamic forces to the support structure. In view of the lack of code guidance and the limited number research performed so far, targeted experimentation and large scale testing was conducted at the Florida International University (FIU) Wall of Wind (WOW) to provide reliable drag coefficients and investigate the aerodynamic instability of VMS. A comprehensive range of VMS geometries was tested in turbulence representative of the high frequency end of the spectrum in a simulated suburban atmospheric boundary layer. The mean normal, lateral and vertical lift force coefficients, in addition to the twisting moment coefficient and eccentricity ratio, were determined using the measured data for each model. Wind tunnel testing confirmed that drag on a prismatic VMS is smaller than the 1.7 suggested value in the current AASHTO Specification (2013). An alternative to the AASHTO Specification code value is presented in the form of a design matrix. Testing and analysis also indicated that vortex shedding oscillations and galloping instability could be significant for VMS signs with a large depth ratio attached to a structure with a low natural frequency. The effect of corner modification was investigated by testing models with chamfered and rounded corners. Results demonstrated an additional decrease in the drag coefficient but a possible Reynolds number dependency for the rounded corner configuration.