ACCT 312 Evaluating Financial Statement Information

This course aims to develop students' understanding of the relation between accounting numbers and underlying economic activity, and to develop students' ability to use accounting numbers in several decision contexts including evaluating profitability, forecasting future earnings and cash flows, selecting an appropriate financial reporting strategy and assessing risk. Accordingly, the course will focus on several factors essential to this goal. These include understanding (1) the business environment a firm operates in, its contracting practices and their implications for what accounting principles are applied and judgments required; (2) the process that generates accounting numbers and its implications for the quality of those numbers for decision purposes; (3) approaches for assessing the sustainability and growth of a firm's revenues and earnings using financial statement information; and (4) approaches to evaluate earnings quality, the risk of earnings restatements, liquidity and solvency. This course should be of value to students who will be in senior positions within corporations and will determine financial reporting policies, as well as those outside corporations who will make investment or other decisions at least partially based on financial statement information.

ACCT 313 Accounting-Based Valuation

This course is structured to develop students' ability to interpret and use financial accounting information in equity valuation contexts. The perspective taken is that of an outsider relying on publicly available financial information for investment purposes, and builds heavily on the residual income framework for equity valuation. The first half of the course covers financial statement analysis-based tools for assessing a firm's current financial performance and economic condition, including traditional ratio analysis. The second half of the course introduces the accounting-based valuation framework, and develops the link between financial statement analysis, forecasting and valuation. This portion of the course focuses on techniques for forecasting specific income statement and balance sheet items, the creation of pro-forma financial statements, and the implementation of several accounting-based valuation models. The capstone to the course is the completion of a comprehensive equity valuation project. In addition to learning basic financial statement analysis tools and accounting-based valuation theory, students benefits from applying these tools and theories in the context of weekly cases and the final project. The course is structured for students to gain a deeper understanding of the economic pressures behind the analysis and valuation process by drawing upon and synthesizing concepts from microeconomics, corporate finance, corporate strategy, statistics and accounting. The course will be of value to those students who, as either senior managers or outsiders, anticipate making investment or credit decisions at least partially based on financial statement information.

ACCT 316 Valuation in Emerging Markets

The course is designed to introduce students to the corporate governance and transparency issues faced by managers and investors in emerging economies, and the impact these problems have on financial statement analysis, firm valuation and capital market behavior. The goal of the class is to develop a framework for forecasting future earnings, cash flows and dividends and, ultimately, estimating firm value. The first half of the course will discuss the impact that weak legal, political and regulatory institutions have on financial reporting practices, corporate governance and capital market behavior, and develop an understanding of the incentives and institutional arrangements that exacerbate or mitigate these effects. The second half of the course will address the following question: how does an investor value an investment opportunity in an economy with weak institutions, such as poor corporate transparency, minimal protection of investor rights, a self-serving government and/or legal systems that fail to enforce contracts? The course will focus on understanding the risks, uncertainties and limitations investors face in each of these settings. Evidence from recent research on these topics will be presented and discussed throughout the course. The capstone to the class will be a final project. The final project will focus on the analysis of a specific emerging economy's capital market and institutional environment, conducted in the context of determining the investment potential (as a minority shareholder) of a publicly-traded firm in that market. This course will be of value to those students who expect to make investment-related decisions in emerging or developing economies. The course is designed to benefit both senior corporate managers and investment professionals.

ACCT 332 Mergers and Acquisitions: Accounting, Regulatory, and Governance Issues

This course covers various financial and economic issues related to mergers and acquisitions. For example, we review the financial reporting implications of business combinations (e.g., consolidation, the "acquisition" method), and income tax treatments of M&A transactions (e.g., taxable vs. non-taxable deals). We also examine corporate governance issues related to firms' decision to acquire or be acquired, the M&A regulatory environment (e.g., anti-trust), and other factors that can potentially shape the structure of M&A transactions.

In covering these and other related issues, we will discuss both the theory and practice of mergers and acquisitions. To provide some specific context we will analyze specific M&A deals (e.g., the mergers of HP/Compaq, UpJohn/Pharmacia, and AOL/Time Warner; Oracle's hostlie takeover of PeopleSoft; and many more). In discussing these cases, we will examine the situation faced by the company, the issues surrounding the transaction, including the financial reporting implications, and focus on the managerial incentives and the judgment applied. We will also discuss some of the important strategies that underlay a successful negotiation. We will also review some of the related literatures in accounting, economic, and finance, to gain broader perspectives and insights into the financial issues associated with M&A transactions. Class time comprises mini lectures that introduce some of the more technical concepts, case discussions, and guest speakers who will offer additional perspectives on the subject matters.

The course is co-taught by Ron Kasznik (GSB) and Safra Catz (Oracle Corporation). Ms. Catz is President of Oracle and a member of its Board of Directors. She has led Oracle through more than 50 acquisitions in recent years (including PeopleSoft, Siebel, BEA, and Sun Microsystems). Prior to joining Oracle in 1999, Ms. Catz was Managing Director at Donaldson, Lufkin & Jenrette, a global investment bank (now part of CSFB). Ms. Catz also serves on the board of directors for HSBC Holdings plc since 2008.

ACCT 340 Alphanomics: Informational Arbitrage in Equity Markets

This is an advanced elective course focuses on the economics of active investing in equity markets. It is designed for students with a strong interest in equity investing, either personal or professional. In particular, it should be helpful to students with career aspirations in asset management, equity research, financial consulting, private equity, or investment banking.

Our basic premise is that stock prices are established through a risky arbitrage process that involves proper use of information. Together we will seek to better understand the types of the information that are useful for active investing in equity markets, as well as the risk:return trade-offs inherent in the informational arbitrage process.

The course will cover some of the basic skills needed in active equity investing, including: quantitative stock selection, equity valuation, cash flow analysis, quality of earnings assessment, short-selling mechanics, the use of analyst-based forecasts & recommendations, as well as the monitoring & management of portfolio risk. Our overall goal is to improve student skills in filtering companies using large-sample stock screen, assessing the relative attractiveness of individual companies, and in managing portfolio risk.

This is a hands-on course with an emphasis on experiential learning. Students will design stock screens, conduct back-tests, analyze financial statements, evaluate individual companies, and assess portfolio risk. We will also read a number of academic research studies and will seek to integrate the insights from these papers into our investment process. There is no final exam. However, there will be a number of individual cases and a final group project.

Because it is an advanced elective, students taking this class are expected to be well versed in core economic, accounting, and finance skills. Material covered in a second Financial Modeling course, as well as in Accounting 312 (Evaluating Financial Statement Information) and Accounting 313 (Accounting-based Valuation) will come in handy.

ACCT 354 Analysis and Valuation for Event-Driven Investing

This Bass seminar is designed to develop students' ability to interpret and use financial accounting information in credit and equity valuation contexts. The course will focus on valuing the securities of companies undergoing significant changes as a result of litigation, restructuring, regulatory changes, mergers, spin-offs or significant industry shifts. Throughout the course, students will (1) enrich their understanding of how alternative economic, legal, political and regulatory outcomes affect the value of various components of a company's capital structure and (2) develop their ability to apply financial statement analysis to assess the likelihood and valuation implications of the events of interest.

Event-driven investing follows the life cycle of companies as they revamp their corporate structures in response to economic and regulatory environments. For example, in rising economic periods companies may undertake acquisitions or spin off divisions to enhance shareholder value. During adverse environments, bankruptcy and reorganizations often reshape the capital structure by offering opportunities to create value through the restructuring process. During economic transitions, debt and equity investors may make significantly different assessments of the quality of a company's earnings, its assets, and its likelihood to meet its debt obligations. To assess the probability of corporate events, investors must make judgments about the quality of a company's earnings and assets and understand how accounting policies may influence management's representations. Investors must also interpret how accounting policies function at various points in a firm's life cycle, influencing the quality of earnings for firms differently in different economic environments.

In the first half of the course, we will develop the course framework, and apply it to illustrative cases. Companies featured in the cases include Tyco, AIG, PG&E, Fannie Mae and Bank of America. Students will interpret information from companies' public financial disclosures to assess the likelihood of different events or outcomes. The course will also feature readings on current accounting standards, articles from the popular press, publicly available financial statement information, and guest speakers with in-depth knowledge of investing strategies vis a vis the case companies.

The latter half of the course will be devoted to project work, with students working in teams to develop an event-driven investing strategy. The aim is to allow students to conduct independent research on a company, industry, economic context, or financial reporting environment of particular interest. Students will develop their investment idea, articulate their sense of the possible outcomes for the components of the firm's capital structure, and explain how they have assessed the likelihood and valuation consequences of those outcomes. At the conclusion of the course, students will present their strategies to the class and a panel of expert judges.

ACCT 506 Evaluating Earnings Quality

This seminar will introduce students to research on earnings quality. Specifically, the course will feature research on the factors that influence the informational role of earnings, and factors that affect how earnings provides information about future earnings, cash flows and share prices. We will begin by examining research that considers management's incentives to influence reported earnings numbers, to identify contexts where earnings may be manipulated. We will next examine research that examines how firms manage their earnings, to better understand what to look for to identify manipulation in earnings. We will then examine research on how the market values earnings components, to understand the inferences investors make from earnings numbers and the rationality of those inferences. We will also examine research on auditors to better understand how they affect the quality of earnings numbers. You will then apply the lessons of this research directly to specific companies and their financial statements, to understand what to look for on a company-by-company basis. By understanding the key findings from earnings quality research, students will be better prepared to use financial statements for investment and other decisions.

A distinctive feature of the course is that it will introduce you to research on the quality of financial numbers and how this depends on various players in the financial reporting environment, including management, auditors, regulators and investors. You will read a few research articles directly to gain a greater understanding of what we know about earnings quality from academic research. We will focus on understanding the motivation for the research, what question is being asked, how the author addresses it and what the implications are. We will not be overly concerned with the statistical procedures and methodologies applied but rather focus on the big picture. We will spend an approximately equal amount of time understanding the research on earnings quality and applying it to specific company financial statements to increase your understanding of how to identify earnings quality issues for a specific company.

The key requirements for the course are reading the assigned articles, reviewing related excerpts from company financial statements, and coming to class ready to discuss the issues. I will also ask each student to develop a proposal to explore an issue related to earnings quality. The proposal should be relatively brief, say 3-5 pages, and should explain what research question is asked, why it is important, what hypotheses the study will test, what data will be used and what the implications of alternative findings would be. These will be presented and discussed the last day of class.

ACCT 508 Trading Strategies and Fundamental Analysis

This class will teach students about trading strategies that have been shown to systematically beat the stock market over an extended period of time. All of the strategies use accounting information as a basis for fundamental analysis. The course will start with a discussion of efficient markets and basic valuation theory before moving on to present a variety of trading strategies whose success has been documented in the academic and practitioner literatures. Students will be expected to: 1) make one small presentation (most likely as a part of a group) summarizing the findings of a paper; and 2) attend all 5 classes. Grades will be pass/fail.

ACCT 516 Valuation in Emerging Economies

The course is designed to introduce students to the corporate governance and transparency issues faced by managers and investors in emerging economies, and the impact these problems have on firm valuation and capital market behavior. The goal of the class is to develop a framework for forecasting future earnings, cash flows and dividends and estimating firm values in these countries. The first half of the course will discuss the impact that weak legal, political and regulatory institutions have on financial reporting practices, corporate governance and capital market behavior, and develop an understanding of the incentives and institutional arrangements that exacerbate or mitigate these effects. The second half of the course will address the following question: how does an investor value an investment opportunity in an economy with weak institutions, such as poor corporate transparency, minimal protection of investor rights, a self-serving government and/or legal systems that fail to enforce contracts? The course will focus on understanding the risks, uncertainties and limitations investors face in each of these settings, and outlining the type of adjustments that should be made to firm valuations and underlying earnings, cash flow and dividend forecasts. Evidence from recent research on these topics will be presented and discussed throughout the course, with special emphasis placed on China. The capstone to the class will be a final project. The final project will focus on the analysis of a specific emerging economy's capital market and institutional environment, conducted in the context of determining the investment potential (as a minority shareholder) of a publicly-traded firm in that market. This course will be of value to those students who expect to make investment-related decisions in emerging or developing economies (such as China, India and Russia, among others). The course is designed to benefit both senior corporate managers and investment professionals.

ACCT 518 Analysis and Valuation of Emerging Market Firms

The course is designed to introduce students to the unique institutional, corporate governance and transparency issues facing managers and investors in emerging economies, and the impact these issues have on assessment of firm performance and value. The goal of the class is to gain an understanding of how country-level institutional forces shape firm value in these countries, how to interpret published financial reports in this environment to identify the source of firm-level value creation, and to use your assessment of the firm to identify the primitive sources of the firm's risks and opportunities. Students will be expected to: (1) make one presentation (most likely as a part of a two person group) that explore one key dimension of analysis in an emerging economy (e.g., assessment of related party transactions; role of government intervention; importance of political connections; risk of expropriation; etc.); and (2) attend all five classes. Grades will be pass/fail.

Professor Piotroski teaches the "Accounting-based Valuation" and "Valuation in Emerging Economies" courses at the GSB.

ACCT 526 Executive Compensation and Corporate Governance

The Seminar will begin with a review of executive compensation and corporate governance structures used in U.S., U.K., Germany, Japan, etc. companies. We will then examine the choice of executive compensation contracts and corporate governance and the impact of these choices on executive behavior and firm performance. For example, the Seminar will consider the link between equity-based compensation and accounting manipulation, role of activist hedge funds, validity of governance rating services, market for corporate control and charter amendments, determinants of senior-executive terminations, etc.

The Seminar will require the participants to read and synthesize contemporary academic and professional literature. Selected real world cases will be used for Seminar discussion.

ACCT 531 Evaluating Financial Statement Information

This course aims to develop students' ability to read financial statements and understand the key issues affecting their ability to use the information in financial statements in decisions. The course will focus on several skills essential to this goal. These include (1) understanding the relevant accounting standards applicable to different companies and industries; (2) understanding the nature of the judgments that are required to apply accounting standards; (3) understanding the incentives of management, analysts and auditors to provide information to investors; (4) understanding the warnings signs of earnings that are of low quality and (5) increasing literacy in reading 10-K's and 10-Q's. Not taught in 2009-10.

ACCT 532 Financial Reporting and Control Issues in Mergers and Acquisitions

This course aims to develop students' ability to read financial statements and understand the key issues affecting their ability to use the information in financial statements in decisions. The course will focus on several skills essential to this goal. These include (1) understanding the relevant accounting standards applicable to different companies and industries; (2) understanding the nature of the judgments that are required to apply accounting standards; (3) understanding the incentives of management, analysts and auditors to provide information to investors; (4) understanding the warnings signs of earnings that are of low quality and (5) increasing literacy in reading 10-K's and 10-Q's. The course presumes an understanding of financial accounting at the level of A210. This course should be of value to students who expect to be in senior positions within corporations and will determine financial reporting policies, as well as those in investment banking, venture capital, investment management, consulting or public accounting.

The content of this course has been shaped in a significant way by research on financial reporting over the past 30 years. This research is the foundation of the course, and will be featured in the course texts, lectures and class discussion. The course introduces a framework for analyzing business activities from financial statements and develops students' ability to make appropriate inferences about accounting numbers to permit financial analysis, forecasting and valuation. The course will feature several cases based on corporate financial statements that provide a context for applying analysis tools. These cases feature a variety of accounting issues, including revenue recognition, asset valuation, and liability and expense recognition. These cases also illustrate the role of management's judgment in financial reporting decisions, and the relation between financial reporting strategy and financial and business strategies. The goal of the course is to improve students' ability to read and interpret financial statements, and to use financial statements to evaluate firm performance and risk. Class discussion will primarily center on assigned readings and cases, permitting a significant amount of technical knowledge to be learned along with an understanding of the business context necessary to focus on the managerial decisions to be made. Our collective goal will be to identify the key facts of the case and explore a variety of approaches and solutions.

ACCT 552 Trading Strategies and Fundamental Analysis

This seminar teaches students about trading strategies that have been shown to systematically beat the stock market over an extended period of time. All of the strategies use accounting information as a basis for fundamental analysis. The course starts with a discussion of efficient markets, basic valuation theory and the impact of market frictions and behavioral biases on the mispricing of fundamental information. The remainder of the course introduces students to a variety of trading strategies whose success has been documented in the academic and practitioner literatures, as well as an analysis of why these strategies are successful. Students will be expected to: (1) make one presentation (most likely as a part of a two person group) that summarizes the findings of a paper; and (2) attend all five classes. Grades will be pass/fail.

Professor Piotroski teaches the "Accounting-based Valuation" and "Valuation in Emerging Economies" courses at the GSB.

ACCT 554 Analysis and Valuation for Event-Driven Investing

This course is designed to develop students' ability to interpret and use financial accounting information in credit and equity valuation contexts. The course will focus on valuing the securities of companies undergoing significant changes as a result of litigation, restructuring, regulatory changes, mergers, spin-offs or significant industry shifts. Throughout the course, students will apply financial statement analysis and accounting based valuation models to assess the effects of these events on the various parts of a company's capital structure. The course will be of value to those students who anticipate making investment decisions using financial statement information.