Faculty & Research

John Hand

Visiting Professor of Accounting

Address :
5807 South Woodlawn Avenue
Chicago, IL 60637

John R. M. Hand is a visiting faculty member from UNC Kenan-Flagler where he is the Robert March & Mildred Borden Hanes Distinguished Professor of Accounting.

With interests in accounting, entrepreneurship and finance, Dr. Hand’s current research focuses on equity analysts’ financial statement forecasts and valuation models, the identities and economic importance of stock return predictive signals, and what hedge funds tell their investors. He is co-author of "Intangible Assets: Values, Measures and Risks" (Oxford University Press, 2003) with Baruch Lev of New York University, and has twice won the American Accounting Association’s competitive manuscript competition for his scholarship.

At Booth, Dr. Hand teaches MBA-level Financial Statement Analysis. At his home institution of UNC Kenan-Flagler, he teaches in the MBA, Masters of Accounting (MAC), and Executive Development Programs. He received the 2013 UNC Kenan-Flagler Weatherspoon Award for MAC Teaching and the 2008 Weatherspoon Distinguished Award for MBA Teaching. Dr. Hand served as associate dean of UNC Kenan-Flagler’s top-ranked MAC Program from 2007-2011. He also has 20 years of financial experience in the not-for-profit world, serving as Treasurer of the Chapel Hill Bible Church (1996-2005) and as Treasurer of Trinity School of Durham & Chapel Hill (2006-2016).

Originally from England, Dr. Hand he earned his 1st Class B.Sc. in Accounting at Bristol University. He received his MBA and PhD degrees from the University of Chicago GSB, and taught at the University of Chicago GSB from 1988-1993.

 

2016 - 2017 Course Schedule

Number Name Quarter
30130 Financial Statement Analysis 2017 (Spring)

2017 - 2018 Course Schedule

Number Name Quarter
30130 Financial Statement Analysis 2018 (Spring)

New: Biases in Analysts' Multiyear Forecasted Income Statements, Balance Sheets, and Cash Flow Statements
Date Posted: Jul  15, 2017
We evaluate sell-side equity analysts’ multiyear forecasted income statements, balance sheets and cash flow statements, and the profitability, efficiency and leverage ratios that they imply. Using both small- sample data extracted manually from Investext PDFs, and large-sample data taken from the I/B/E/S non-EPS archival detail history file, we find that analysts’ long-horizon financial statements contain many biases, many but not all of which are optimistic. Analysts make highly optimistic forecasts of long-horizon EPS, ROE, ROA, ROS and asset turnover, driven by overly bullish projections about revenues and all common-sized expenses except income tax, which they forecast pessimistically. Analysts are optimistic about both long-horizon operating cash flows and operating accruals, and while they are unbiased in their forecasts of long-horizon total assets, they underestimate long-horizon debt and overestimate long-horizon equity. Our regressions support the view that analysts ...

REVISION: Hedge Fund Voluntary Disclosure
Date Posted: Nov  11, 2016
Using a dataset of 3,234 letters sent by 434 hedge funds to their investors during 1995-2011, we study what motivates hedge fund managers to make voluntary disclosures. Contrary to the hedge fund industry’s reputation for opacity, we observe that managers provide their investors with an array of quantitative and qualitative information about fund returns, risk exposures, holdings, benchmarks, performance attribution, and future prospects. We find that the tensions between the agency costs faced by investors and the proprietary costs faced by managers affect fund disclosures. Consistent with managers reducing proprietary costs, better performing funds disclose less quantitative data about performance and holdings, and consistent with the presence of agency costs, riskier funds disclose less quantitative information about performance and assets under management.

REVISION: The Characteristics that Provide Independent Information about Average U.S. Monthly Stock Returns
Date Posted: Oct  16, 2016
We take up Cochrane’s (2011) challenge to identify the firm characteristics that provide independent information about average U.S. monthly stock returns by simultaneously including 94 characteristics in Fama-MacBeth regressions that avoid overweighting microcaps and adjust for data snooping bias. We find that while 12 characteristics are reliably independent determinants in non-microcap stocks during 1980-2014 as a whole, return predictability fell sharply in 2003 such that just two characteristics have been independent determinants since then. Outside of microcaps, the hedge returns to exploiting characteristics-based predictability have also been insignificantly different from zero since 2003.

REVISION: The Use of Residual Income Valuation Methods by U.S. Sell-Side Equity Analysts
Date Posted: Aug  25, 2016
We study the use of residual income (RI) valuation methods by U.S. sell-side equity analysts, particularly as compared to DCF. We document that RI valuations are rare — just 1/16th as common as DCF — and that different RI and DCF valuations are not infrequently provided by the same analyst for the same firm in the same report. We find that while analysts build their RI models around both net operating income (RNOA-RI) and net income (ROE-RI), analysts’ RNOA-RI valuations are as optimistic as their DCF valuations and contain RNOAs that increase to an economically implausible terminal year median of 27%. In contrast, analysts’ ROE-RI valuations contain ROEs that decline over the forecast horizon to a more plausible terminal year median of 17%. While optimistic when done on their own, analysts’ ROE-RI valuations are unbiased when done in tandem with DCF, as are the DCFs that accompany them.

REVISION: Errors and Questionable Judgments in Analysts' DCF Models
Date Posted: Jan  30, 2016
We investigate the number of and reasons for errors and questionable judgments that sell-side equity analysts make in constructing and executing discounted cash flow (DCF) equity valuation models. For a sample of 120 DCF models detailed in reports issued by U.S. brokers in 2012 and 2013, we estimate that analysts make a median of three theory-related and/or execution errors and four questionable economic judgments per DCF. Recalculating analysts’ DCFs after correcting for major errors changes analysts’ mean valuations and target prices by between -2% and 14% per error. Based on face-to-face interviews with analysts and those who oversee them, we conclude that analysts’ DCF modeling behavior is semi-sophisticated in the sense that analysts genuinely make mistakes regarding certain aspects of correctly valuing equity but also respond rationally to the incentives they face, particularly the reality that they are not directly compensated for being textbook DCF correct.

REVISION: Business Press Coverage and the Market Pricing of Good and Bad News
Date Posted: Jan  18, 2014
Using a large database of news stories from newswires, national press, internet-based news outlets, news aggregators and local news channels, we study differences in the coverage of business news across types of press sources. We document that bad news business stories receive more coverage than good news stories in newswires, the national press and local news channels, while the opposite occurs in internet-based news outlets and news aggregators. We observe that the gap between good and bad news coverage is smaller for stories that are based on firm fundamentals and larger for bigger firms. We also report results that we propose help distinguish between the different roles that prior research has hypothesized are played by the business press. In particular, our evidence most supports the hypothesis that press coverage enhances firm visibility, leading to higher demand for the firm’s shares. We conclude that while coverage of stories in the business press does provide ...

New: The Importance of Accounting Information in Portfolio Optimization
Date Posted: Jan  18, 2013
We study the economic importance of accounting information as defined by the value that a sophisticated investor can extract from publicly available financial statements when optimizing a portfolio of U.S. equities. Our approach applies the elegant new parametric portfolio policy method of Brandt, Santa-Clara, and Valkanov (2009) to three simple and firm-specific annual accounting characteristics-accruals, change in earnings, and asset growth. We find that the set of optimal portfolio weights ...

REVISION: Are Hedge Funds Systemically Important?
Date Posted: Jan  17, 2013
Using a proprietary and unusually comprehensive database of hedge fund returns, we seek to identify abnormal performance consistent with opportunistic trading (e.g., bear raids) or synchronized actions (e.g., widespread forced liquidations) that could generate systemic risk. We find no evidence that hedge funds systematically benefit from opportunistic trading. In contrast, some funds operating with strategies that commonly utilize leverage (e.g., fixed income arbitrage and event-driven ...

REVISION: Going, Going, Gone? The Demise of the Accruals Anomaly
Date Posted: Jan  17, 2013
Consistent with public statements made by sophisticated practitioners, we show that the hedge returns to Sloan's (1996) accruals anomaly have decayed in U.S. markets to the point that they are no longer positive. While we cannot unambiguously identify the causal factor or factors involved, our empirical analyses suggest that the anomaly's demise stems at least in part from a decline in the size of the mispricing signal (as measured by accruals in the extreme accruals deciles and the relative ...

REVISION: The Supraview of Return Predictive Signals
Date Posted: Jan  17, 2013
This study speaks to investment academics and practitioners by describing and analyzing the population of return predictive signals (RPS) publicly identified during the period 1970-2010. Our supraview brings to light a number of new facts about the population of RPS, including that more than 330 signals have been discovered and reported; the properties of newly discovered RPS remain stable over time; and RPS with higher mean returns have not only larger standard deviations of returns, but ...

New: Employee Compensation in Entrepreneurial Companies
Date Posted: Nov  23, 2012
Despite the central role played by human capital in entrepreneurship, little is known about how employees in entrepreneurial firms are compensated and incentivized. We address this gap in the literature by studying 18,935 non-CEO compensation contracts across 1,809 privately-held venture-backed companies. Our key finding is that employee compensation varies with the degree to which VCs versus founders control the business. We show that relative to founder-controlled firms, VC-controlled firms ...

New: Market-to-Revenue Multiples in Public and Private Capital Markets
Date Posted: Feb  05, 2012
The behavior and determinants of market-to-revenue ratios in public and private capital markets is examined. Three samples are analysed: (1) all publicly traded stocks listed at some time on the New York Stock Exchange/American Stock Exchange/National Association of Securities Dealers Automated Quotation System in the 1980—2004 period; (2) sample of over 300 so-called ‘internet companies’ in the 1996—2004 period; and (3) over 5500 privately held venture capital-backed companies in the ...

New: Market-to-Revenue Multiples in Public and Private Capital Markets
Date Posted: May  05, 2011
The behavior and determinants of market-to-revenue ratios in public and private capital markets is examined. Three samples are analysed: (1) all publicly traded stocks listed at some time on the New York Stock Exchange/American Stock Exchange/National Association of Securities Dealers Automated Quotation System in the 1980-2004 period; (2) sample of over 300 so-called ‘internet companies’ in the 1996-2004 period; and (3) over 5500 privately held venture capital-backed companies in the ...

New: Market-to-Revenue Multiples in Public and Private Capital Markets
Date Posted: Mar  30, 2011
The behavior and determinants of market to revenue ratios in public and private capital markets is examined. Three samples are analyzed : (1) all publicly traded stocks listed at some time on the NYSE/AMEX/NASDAQ in the 1980 to 2004 period, (2) sample of over 300 so-called “internet companies” in the 1996 to 2004 period, and (3) over 5,500 privately held venture capital backed companies in the 1992 to 2004 period. Both company size and the most recent revenue growth rate are found to explain ...

New: Employee Compensation in Venture-Backed Firms
Date Posted: Sep  09, 2010
We show that the degree of control exerted by investors over entrepreneurial firms helps explain the design of employee compensation contracts, and in ways that are asymmetric for founders versus hired-on employees. Across 1,809 U.S. venture-backed companies, we find that firms with more VC/less founder dominance on average pay their employees higher cash salaries, provide stronger cash and equity incentives, and have more formal pay policies in place. However, the differences in cash pay and ...

New: CEO Compensation in Venture Capital Markets
Date Posted: Jan  02, 2008
We study the compensation earned by CEOs in private venture-backed firms. We extend the traditional view of pay-for-performance by proposing that the economic characteristics of startups and venture capital markets interact in such a way that CEOs will be rewarded for successfully raising new equity. In a novel dataset of 1,585 U.S. companies, we demonstrate that CEO total cash pay is strongly increasing in the quantity and quality of money raised in the firm's most recent equity round, and ...

New: CEO Cash Compensation in Private Venture-Backed U.S. Companies
Date Posted: Jul  23, 2007
We study the cash compensation paid to CEOs of private venture-backed U.S. companies. Using a large dataset on CEO base salaries and bonuses collected by VentureOne between 2002 and 2006, we test whether compensation contracts for CEOs in private venture-backed firms are optimally designed so to minimize agency costs, or instead reflect managerial self-dealing. Our findings support the optimal contract view in that CEO compensation is reliably higher for companies with better operating ...

The Stock Price Reactions to the Repricing of Employee Stock Options
Date Posted: Jul  23, 2007
We study whether employee stock option repricings are in the best interests of shareholders by investigating the excess stock returns associated with timely, non-contaminated announcements of repricings by Canadian firms. We develop four theories of why firms reprice employee stock options, and test the competing predictions the theories make regarding the mean announcement-date excess stock return, and the cross-sectional relations between announcement-date excess returns and candidate ...

REVISION: U'S' Public and Private Venture Capital Markets, 1998-2001: a Fundamental Information Analysis
Date Posted: May  09, 2007
Systematic analysis of U.S. capital markets reveals important empirical facts that analytical modeling or empirical research seeking to explain the 1998-2001 movements needs to recognize. There is no single bubble point at which U.S. capital markets had an epiphany in which they realized that valuations required a sharp downward re-evaluation. Rather, different sectors had different points after which ex post sustained declines occurred. For the NASDAQ/NYSE/AMEX public capital markets, the ...

The Pricing of Dividends in Equity Valuation
Date Posted: Nov  20, 2006
This study uses Ohlson's (1995 and 2001) accounting-based equity valuation model to structure tests of four explanations for the anomalously positive pricing of dividends reported by Rees (1997) and Fama and French (1998). First, we find that dividends are not simply a proxy for publicly available information that helps predict future abnormal earnings. Second, although dividends act as if they signal managers' private information about future profitability, they remain positively priced for ...

What Drives the Top Line? Nonfinancial Determinants of Sales Revenue in Private Venture-Backed Firms
Date Posted: Dec  29, 2005
This study explores the roles that three kinds of nonfinancial variables - people, patents and policies - play in generating firms' near-term annual sales revenue. Due to data limitations on these variables for public companies, I use a rich and detailed set of information taken from surveys of private venture-backed firms conducted by VentureOne. By means of a Cobb-Douglas-type revenue model, I find that firms' one-year-ahead forecasts of sales revenue are larger the higher are their ...

Time to Grow Up: Large Sample Evidence on the Maturation Dynamics of Private Venture-backed Firms
Date Posted: Dec  28, 2005
Using a large quasi-time-series dataset, this paper describes and analyzes how a wide range of the economic characteristics of venture-backed firms change as such firms mature through their private, pre-exit stages of life. Three patterns emerge that I interpret as being consistent with a firm-level interpretation of Gort and Klepper's (1982) theory of the life cycle dynamics of a new industry. First, many firm characteristics evolve as a linear function of the number of venture funding ...

Give Everyone a Prize? Employee Stock Options in Private Venture-backed Firms
Date Posted: Dec  22, 2005
This study investigates the impacts on the equity values of private venture-backed firms of the organizational depth to which they grant employee stock options. I develop two hypotheses. First, applying the reasoning of Demsetz and Lehn (1985), I propose that firms' equity values will be unrelated to the optimal component of stock option grant depths. Second, I hypothesize that firms' equity values will be more negatively related to the suboptimal component of stock option grant depths when ...

The Pricing of Dividends in Equity Valuation
Date Posted: Apr  27, 2005
This paper employs Ohlson's (1995, 1998) accounting based equity valuation model to structure an empirical assessment of the pricing of dividends in stock prices. We address two questions. First, to what extent does the pricing of dividends reflect Modigliani and Miller?s (1958, 1961) one-to-one displacement property? Second, what explains the direction and magnitude of any divergence from dividend displacement? Using annual cross-sections of NYSE, AMEX and NASDAQ firms over the period ...

Determinants of the Round-to-round Returns to Pre-IPO Venture Capital Investments in U.S. Biotechnol...
Date Posted: Dec  07, 2004
I propose that pre-IPO venture-backed biotech companies offer a productive new setting through which to discriminate among theories of why firm size and book-to-market explain variation in expected stock returns. This is because pre-IPO biotech firms have large and rapidly evolving growth options relative to assets-in-place. Such attributes align closely with the key features of Berk, Green and Naik's (1999) model of the endogenous relations between growth options, optimal investment actions ...

The Value Relevance of Financial Statements in the Venture Capital Market
Date Posted: Aug  04, 2004
This study examines the value relevance of financial statement data and non-financial statement information within and across the pre-IPO venture capital and post-IPO public equity markets. For a sample of U.S. biotechnology firms, I find that financial statements are highly value relevant in the venture capital market, and that the signs of the associations between equity values and financial statement data in that market are similar to those in the public equity market, despite significant ...

Accruals, Accounting-Based Valuation Models, and the Prediction of Equity Values
Date Posted: Jun  25, 2004
This study uses out-of-sample equity value estimates to determine whether earnings disaggregation, imposing valuation model linear information (LIM) structure, and separate industry estimation of valuation model parameters aid in predicting contemporaneous equity values. We consider three levels of earnings disaggregation: aggregate earnings, cash flow and total accruals, and cash flow and four major components of accruals. For pooled estimations, imposing the LIM structure results in ...

The Value Relevance of Financial Statements in Private Equity Markets
Date Posted: Jan  08, 2004
This study explores the value relevance of financial statements in private equity markets, and compares the value relevance of financial statements to that of non-financial statement information within and across private and public equity markets. For a sample of U.S. biotechnology firms, I find that financial statements are highly value relevant in private equity markets, and that the signs of the associations between equity values and financial statement data are similar to those in public ...

The Profitability and Returns-to-Scale of Expenditures on Intangibles Made by Publicly Traded U.S. F...
Date Posted: Jul  25, 2003
I estimate the ex-post NPV profitability and returns-to-scale of expenditures on R&D, advertising and personnel intangibles for the universe of publicly traded U.S. firms. I report four main findings. First, the NPVs of expenditures on R&D, advertising, and personnel activities have been consistently positive over the past 20 years. Second, the profitability of R&D increased more than threefold between 1980 and 2000, while the profitability of advertising, personnel and tangible assets ...

Constraints on Accrual Components of Earnings in Equity Valuation
Date Posted: Sep  09, 2002
In this study, we extend the findings of Barth, Beaver, Hand, and Landsman (1999) by providing empirical evidence that for three levels of disaggregated earnings, (1) the structure provided by the Feltham-Ohlson model aids in predicting equity market values, and (2) forecasting of equity market values based on firms partitioned into industry groupings is superior to constraining all firms to have the same model parameters. We also find that disaggregating earnings into cash flows and total ...

Evidence on the Winner-takes-all Business Model: The Profitability Returns-to-scale of Expenditures ...
Date Posted: Jan  18, 2002
The winner-takes-all business model followed by many U.S. Internet firms predicts that spending on intangibles will exhibit increasing profitability returns-to-scale. That is, larger expenditures should be more profitable per dollar of investment than small expenditures because larger expenditures are more likely to be either the cause or the consequence of the firm holding a dominant market position. I test this prediction by estimating the average ex-post net present value (NPV) ...

The Market Valuation of Biotechnology Firms and Biotechnology R&D
Date Posted: Dec  26, 2001
This paper sheds light on how and why the stock market values high technology by examining the pricing of 606 biotechnology firms that were publicly traded at some time during the period 1989:q1-2000:q3. Contrary to the common view that the primary value drivers of biotechnology are "soft" variables such as intellectual human capital, patents, strategic alliances and joint ventures, I show that simple balance sheet, income statement and statement of cash flows data explains some 70% of the ...

The Economic Versus Accounting Impacts Of R&D on U.S. Market-To-Book Ratios
Date Posted: Dec  18, 2001
This paper examines the extent to which the rise in U.S. market-to-book ratios over the period 1980-2000 is due to expenditures on R&D becoming more profitable versus simply becoming more prevalent. More profitable R&D increases the numerator of the market-to-book ratio, while the biased nature of U.S. GAAP means that more prevalent spending on R&D depresses the denominator. I seek to disentangle these effects by measuring annually the NPV of R&D expenditures and the revenue intensity of R&D ...

The Stock Price Reaction to Repricing Employee Stock Options
Date Posted: Dec  16, 2001
We shed light on whether stock option repricings are in the best interests of shareholders by conducting an event study that uses non-contaminated and timely announcements of stock option repricings by Canadian firms. While U.S. firms publicly disclose their repricings in proxy statements months after the repricing, Canadian firms make immediate public disclosures when they reprice. For 54 non-contaminated repricing announcements by Canadian firms over the period November 1994-July 2001, we ...

Two Roles for Summary Accounting Data in Explaining Takeover Premia
Date Posted: Nov  13, 2001
This paper proposes and tests two roles for summary accounting data in explaining cross-sectional variation in takeover premia. We propose that the target's excess stock return at a takeover bid announcement reflects an expectation that the bidder will extract operating efficiency benefits and/or asset adaptation value from the target, and that the target's pre-bid net income and equity book value proxy for these sources of economic gains. In a sample of 855 initial bids for non-financial ...

Accruals, Cash Flow and Equity Values
Date Posted: Mar  16, 2001
We find, as predicted, that the differential ability of accrual and cash flow components of earnings to help forecast future abnormal earnings and the persistence of the components results in the components having different valuation implications. We base our tests on Ohlson (1999) applied to fourteen industries. We find: (1) Accruals and cash flows aid in forecasting future abnormal earnings incremental to abnormal earnings and equity book value. (2) Accruals and cash flows provide ...

The Role of Economic Fundamentals, Web Traffic, and Supply and Demand in the Pricing of U.S. Interne...
Date Posted: Sep  17, 2000
In this paper I measure the importance of three groups of factors in the pricing of U.S. Internet stocks: economic fundamentals, web traffic, and supply and demand forces. Using log-linear regression on a panel of data for Net and non-Net stocks on 2/1/2000, I highlight five findings. First, contrary to popular perception, neither web traffic or supply and demand forces drive Net stock prices. Rather, economic fundamentals in the form of current book equity, forecasted one-year ahead ...

Profits, Losses and the Non-Linear Pricing of Internet Stocks
Date Posted: Feb  18, 2000
This paper sheds light on the economics of Internet firms by extracting information on major value-drivers from their stock prices. Contrary to conventional Wall Street wisdom that there is little or no method in the pricing of Net stocks, I find that basic accounting data are highly value-relevant in a simple nonlinear manner. Using log-linear regression on quarterly data for 167 Net firms over the period 1997:Q1?1999:Q2, I show that Net firms' market values are linear and increasing in book ...

Accruals, Cash Flow and Equity Values
Date Posted: Sep  13, 1999
We find, as predicted, that the differential ability of accrual and cash flow components of earnings to help forecast future abnormal earnings and the persistence of the components results in the components having different valuation implications. We base our tests on Ohlson (1999) applied to fourteen industries. We find: (1) Accruals and cash flows aid in forecasting future abnormal earnings incremental to abnormal earnings and equity book value. (2) Accruals and cash flows provide ...

The Market-Timing Characteristics of Equity Carve-Outs
Date Posted: Jun  14, 1999
Equity carve-outs appear to accurately correlate with the peak in an overvalued stock market. We base this conclusion of market timing on four findings in a sample of 265 carve-outs undertaken by publicly traded parents between 1981 and 1995. First, the mean return on the value-weighted NYSE, AMEX and NASDAQ market over the year before the carve-out is substantially above the unconditional expected return on the market. Second, this same pre-carve-out mean market return is substantially ...

Tax Planning in Initial Public Offerings: The Case of Equity Carve-Outs
Date Posted: May  03, 1999
We explore the importance of book and tax factors in initial public offerings using equity carve-outs undertaken by publicly traded parents. The advantage of such carve-outs over typical IPOs is that the book and tax positions of pre-IPO shareholders can be accurately estimated due to financial reporting requirements faced by publicly traded parents. We particularly examine why any of the shares offered in the subsidiary IPO would be sold by the parent instead of being newly issued by the ...

Testing the Ohlson Model: v or not v, that is the Question
Date Posted: Sep  30, 1998
This paper tests the sharply differing predictions that emerge in Ohlson?s (1995) model from two assumptions about other information v that is reflected in a firm?s equity market value but not in its current financial statements. We find that neither assumption cleanly fits the data. If v is assumed to be zero, the regression multiple relating dividends to equity market value is reliably positive when it is predicted to be negative. Alternatively, if v impacts future abnormal earnings via ...