Analyzing Financial Information and Disclosures of Groupon Inc.

Overview of the assigned case

Serve as an analyst (a role that may also involves news reporter, detective, researcher, etc.), dig the information/stories behind the assigned case, and report your findings and analysis to the 4510 class, by applying what you have learned from the course.

1. Provided an overview of what is discussed in the assigned case (Use 5W1H: who, when, where, what, how)

2. Generate a list of questions you want to investigate further, by linking your questions to what we learned from the course. Questions listed below serve as a starting point, also as a set of minimum questions you need to address for this term project.

 

Try to generate more questions that you want to investigate - the more specific the questions, the higher score you’ll get for this part.

a. What is the financial information involved in this case?

b. Who are potential stakeholders?

c. What theories we learned from the course are directly linked to this case? (i.e., theories that can help explain behaviors of multiple parties involved in the case. Make sure you identify parties who are involved first)

d. Questions in a more general and boarder way (may not be directly linked to the case and may need you to collect additional information to address).

 

Ch4 to Ch11 only. For example, i. (Ch4, Ch6, EMH and counter arguments) Does the stock prices change around the event indicate an efficient or inefficient market? Are investors rational or irrational in your belief, based on the market reaction? Are there anomalies (e.g., PAD) detected in the case? ii. (Ch5, ERC) Is the financial information value relevant? That is, is there an impact on stock price (short run, long run), or is the stock price change driven by this event? (Additional questions you can consider from this chapter include earnings quality, etc.) iii. (Ch7, current values) What are the extent of current value uses for the items listed on the balance sheet? Examine the publicly available financial information (annual report, quarterly report, proxy statement, MD&A) in the event year (and around the event year) to find your answer. iv. (Ch8, efficient contracting) Who are possible contracting parties involved? Do their interests align with each other? Are there any accounting-based covenants?

 

How are risks disclosed in the financial reports? v. (Ch10, compensation) What consists of the executive compensation plan of the given year? (Additional questions to consider: sensitivity vs. precision? Short-run vs. long-run efforts/effects?) vi. (Ch11, earnings management) What are possible factors driving firm manager fraudulent questionable actions in the case? What are the financial and social consequences of these actions to the stakeholders? More questions that need to be answered - Chapter 4: What are some indicators of moral hazard present in the case? Are share prices fully informative or partially informative in 2011? Explain why. How does this affect ERC? (Ch 5) Is the income reported in 2011 persistent or not? Are there any adverse selection present in the case? Explain how. How does this affect ERC? (Ch 5) Is the accounting information useful to investors in this case? Are the important and relevant information fully disclosed in the notes? Chapter 5: Explain how the new information produced in April 2012 affects the stock price using Bayes theorem. Is there any abnormal return in 2012? What does this say about the usefulness of financial statements?

 

Chapter 7: Current Value Accounting Would Groupon’s earnings have more quality,(Relevance and Reliability) if they had chosen fair value accounting for their company? Does conservative accounting helps prevent What was the effect of limited attention in Groupon’s case? Would quality earnings help achieve efficient contracting? Chapter 8: Efficient Contracting What parties are involved in the contract? Did Groupon attempt to create efficient contracting within their company? Give reasons that justify that Groupon failed to achieve efficient contracting? What could have been done to achieve efficient contracting amongst the contracting parties of Groupon? Was information asymmetry the main concern for? Chapter 11 What kinds of earnings management was used by Groupon? Was it accrual based or real action or both?

 

What were the motives of managers behind this earnings management? Does the earnings management used by Groupon benefit the investors or not? Explain Why? Do you think managers of Groupon think the market is inefficient and investors irrational? explain your answer. Provide a conclusion, which include the following - a. Summary of your findings b. Looking retrospectively, what can be done to reduce the likelihood of happening of the fraud/misuse of financial information? Or is there no way to reduce the likelihood of happening (due to information asymmetry or any other reasons)? justify your answer. c. Looking forward, what would you suggest to the firm and other contracting parties, respectively?

 

Explain why you would make these suggestions. use Financial reports of Group Inc. - How to Find Financial ReportsFrom EDGAR Go to EDGAR website https://www.sec.gov/edgar/searchedgar/companysearch.html Type in ticker or company name and search - Can use advance search to limit date range and file type (e.g., use 10-K for annual report; Use DEF 14A for proxy statement) Executive compensation information can be found in annual proxy statement (i.e., DEF 14A) How to Find Historical Stock Price - Go to Yahoo Finance: finance.yahoo.com Type in company name Once in, locate the price chart, and choose “max” Move the vertical line in the chart to find historical stock price you want