, 2005; Biddle et al., 2009). Companies with more accurate financial reporting and greater control over reporting activities tend to perform better and demonstrate greater cohesion in their operations, as well, and also tend to lean towards more consistent profitability and stability, in addition (Graham et al., 2005; Doyle et al., 2007; Doyle et al., 2007a). Investment levels in firms with more consistent and accurate financial reports were also found to be more in keeping with expected results, signifying that models being used to make investment decisions were more well-founded and themselves more consistent, stable and reliable (Graham et al., 2005). While it is not exactly revolutionary to suggest that greater consistency in knowledge leads to a greater consistency in analysis and projection, the fact that this has been empirically evidenced argues quite strongly for the development of a more concrete and cohesive model of valuation.
Any such model must also take into account the effects that reporting standardization has on firm performance, and it is in this factor that a real problem of future projection and valuation can occur. Direct evidence from surveys and interviews with those in a position to have direct knowledge and influence on such decisions shows that executive and managers regularly make decisions that they know will lead to long-term losses (or diminished gains) for their firms in order to even out earnings reports and present an image of stable and sustained revenue to investors, in order to protect the value of current shareholders' ownership stakes in the company (Biddle et al., 2009). How this impacts competition and industries as a whole has yet to be thoroughly examined, though it seems clear that such behaviors make for complications in projecting based on current financial reports (Biddle et al., 2009). Though smaller companies tend to be more volatile and have weaker controls over their operations and their financial reporting, larger firms are more capable of manipulating both operations and financial reporting in attempts to increase stock value at the expense of real company value (Doyle et al., 2007a; Biddle et al., 2009). This type of activity is not likely to change without a fundamental change in the nature of publicly traded corporations however accounting for this trend in competitive industries such as the fast food industry is something that is both practically achievable and beneficial.
At the same time, research has shown a lack of correlation between accounting-specific weaknesses and overall firm weakness (Doyle et al., 2007). While weakness in accounting controls and reporting are often exploited to hide company-wide or operational weaknesses, and while reporting weaknesses can be the result of operational inefficiencies, the reverse relationship is not necessarily true (Doyle et al., 2007). Developing a model to determine more completely the connection between accounting and operational performance, and to equate this with competitive forces and realities in a specific industry, would assist analysts from all manner of perspectives and backgrounds in achieving more accurate and reliable results. By accounting for the factors in reporting and performance found in this literature review, it is hoped that this research will be able to yield such a model.
Methodology
A mixed-methodology approach will be utilized in this research, with both qualitative and quantitative aspects of company performance, industry performance, economic indicators, and financial reporting accounted for. Data collection will include detailed recording of all relevant financial reports from the three identified fast-food companies (McDonald's, Burger King, and Wendy's) over the past decade, including both the numeric figures provided in company balance sheets, earnings reports, and the like, as well as qualitative assessments and projections made in the textual portions of annual reports and other company-issued statements or publications. Recording of stock prices over the same period will be made, with monthly averages recorded as the initial means of assessment but with weekly and even daily averages included around the time of financial reporting or statement releases from each of the companies, in order to more directly and minutely ascertain the impact that such reporting has on stock fluctuations, investor assessment, and market performance. Additional information will be collected from outside analysts that produced assessments of current strength and projections of future performance for each of these companies over the period examined, and large institutional buying and selling trends will also be examined to determine how well such assessments...
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