Each week, Daniels is featuring a researcher who conducts meaningful research that impacts their field and the wider community. Learn more about their work in Q&As with the Daniels Research team and email them to nominate yourself or a colleague for a future Q&A.
George Ruch
George Ruch is an assistant professor in the School of Accountancy at the Daniels College of Business. He joined the Daniels faculty in 2019, after serving in the same position at the University of Oklahoma for four years. He earned his PhD in accounting from the University of Alabama in 2015. Prior to entering academia, he was an auditor in Deloitte’s Birmingham, Alabama office for three years. Professor Ruch’s research and teaching interests are primarily in the area of financial accounting.
What do you study and why?
I’m broadly interested in financial accounting information that is useful to capital market participants, mainly the stock market. I’m going about this in two ways: first, looking at the properties of accounting information, particularly the reported earnings numbers. For example, I’m working with my colleague Ryan Casey and looking at the ability of earnings to predict future cash flows, so getting a sense of how informative earnings are about the future. Second, I am interested in looking at the ambiguities and debates in financial accounting rules themselves, like distinguishing liabilities from equity, accounting for employee stock options and accounting for stock repurchases.
What are you working on now?
I’m working on a couple of projects related to accounting for stock repurchases. We are looking at the fact that the accounting rules are a bit loose in that area and how it’s producing some unintended consequences on the financial statements. Stock repurchase accounting affects a company’s reported retained earnings, which is the balance sheet measure of a company’s undistributed profits. Some stock repurchase accounting rules contain the discretion within them to allow companies to make different decisions that affect their reported retained earnings. So, we want to investigate the magnitude of this effect and different situations where this is more likely to arise.
In another project, Ryan Casey and I are also looking at what we think is a novel distinction between two types of accounting accruals. We are currently looking at how these different types of accruals help or hurt the ability of earnings to predict future cash flows. We have a few other ideas in this area, such as how these accrual components are priced by the stock market and what different measures of accrual quality look like within this distinction. We’re currently focused on getting a first draft of the future cash flows study, and then we will explore some of these other ideas.
How do you integrate research into the classroom?
Students can really be surprised by research findings, versus what they might read in a textbook. There was a case we discussed in my Topics and Cases in Financial Accounting class about non-GAAP reporting, where companies voluntarily report additional measures of profitability that differ from those required under Generally Accepted Accounting Principles (GAAP). These non-GAAP measures often make companies look more profitable than the GAAP measures. A lot of students initially react by believing that companies report these non-GAAP measures only to make themselves look good, but there is actually a lot of research that shows some of these metrics can be very useful to market participants, analysts and investors.
How do you see your work impacting the business environment?
Looking at my stock repurchase research, I’m hoping that we can bring it to the attention of standard-setters, the Financial Accounting Standards Board in particular. The interesting thing is that a lot of these rules or norms were developed at a time when stock repurchase activity was severely restricted and, therefore, pretty trivial. But this is no longer the case. Companies now regularly distribute large sums to their shareholders through stock repurchases. Articles in the financial press often note that stock repurchases are breaking records, and some have wondered whether this activity is excessive. So, my hope is that our findings, together with the recognition that the environment has changed, would help motivate standard setters to at least reconsider the stock repurchase rules.