Business Commons^™

Living Up To Your Codes? Corporate Codes Of Ethics And The Cost Of Equity Capital, Hong Kim Duong, Marco Fasan, Giorgio Gotti

School of Accountancy Faculty Publications and Presentations

Purpose

Previous literature provides mixed evidence about the effectiveness of a code of ethics in limiting managerial opportunism. While some studies find that code of ethics is merely window-dressing, others find that they do influence managers' behavior. The present study investigates whether the quality of a code of ethics decreases the cost of equity by limiting managerial opportunism.

Design/methodology/approach

In order to test the hypothesis, the authors perform an empirical analysis on a sample of US companies in the 2004–2012 period. The results are robust to a battery of robustness analyses that the authors performed in order to take care …

Media As Other Information For Fundamental Valuation, Jiajia Fu, Jingran Zhao

School of Accountancy Faculty Publications and Presentations

The media is an important information intermediary. We investigate the informational role of the media by examining whether media content, measured by the sentiment of news articles, contains information about a firm’s fundamental value beyond that conveyed in earnings, book value, and analyst forecasts. We show that incorporating media content into Ohlson’s (1995) residual income model generally improves its ability to predict future residual income, explain current stock prices, and predict future stock prices. Our results are strengthened when media coverage is higher and when media sentiment is more dispersed

Excess Insider Control And Corporate Social Responsibility: Evidence From Dual-Class Firms, Barry Hettler, Arno Forst, James Cordeiro, Stacy Chavez

School of Accountancy Faculty Publications and Presentations

We investigate the corporate social responsibility (CSR) performance of firms with a dual-class share structure. Dual-class firms, which represent a fast-growing segment of the U.S. capital market, violate the "one share, one vote" principle by giving corporate insiders control in excess of their economic interest in the firm. We observe a negative association of excess insider control and firms’ CSR performance, primarily with respect to the community- and employee-related dimensions of CSR. Extended analyses reveal that this negative association is mitigated by high financial resource availability. Consistent with a trade-off between corporate spending on CSR or on benefits for insiders, …

The Contagion Effect Of Compensation Regulation: Evidence From China, Jun Shao, Haiyan Zhou, Na Gong, Junzi Zhang

School of Accountancy Faculty Publications and Presentations

To shed light on whether and how firms changed compensation practices in response to a shift in the environment in which they operated, we examine whether there is contagion effect of executive compensation regulation on state-owned enterprises (SOEs) in the emerging market of China. Specifically, we investigate whether firms not directly affected by the changing regulatory environment nonetheless changed executive compensation in response to the actions of the directly affected firms, which is called contagion effect. We further examine the specific contagion mechanisms and the economic consequences of regulation on compensation. We find that the regulation has a significant effect …

The Power Of Unrequited Love: The Parasocial Relationship, Trust, And Organizational Identification Between Middle-Level Managers And Ceos, Youliang Liao, Bin Lin, Haiyan Zhou, Xi Yang

School of Accountancy Faculty Publications and Presentations

Previous studies have found that CEOs manage their firms through traditional methods such as leadership and management practices. In this study, we investigate how the parasocial relationship (PSR) between middle-level managers and CEOs affects the organizational trust and the organizational identification (OI) of middle managers. We find that the PSR between middle managers and CEOs has a positive effect on the OI of middle managers, which is mediated by the organizational trust of middle managers.

Purpose: Middle managers and CEOs are the key components of a firm and are crucial to firm strategies and control systems. Middle managers play a …

Do The Specific Countries In Which A Multinational Corporation Operates Affect Its Private Loan Contracts?, Brandon Ater, Bowe Hansen

School of Accountancy Faculty Publications and Presentations

Previous research has shown that higher levels of firm globalization lead to a lower cost of private debt. However, this research generally treats globalization as a homogeneous attribute ignoring the specific countries in which a multinational corporation (MNC) operates. Using a sample of U.S. MNCs from 1999 through 2017, we relax this assumption and find that while the results from prior research hold with regards to the level of an MNC’s operations in segments reported at the regional or continent-wide level, the level of an MNC’s operations in countries with low institutional quality is associated with a higher cost of …

Language In Economics And Accounting Research: The Role Of Linguistic History, Giorgio Gotti, Seán G. Roberts, Marco Fasan, Cole B. J. Robertson

School of Accountancy Faculty Publications and Presentations

This paper investigates whether a consideration of linguistic history is important when studying the relationship between economic and linguistic behaviors. Several recent economic studies have suggested that differences between languages can affect the way people think and behave (linguistic relativity or Sapir–Whorf hypothesis). For example, the way a language obliges one to talk about the future might influence intertemporal decisions, such as a company’s earnings management. However, languages have historical relations that lead to shared features—they do not constitute independent observations. This can inflate correlations between variables if not dealt with appropriately (Galton’s problem). We discuss this problem …

How Many Simultaneous Audit Committee Memberships Are Too Many?, Jimmy Carmenate, Cori O. Crews, Vineeta D. Sharma, John R. Sparger

School of Accountancy Faculty Publications and Presentations

Recent research by Sharma, Sharma, Tanyi, and Cheng (2020) provides new insight into directors serving on multiple public company audit committees. Specifically, they investigate how an individual audit committee director serving on multiple audit committees is related to companies’ cost of equity capital. Their evidence suggests that serving on multiple audit committees is viewed positively by investors up to a certain point, but beyond that point investors become concerned. This turning point, on average, is 3.5 audit committees for retired directors and 1.5 audit committees for directors in full-time employment. These results have implications for numerous stakeholders including investors, proxy …