Business Commons^™

Esg Reporting Divergence, Qiang Cheng, Yun Lou, Mengjie Yang

Research Collection School Of Accountancy

In this paper, we provide the first large-sample empirical analysis of the consequences of ESG reporting divergence among U.S. firms. We construct and validate an ESG reporting divergence measure based on the dissimilarities in ESG reporting across firms. Validation tests confirm that it is lower for firm-pairs using the same ESG reporting framework, with similar size, and with similar ESG performance than for other firm-pairs. We find that ESG reporting divergence is positively associated with ESG rating disagreement and weakens the positive association between ESG ratings and ESG fund allocation. These results indicate that ESG reporting divergence reduces the usefulness …

The Great Sell-Side Sell-Off: Evidence Of Declining Financial Analyst Coverage, Barry Hettler, Justyna Skomra, Arno Forst

School of Accountancy Faculty Publications and Presentations

Purpose

Motivated by significant global developments affecting the sell-side industry, in particular a shift toward passive investments and growing regulation, this study examines whether financial analyst coverage declined over the past decade and if any loss of analyst coverage is associated with a change in forecast accuracy.

Design/methodology/approach

After investigating, and confirming, a general decline in analyst following, the authors calculate the loss of analyst coverage relative to the firm-specific maximum between 2009 and 2013. In multivariate analyses, the authors then examine whether this loss of coverage differs across geographic region, firm size and capital market development, and whether it …

Public Opinion Of The Sec’S Proposal For Mandatory Climate Disclosures, Isaac Blanchette

Honors Theses and Capstones

In 2022, the Security and Exchange Commission created a proposal that would make climate risk disclosures mandatory for publicly traded companies. This paper aims to understand how Congress is likely to vote on the proposal as well as how students at the University of New Hampshire perceive the proposal. Using publicly available comment letters made by members of Congress in response to the proposal and extrapolating the responses of the other representatives, it is unlikely that the proposal will have enough support to be ratified. However, a survey conducted with students at the University of New Hampshire showed that the …

Disclosure Regulation: Past, Present, And Future, S.P. Kothari, Liandong Zhang

Research Collection School Of Accountancy

This monograph provides an overview of the theories of disclosure regulation and recent developments in the disclosure regulation literature. We organize our discussion around three basic questions. First, why do we need to regulate corporate disclosure in the financial market? Second, which theories explain the current state of disclosure regulation? Third, what are the economic consequences of disclosure regulation? In exploring the third question, we discuss several examples of disclosure regulation related to information production, dissemination, and presentation. Then, we provide an overview of the current debate on mandating environmental, social and governance (ESG) disclosure and reporting. Finally, we conclude …

A Study Of Public Accounting And Related Economic Concepts, Seth Gerus

Honors Theses

This thesis consists of several case studies relating to different topics within the world of accounting. These cases were completed as assignments within the thesis practicum class taught by Dr. Victoria Dickinson. Each case pertains to a different accounting-related topic, and topics include the fundamentals of accounting as well as recent events in the business world. The thesis also includes a five-week long case competition in which students were put into groups to present Audit, Tax, and Advisory strategies for companies headquartered in the United States. Each of these cases were completed during the course of the Fall 2020 and …

Non-Gaap Earnings And Stock Price Crash Risk, Charles Hsu, Rencheng Wang, Benjamin C. Whipple

Research Collection School Of Accountancy

We investigate whether non-GAAP earnings disclosures increase stock price crash risk. Consistent with non-GAAP disclosures allowing managers to inflate investors’ perceptions about firm performance, our results indicate that income increasing non-GAAP reporting increases crash risk. We also find that managers can use non-GAAP reporting as a substitute for earnings management to withhold bad news from investors (the traditional explanation for crashes). Finally, we find a positive association between non-GAAP reporting and the likelihood of subsequent events that can trigger a crash. Overall, our evidence is consistent with some non-GAAP disclosures exposing investors to risks of large and sudden price declines.

Insider Trading Enforcement And The Private Information Environment: Evidence From The Newman Ruling, Andrew T. Pierce

Graduate Theses and Dissertations

I exploit a shock to U.S. insider trading law to investigate whether a reduction in the enforceability of tipper-tippee insider trading restrictions leads to changes in information parity among investors and the efficiency of price discovery. The December 2014 Federal Second Circuit Court of Appeals ruling in US v. Newman constrained enforcement by restricting the types of exchanges between managers and investors that trigger tipper-tippee insider trading liability. Following Newman, I find that Second Circuit hedge funds experienced a significant increase in their stock picking ability of Second Circuit stocks in terms of preempting future earnings announcement returns and future …

Consequences Of Disclosing Clinical Trial Results: Evidence From The Food And Drug Administration Amendments Act, Thomas Borveau, Vedran Capkun, Yin Wang

Research Collection School Of Accountancy

We examine how the U.S. Food and Drug Administration Amendments Act (FDAAA) of 2007, which requires additional disclosures regarding clinical trial results, impacts information asymmetry between the disclosing pharmaceutical firm and capital market participants, the general public, academics, and practitioners. We document a reduction in information asymmetry in capital markets. We also document an increase in adverse event and product problem complaint reports filed against the pharmaceutical firms to the FDA and a higher number of drug and medical device recalls for affected firms after the FDAAA enactment. Finally, cross-sectional analyses suggest that the increase in FDA complaint reports and …

(When) Does Transparency Hurt Liquidity?, Karthik Balakrishnan, Aytekin Ertan, Yun Je Lee

Research Collection School Of Accountancy

Conventional wisdom suggests that increases in public information improve market liquidity. However, if greater public information incentivizes only sophisticated investors to produce private information, it could exacerbate information asymmetry among investors and thus reduce liquidity. We explore this argument on a sample of mortgage-backed securities (MBSs) by using a recent European regulation that mandates complex disclosures about the individual loans underlying MBSs. We find that the liquidity of the debt tranches of disclosed MBSs declines by 23% post-regulation. Our inferences are stronger when the securities are harder to value and when the disparity in investor sophistication is higher. In contrast …

Accounting Enforcement In A National Context: An International Study, Gary Kleinman, Beixin Lin, Rebecca Bloch

Department of Accounting and Finance Faculty Scholarship and Creative Works

The purpose of this study is to investigate whether the national characteristics of culture, religion and political factionalization are associated with the strength of accounting enforcement. The study uses data on percentages of religious adherents in a sample nation, the Hofstede cultural dimensions and political factionalization. National legal code (e.g., Common Law or Civic Code) and market liquidity are controlled for. Factor analysis is used to generate factor scores from the data. The dependent variable, accounting enforcement, is drawn from Brown et al. (J Bus Finance Account 41(1/2):1–52, 2014). The findings demonstrate that this set of national characteristics is strongly …

The Observer Effect And U.S. Accounting Rules, Thomas A. King

Engaged Management ReView

This inductive study evaluates how accounting rules promulgated by U.S. standard setters evolved over a century. Archival data viewed through the lens of the observer effect -- where the act of observation influences the subject -- reveals long-term patterns of behavior. Interaction of rule makers and followers suggests three generalizations: rule sets grow, codification accelerates rule set growth, and interaction between regulators and those who are regulated confounds predictions about possible consequences of new rules. In other words, this system has never reached equilibrium despite one hundred years of effort to constrain behavior. As unchecked rule growth risks costly compliance …

Audit Regulation In An International Setting: Testing The Impact Of Religion, Culture, Market Factors, And Legal Code On National Regulatory Efforts, Gary Kleinman, Beixin Lin

Department of Accounting and Finance Faculty Scholarship and Creative Works

Assuring the quality of international auditing is important in the current, globalized business/economic environment. High-quality international auditing efforts promote greater confidence in financial statements, and therefore promote greater movement of capital. Ensuring high-quality auditing efforts is the task of auditing regulation efforts, among others. Several potential determinants of the strength of these efforts were postulated in Kleinman et al (2014). The postulated determinants of interest include national culture, religion, legal code origin, and financial market liquidity. The authors, however, did not test the relationship of the postulated determinants to auditing enforcement efforts. This study undertakes the task of investigating such …

The Paradoxes Of Risk Management In The Banking Sector, Chu Yeong Lim, Margaret Woods, Christopher Humphrey, Jean Lin Seow

Research Collection School of Accountancy

This paper uses empirical evidence to examine the operational dynamics and paradoxical nature of risk management systems in the banking sector. It demonstrates how a core paradox of market versus regulatory demands and an accompanying variety of performance, learning and belonging paradoxes underlie evident tensions in the interaction between front and back office staff in banks. Organisational responses to such paradoxes are found to range from passive to proactive, reflecting differing organisational, departmental and individual risk culture(s), and performance management systems. Nonetheless, a common feature of regulatory initiatives designed to secure a more structurally independent risk management function is that …

Bitcoin: Currency Of The Future Or Investment Property, Kelly Y. Yu

Undergraduate Honors Theses

We live in a digital age where almost every aspect of our lives is based on computerized information. In 2009, currency became digital in the form of Bitcoin. The existence of Bitcoin has brought a variety of obstacles to government agencies and regulators. Specifically, the Internal Revenue Service (IRS) has been debating the treatment of virtual currencies such as Bitcoin for tax reporting purposes. In March 2014, the IRS issued a notice classifying Bitcoin and other convertible virtual currencies as investment property, similar to stocks and bonds. The notice from the IRS provoked outrage from the Bitcoin community. This project …

Executive Compensation And Regulation Imposed Governance: Evidence From The California Non-Profit Integrity Act (2004), Sandip Dhole, Saleha B. Khumawala, Sagarika Mishra, Tharindra Ranasinghe

Research Collection School Of Accountancy

This study examines the impact of the California Nonprofit Integrity Act of 2004 on CEO compensation costs in affected organizations. Contrary to the stated objective of the Act that executive compensation is “just and reasonable,” we find that CEO compensation costs for affected nonprofits during the post-regulation periods have increased by about 6.3 percent when compared with a control group of comparable unaffected nonprofits. In addition, the relative increase in CEO compensation appears to come from nonprofits that have experienced greater regulatory cost increases. We do not find evidence that the Act resulted in a change in CEO pay performance …

An Effectiveness Review Of Section 404 Of The Sarbanes Oxley Act (2002), Christopher Francis Morelli

Honors Theses and Capstones

The accounting scandals that occurred in the early 2000s launched the current day regulations set fourth in the Sarbanes Oxley Act. The Sarbanes Oxley Act is comprised of several titles, all aimed to help eliminate financial accounting errors and the potential of fraud. Within this piece of legislation, there is one section that has created a lot of discussion. Section 404, which discusses the way in which disclosures of internal control deficiencies are handled, is the topic of this paper. In addition to a literature review of a research paper written by Sarah Rice and David Weber, this paper will …

The Effect Of Regulation On Statement Disclosures In The 1915 Moody's Manuals, Jeffrey Archambault, Marie Archambault

Jeffrey Archambault

United States firms in the early 20th century were subject to public and private regulation. Forms of regulation included rate regulation and stock exchange listing requirements. These regulations created incentives to report income statement information. This study utilizes the 1915 Moody’s Analyses of Investments to test whether regulated firms in the United States reported more income statement information than unregulated firms. Rate regulation influenced utilities to report income statements more frequently than industrial companies.

Stock market listing requirements also influenced the reporting of income statements. Therefore, the results indicate that both public and private regulations influenced financial reporting in the …

The Effect Of Regulation On Statement Disclosures In The 1915 Moody's Manuals, Jeffrey Archambault, Marie E. Archambault

Marie E. Archambault

United States firms in the early 20th century were subject to public and private regulation. Forms of regulation included rate regulation and stock exchange listing requirements. These regulations created incentives to report income statement information. This study utilizes the 1915 Moody’s Analyses of Investments to test whether regulated firms in the United States reported more income statement information than unregulated firms. Rate regulation influenced utilities to report income statements more frequently than industrial companies. Stock market listing requirements also influenced the reporting of income statements. Therefore, the results indicate that both public and private regulations influenced financial reporting in the …

Essays On Non-Gaap Earnings Disclosure, Hangsoo Kyung

Dissertations, Theses, and Capstone Projects

Essay1: The U.S. Securities and Exchange Commission (SEC) issued new Compliance and Disclosure Interpretations (CDI) in 2010, relaxing enforcement of Regulation G and Regulation S-K. The nonbinding nature and opaque procedures behind interpretive guidance cast doubt as to whether SEC staff interpretations changed a firm's voluntary disclosure. In this paper, I find that firms more frequently disclose non-GAAP earnings after the issuance of new CDI, suggesting that nonbinding SEC staff interpretations influence corporate disclosure practice. Compared to the pre-CDI period, non-GAAP exclusions are of higher quality in the post-CDI period. The exclusion quality of firms who started to disclose non-GAAP …

Audit Quality: A Cross-National Comparison Of Audit Regulatory Regimes, Gary Kleinman, Beixin Lin, Dan Palmon

Department of Accounting and Finance Faculty Scholarship and Creative Works

The importance of fostering more accurate audits has been heightened by a series of highprofile accounting scandals at the beginning of the millennium. These scandals prompted more stringent regulations over corporate governance and financial reporting and the creation of audit oversight bodies as the Public Company Accounting Oversight Board (PCAOB) in the United States and the Public Oversight Board (POB) in the United Kingdom. In parallel, the growing globalization of business has brought forth calls for adherence to a common set of International Financial Reporting Standards (IFRS). Even if a common standard is promulgated, it will not lead to similar …

Economic Effects Of Sox Section 404 Compliance: A Corporate Insider Perspective, Cindy Alexander, Scott Bauguess, Gennaro Bernile, Alex Lee, Jennifer Marietta-Westberg

Research Collection Lee Kong Chian School Of Business

We use survey responses from 2,901 corporate insiders to assess the costs and benefits of compliance with Section 404 of the Sarbanes-Oxley Act. The majority of respondents recognize compliance benefits, but they do not perceive these benefits to outweigh the costs, on average. This is particularly true among smaller companies where the start-up costs are proportionately larger. However, the perceived efficiency of compliance increases with auditor attestations, years of compliance experience, and after the remediation of a material weakness. Notably, the perceived effects of compliance depend largely on firm complexity, but are mostly unrelated to firm governance structure.

Financial Reporting And Regulation In A World Of Financial Engineering: Accounting And The Global Financial Crisis., Shyam Sunder

Shyam Sunder

No abstract provided.

Financial Reporting And Regulation In A World Of Financial Engineering: Accounting And The Global Financial Crisis, Shyam Sunder

Shyam Sunder

No abstract provided.

Does Regulatory Scrutiny Change Investment Behavior? Evidence Of Suboptimal Portfolio Rebalancing After The Financial Crisis, Willie Dion Reddic

Business Administration - Dissertations

Insurers that show losses are expected to sell tax-free securities and replace them with taxable securities since they can no longer benefit from tax savings. However, rebalancing these portfolios after the financial crisis would entail recognizing additional losses during a time period when their financial performance was under stress and their industry was under increased scrutiny. I examine portfolio rebalancing behavior using the period after the financial crisis as a proxy for increased regulatory scrutiny. I predict and find that insurers with losses subsequent to the financial crisis were less likely to increase their ratio of taxable/nontaxable securities. Insurers may …

Are Corporate Governance Recommendations Relevant For Small Companies?, Jacqueline Christensen, Pamela Kent, James Routledge, Jenny Stewart

James Routledge

This study examines the extent to which small listed companies in Australia comply with the Australian Securities Exchange corporate governance recommendations, and whether applying these recommendations is associated with benefits in terms of performance and accountability. The results indicate that many small listed companies comply with the recommendations, although the benefits to these companies from doing so appear to be low. We do not find evidence of a positive association between small company compliance with recommendations regarding board independence, diligence and formation of an audit committee and performance. However, we find that compliance with the recommendation against having a dual …

Are Corporate Governance Recommendations Relevant For Small Companies?, Jacqueline Christensen, Pamela Kent, James Routledge, Jenny Stewart

Pamela Kent

This study examines the extent to which small listed companies in Australia comply with the Australian Securities Exchange corporate governance recommendations, and whether applying these recommendations is associated with benefits in terms of performance and accountability. The results indicate that many small listed companies comply with the recommendations, although the benefits to these companies from doing so appear to be low. We do not find evidence of a positive association between small company compliance with recommendations regarding board independence, diligence and formation of an audit committee and performance. However, we find that compliance with the recommendation against having a dual …

The Decision To Outsource Risk Management Activities, Jacqueline Christensen, Pamela Kent

Pamela Kent

This study uses transaction cost economics (TCE) to identify factors influencing Australian Securities Exchange (ASX) companies’ decision to internally generate or outsource activities required to manage risk. Limited research has been conducted applying TCE in a risk management context with most in the accounting discipline concentrating on internal audit. Increasing our understanding of risk management practices benefits organisations, accounting professionals and regulators concerned with governance practice. Using a unique data set obtained from a survey sample of 271 listed ASX companies in 2009 combined with archival data hypotheses are operationalised and analysed using multivariate and logistic regression. Broadly in line …

Conflict Of Interest Reforms And Analysts’ Research Biases, Hai Lu, Hai Lu, Yuyan Guan

Research Collection School Of Accountancy

This study examines the consequences of the series of reforms targeting investment-banking-related conflicts of interest. We compare and contrast optimism biases in analysts’ stock recommendations and earnings forecasts across different types of analyst firms in the post-reform period 2004–2007 versus the pre-reform period 1998–2001. We document a significant reduction in the relative optimism of sanctioned investment bank analysts’ stock recommendations, but not their earnings forecasts. Moreover, we find little change in the profitability of their stock recommendations, but detect a drop in the accuracy of earnings forecasts made by investment bank analysts. In sum, the reforms achieve the objective of …

Regulation Of Accounting, Shyam Sunder

Shyam Sunder

No abstract provided.

Are Regulatory Mandate And Independence Necessary For Audit Quality?, Shyam Sunder, Karim Jamal

Shyam Sunder