Digital Commons Network^™

Disclosure Overload? A Professional User Perspective On The Usefulness Of General Purpose Financial Statements*, Michael S. Drake, Jeffrey Hales, Lynn Rees

Faculty Publications

We survey a broad group of professionals who use financial statements as part of their job to assess the extent to which they believe financial reports suffer from disclosure overload. Consistent with the claims made by regulators, auditors, and preparers, we find that a significant portion of professional financial statement users believe disclosure overload is a problem. However, this group is in the minority, with about twice as many professional users believing that overload is not a problem and that more information should be disclosed in financial statements. This dichotomy presents a difficult challenge to standard setters aiming to improve …

The Role Of The Business Press In The Pricing Of Analysts’ Recommendation Revisions, Minkwan Ahn, Michael S. Drake, Hangsoo Kyung, Han Stice

Faculty Publications

We investigate the information-dissemination role of the business press by examining the coverage of analyst recommendation revisions. Consistent with the press providing wider dissemination of analyst reports, we find evidence that coverage of analyst recommendation revisions significantly increases the initial market reaction to these revisions and decreases the subsequent price drift. Furthermore, we find that news flash coverage, rather than in-depth coverage, of a recommendation revision drives both the initial market reaction results and drift results. Finally, we show that broader press coverage influences the activities of large-trade institutional investors but not highfrequency traders. Overall, our findings suggest a complementary …

Is There Information Content In Information Acquisition?, Michael S. Drake, Darren T. Roulstone, Bret A. Johnson, Jacob Thornock

Faculty Publications

In this study, we examine whether investors’ actions to acquire accounting information are predictive of future firm performance because these actions partially reveal investors’ private expectations of this performance. Using a database of EDGAR downloads, we find some evidence that information acquisition of accounting reports by EDGAR users is, on average, predictive of future firm performance. We then determine the identity of the EDGAR user and examine whether different users’ private expectations will be relatively more predictive of subsequent performance. We find that the information acquisition activities of more sophisticated institutional users (e.g., hedge funds, investment banks) are more strongly …

The Value Relevance Of Taxes: International Evidence On The Proxy For Profitability Role Of Tax Surprise, Jon Kerr

Faculty Publications

Despite evidence that tax surprise is incrementally value relevant, the literature has done little to broaden the investigation beyond the United States or examine circumstances that affect informativeness. After extending to the international setting, I examine the impact of tax enforcement. I report strong results of greater value relevance when tax enforcement is high and that the value relevance of tax surprise is mostly contained within its interaction with tax enforcement. These findings highlight the importance of tax enforcement in determining the information content of tax surprise and suggest that extant and future discussions should be broadened to include it.

Rank And File Equity Compensation And Earnings Management: Evidence From Stock Options, D. Kip Holderness Jr., Adrienna Huffman, Melissa F. Lewis-Western

Faculty Publications

The wide-spread use of rank and file equity-based compensation suggests that executives believe that rank and file employees can affect firm outcomes, and some research supports this view. If equity-based incentives influence rank and file employees’ productive efforts, they might also influence their earnings management decisions. We find that increases in rank and file employees’ option-based compensation—our proxy for equity-based compensation—are associated with increases in earnings management and that this relation is attributable to real activities (as opposed to accrual) earnings management. Cross-sectional tests indicate that the relation is stronger when rank and file option compensation is likely to generate …

Income Smoothing And The Usefulness Of Earnings For Monitoring In Debt Contracting, Peter Demerjian, John Donovan, Melissa F. Lewis-Western

Faculty Publications

We investigate whether income smoothing affects the usefulness of earnings for contracting through the monitoring role of earnings-based debt covenants. First, we examine initial contract design and predict that income smoothing will increase (decrease) the use of earnings-based covenants if income smoothing improves (reduces) the usefulness of earnings to monitor borrowers. We find that private debt contracts to borrowers with greater income smoothing are more likely to include earnings-based covenants. A structural model that explores the cause of this relationship provides evidence that smoothing improves the ability of earnings to reflect credit risk. Second, we examine technical default following contract …

Does Audit Committee Accounting Expertise Help To Promote Audit Quality? Evidence From Auditor Reporting Of Internal Control Weaknesses*, Ling Lei Lisic, Linda A. Myers, Timothy Seidel, Jian Zhou

Faculty Publications

In this study, we examine whether audit committee accounting expertise helps to promote audit quality by motivating auditors to conduct diligent internal control audits and make appropriate internal control assessments because audit committee accounting expertise safeguards auditors from dismissal following adverse internal control opinions. Among clients with existing and likely internal control material weaknesses (as proxied by future restatements of audited financial statements), we find a greater likelihood of adverse internal control audit opinions when the audit committee has greater accounting expertise (measured by the proportion of accounting experts on the audit committee). Among all clients, we find a lower …

Information Flows Among Rivals And Corporate Investment*, Darren Bernard, Terrence Blackburne, Jacob Thornock

Faculty Publications

Using a novel pairwise measure of firms’ acquisition of rivals’ disclosures, we show that investment opportunities drive interfirm information flows. We find that these flows predict subsequent mergers and acquisitions as well as how and how much firms invest, relative to rivals. Moreover, firms’ use of rivals’ information often hinges on the similarities of their products. Our results suggest that rivals’ public information, far from being unusable, helps facilitate investment and product decisions, including acquisitions and product differentiation strategies. The findings also support a learning mechanism that could partly underlie the emerging literature on peer investment effects.

Evaluating Theory Of Structured Experience Propositions: Effects Of Service Quality And Experience Industry Techniques On Quality Of Immediate Leisure Experiences, Gary D. Ellis, Andrew Lacanienta, Patti A. Freeman, Brian J. Hill

Faculty Publications

We tested two propositions of the Theory of Structured Experience: first, strategies used to structure experiences in the leisure industries elevate experience quality only when a threshold of service performance is met or exceeded; and second, positive relations exist among indicators of experience quality. Two teams of higher education tourists visited 23 attractions on three Hawaiian Islands. Immediately after each visit, team one (n = 4) judged the attractions based on service quality and experience structuring performance. Members of team two (n = 14) also reported the quality of their individual experiences after each visit by measuring the prevalence of …

Asset Allocation In Bankruptcy, Shai Bernstein, Emanuele Colonnelli, Benjamin Iverson

Faculty Publications

This paper investigates the consequences of liquidation and reorganization on the allocation and subsequent utilization of assets in bankruptcy. Using the random assignment of judges to bankruptcy cases as a natural experiment that forces some firms into liquidation, we find that the long-run utilization of assets of liquidated firms is lower relative to assets of reorganized firms. These effects are concentrated in thin markets with few potential users and in areas with low access to finance. These findings suggest that when search frictions are large, liquidation can lead to inefficient allocation of assets in bankruptcy.

To Link Or Not To Link? Multiple Team Membership And Unit Performance, Eean R. Crawford, Cody J. Reeves, Greg L. Stewart, Stacy L. Astrove

Faculty Publications

Multiple team membership is common in today’s team-based organizations, but little is known about its relationship with collective effectiveness across teams. We adopted a microfoundations framework utilizing existing individual- and team-level research to develop a higher-level perspective on multiple team membership’s relationship with performance of entire units of teams. We tested our predictions with data collected from 849 primary care units of the Veterans Health Administration serving over 4.2 million patients. In this context, we found multiple team membership is negatively associated with unit performance, and this negative relationship is exacerbated by task complexity.

Exoskeletons, Entrepreneurs, And Communities: A Process Model Of Opportunity Co-Construction, Stella K. Seyb, Dean A. Sheperd, Trenton Alma Williams

Faculty Publications

Exoskeletons represent a technological breakthrough that presents a diverse range of potential opportunities to overcome human physical limitations. Drawing on data from 16 exoskeleton prototypes, we develop a model of opportunity co-construction that involves mutual adjustment between the actions and beliefs of entrepreneurs and their communities of inquiry. Our study enhances our understanding of potential opportunities as dynamic entities that are (re)constructed as entrepreneurs and community members seek to resolve key tensions throughout the process. Specifically, we identify tensions relating to technological change, shifting power dynamics, and reduced visibility, and explain how actors seek to resolve those tensions through opportunity …

The Liquidity Cost Of Private Equity Investments: Evidence From Secondary Market Transactions, Taylor Nadauld, Berk A. Sensoy, Keith Vorkink, Michael S. Weisbach

Faculty Publications

This paper uses proprietary data from a leading intermediary to explain the magnitude and determinants of transaction costs in the secondary market for private equity stakes. Most transactions occur at a discount to net asset value. Buyers average an annualized public market equivalent of 1.023 compared with 0.976 for sellers, implying that buyers outper- form sellers by a market-adjusted 5 percentage points annually. Both the cross-sectional pattern of transaction costs and the identity of sellers and buyers suggest that the market is one in which relatively flexible buyers earn returns by supplying liquidity to investors wishing to exit.

Who Finances Durable Goods And Why It Matters: Captive Finance And The Coase Conjecture, Justin Murfin, Ryan Pratt

Faculty Publications

We propose that, by financing their own product sales through captive finance subsidiaries, durable goods manufacturers commit to higher resale values for their products in future periods. Using data on captive financing by the manufacturers of heavy equipment, we find that captive-backed models have lower price depreciation. The evidence is consistent with captive finance helping manufacturers commit to ex-post actions that support used machine prices. This, in turn, conveys higher pledgeability for captive-backed products, even for individual machines financed by banks. Although motivated as a rent-seeking device, captive financing generates positive spillovers by relaxing credit constraints.

The Fog Of Warnings: How Non-Essential Notifications Blur With Security Warnings, Anthony Vance, David Eargle, Jeffrey Jenkins, C. Brock Kirwan, Bonnie Brinton Anderson

Faculty Publications

Adherence to security warnings continues to be an important problem in information security. Although users may fail to heed a security warning for a variety of reasons, a major contributor is habituation, which is decreased response to repeated stimulation. However, the scope of this problem may actually be much broader than previously thought because of the neurobiological phenomenon of generalization. Whereas habituation describes a diminished response with repetitions of the same stimulus, generalization occurs when habituation to one stimulus carries over to other novel stimuli that are similar in appearance.

Generalization has important implications for the domains of usable security …

Understanding Unauthorized Access Using Fine-Grained Human-Computer Interaction Data, Michael D. Byrd, Jeffrey L. Jenkins, David Kim, Manasvi Kumar, Andrew W. Schwartz, Joseph S. Valacich, Parker A. Williams, Ryan T. Wright

Faculty Publications

Unauthorized Data Access (UDA) by an internal employee is a major threat to an organization. Regardless of whether the individuals engaged in UDA with malicious intent or not, real-time identification of UDA events and anomalous behaviors is extremely difficult. For example, various artificial intelligence methods for detecting insider threat UDA have become readily available; while useful, such methods rely on post hoc analysis of the past (e.g., unsupervised learning algorithms on access logs). This research-in-progress note reports on if the analysis of Human-Computer Interaction (HCI) behaviors, which have been empirically validated in various studies to reveal hidden cognitive state, can …

Cognitive Checkpoint: Emerging Technologies For Biometric-Enabled Watchlist Screening, Svetlana N. Yanushkevich, Kelly W. Sundberg, Nathan W. Twyman, Richard M. Guest, Vlad P. Shmerko

Faculty Publications

This paper revisits the problem of individual risk assessment in the layered security model. It contributes to the concept of balancing security and privacy via cognitive-centric machine called an ‘e-interviewer’. Cognitive checkpoint is a cyber-physical security frontier in masstransit hubs that provides an automated screening using all types of identity (attributed, biometric, and biographical) from both physical and virtual worlds. We investigate how the development of the next generation of watchlist for rapid screening impacts a sensitive balancing mechanism between security and privacy. We identify directions of such an impact, trends in watchlist technologies, and propose ways to mitigate the …

A Strategy Of Truth: Andreas Feininger And The Creation Of Propaganda For The Office Of War Information, 1942, James Swensen

Faculty Publications

In 1942 photographer Andreas Feininger travelled across the United States documenting war industries for the Office of War Information, a New Deal agency. In the midst of world war, Feininger’s straightforward photographs of plane production, copper mining, and other key industries were carefully crafted propaganda designed to combat German rhetoric and bolster public support and confidence in the war effort. Feininger’s style, an admixture of modernist ideas and social detachment, found resonance within US ideological efforts that stressed data and facts, and became known as the ‘Strategy of Truth’.

Embracing Wobble: Exploring Novice Teachers’ Efforts To Enact Dialogic Literacy Instruction, Trevor Thomas Stewart, Dawan Coombs, Bob Fecho, Todd Hawley

Faculty Publications

By mid-January, Leah (all names are pseudonyms), a first-year high school English teacher, recognized the need to provide more support for students struggling to meet state reading and writing standards. In spite of her efforts to support students’ literacy development by working from a dialogical stance that brings English content into dialogue with students’ lives (Fecho, 2011), some of her students were still not passing the statewide assessments. Leah shared her concerns with a veteran teacher who told her that he employed a remediation practice common at their school, which required students earning Ds or Fs to participate in additional …

Theory Of Experiential Career Exploration Technology (Tecet): Increasing Cybersecurity Career Interest Through Playable Case Studies, Justin Scott Giboney, Derek L. Hansen, Tanner Johnson, Desiree Winters, Jason K. Mcdonald, Jonathan Balzotti, Elizabeth Bonsignore

Faculty Publications

There is a large demand to fill cybersecurity jobs. To alleviate this need, it is important to generate interest in cybersecurity as a career. One way to do this is through job shadowing and internships. Using design science principles, we have built and tested a playable case study (PCS) where participants can act out a virtual internship and learn relevant cybersecurity skills. We ran a study with students in introductory university courses where they played through a simulated internship at a penetration testing company called CyberMatics. In the study we showed that a PCS format helps students 1) better understand …

An Empirical Study Of Service Recovery Quality And Customer Retention, Kristen Bell Detienne, Joan Westwood

Faculty Publications

This article proposes and empirically tests an original model of service recovery. Customer loyalty significantly impacts a company’s profitability. Customer satisfaction influences customer loyalty, and perceived recovery quality affects satisfaction. Surveys were mailed to 1,476 customers of a large financial services firm. This study examined how customers’ perceptions of the quality of service recovery efforts differs among customer groups. Customer groups were formed according to differing levels of post-recovery customer loyalty in order to study the impact of perceived service recovery quality on customer loyalty. The results of the study indicate that high- and low-loyalty customer groups differ in their …

“I Must Have Slipped Through The Cracks Somehow”: An Examination Of Coping With Perceived Impostorism And The Role Of Social Support, Richard G. Gardner, Jeffrey S. Bednar, Bryan W. Stewart, James B. Oldroyd, Joseph Moore

Faculty Publications

We use two studies to explore how individuals manage perceptions of impostorism as they train for their future careers. Drawing on interviews with 20 professionals in training, our qualitative analysis uncovered various tactics (both constructive and maladaptive) used by these individuals to cope with perceived impostorism. Among these tactics, seeking social support from individuals outside of their program peer group (e.g., professors, family, friends, and significant others) appeared to be more effective in dampening perceptions of impostorism than seeking support from peers within their program. We use Conservation of Resources Theory (COR) to develop testable hypotheses about this observed relationship …