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Articles 1 - 13 of 13
Full-Text Articles in Business
Contracting And Reporting Conservatism Around A Change In Fiduciary Duties, Daniel Bens, Sterling Huang, Liang Tan, Wan Wongsumwai
Contracting And Reporting Conservatism Around A Change In Fiduciary Duties, Daniel Bens, Sterling Huang, Liang Tan, Wan Wongsumwai
Research Collection School Of Accountancy
We exploit an influential 1991 Delaware court ruling to examine the impact of changes in managerial fiduciary duties on firms’ accounting and contracting choices. The ruling expanded directors’ fiduciary duties in favor of creditors and away from shareholders for a specific group of firms. Using a hand-collected sample of debt contracts around the ruling date, we find that, following the ruling, debt contracts of affected firms rely less on the use of income escalators (provisions in loan contracts which require changes in net worth to reflect losses in full, but only partially for gains and profits) and other conservative adjustments …
Gdp Growth Incentives And Earnings Management: Evidence From China, Xia Chen, Qiang Cheng, Ying Hao, Qiang Liu
Gdp Growth Incentives And Earnings Management: Evidence From China, Xia Chen, Qiang Cheng, Ying Hao, Qiang Liu
Research Collection School Of Accountancy
Using data from China, we examine whether and how the incentive to boost GDP growth at the government level affects earnings management at the firm level. We find that firms in provinces with GDP growth lower than the national level or the average of the adjacent provinces are more likely to engage in earnings management than firms in other provinces. Specifically, they are more likely to inflate revenues, overproduce, and delay asset impairment losses. The aggregate earnings management induced by GDP growth incentives accounts for about 0.5% of GDP. The results are stronger for local state-owned enterprises, in provinces with …
Cross-Country Differences In The Effect Of Political Connections On Stock Price Informativeness, Yuanto Kusnadi, Bin Srinidhi
Cross-Country Differences In The Effect Of Political Connections On Stock Price Informativeness, Yuanto Kusnadi, Bin Srinidhi
Research Collection School Of Accountancy
Using an international sample of firms from 28 countries, we document that there exists a negative relationship between political connections and the informativeness of stock price, as measured by idiosyncratic volatility (IV). This finding is robust to alternative regression specifications, sub-samples analyses, and concerns related to endogeneity. A more detailed analysis shows that out of the different types of possible connections, the connectedness of the owners is the primary driver of this result. Further, the negative association is only significant for firms in countries characterized by low institutional quality (corrupted countries, countries with low access to external equity markets, and …
Discretionary Dissemination On Twitter, Richard M. Crowley, Wenli Huang, Hai Lu
Discretionary Dissemination On Twitter, Richard M. Crowley, Wenli Huang, Hai Lu
Research Collection School Of Accountancy
Using an unsupervised machine learning approach to analyze 12.8 million tweets posted by S&P 1500 firms from 2012 to 2016, we find that firms tweet more financial information around significantly negative or positive earnings announcements or accounting filings. Specifically, we observe a symmetric U-shaped relation between the number of financial tweets and the materiality of accounting information events. This relation is consistent with the theoretical prediction in Hummel et al. (2018) which assumes that managers are sensitive to their firm’s fundamental value. We document that this relation also holds for hyperlink usage in tweets about financial information around important events, …
Differences In The Reliability Of Fair Value Hierarchy Measurements: A Cross-Country Study, Chu Yeong Lim, Gary Pan, Kevin Ow Yong
Differences In The Reliability Of Fair Value Hierarchy Measurements: A Cross-Country Study, Chu Yeong Lim, Gary Pan, Kevin Ow Yong
Research Collection School Of Accountancy
Prior research suggests there are significant differences in how investors perceive the reliability of fair values. An unaddressed question in this stream of research is whether cross-country differences in institutional factors can mediate differences in reliability for the fair value hierarchy measurements. We contribute to the research on fair value accounting by examining the impact of institutional factors toward the perceived reliability of fair value measurements in an international context. Based on an international sample of banks across twenty different countries, we find that the probability of crash risk is lower among countries with better financial development infrastructure, greater level …
Does Media Exposure Affect Financial Reporting Quality Through Auditors?, Steven F. Cahan, Chen Chen, Rencheng Wang
Does Media Exposure Affect Financial Reporting Quality Through Auditors?, Steven F. Cahan, Chen Chen, Rencheng Wang
Research Collection School Of Accountancy
We examine whether the media has an indirect corporate governance effect on financial reporting quality (FRQ) that operates through auditors. This occurs because greater media coverage can magnify an auditor's business risk by exposing the auditor to more potential litigation and reputation damage if an audit failure occurs. We use a path analysis to examine the direct and indirect channels of media corporate governance. We find a positive association between media coverage and FRQ that is mediated by audit fees, and the results are stronger for firms with greater incentives to engage in earnings manipulation. In contrast, we find no …
Short Sellers And Long‐Run Management Forecasts, Xia Chen, Qiang Cheng, Ting Luo, Heng Yue
Short Sellers And Long‐Run Management Forecasts, Xia Chen, Qiang Cheng, Ting Luo, Heng Yue
Research Collection School Of Accountancy
We examine how short sellers affect long‐run management forecasts using a natural experiment (Regulation SHO) that relaxes short‐selling constraints on a group of randomly selected firms (referred to as pilot firms). We find that compared to other firms, the pilot firms issue more long‐run good news forecasts but do not change the frequency of long‐run bad news forecasts. The increase in good news forecasts is greater when the pilot firms have higher quality forecasts, greater uncertainty about firm value, or higher manager equity incentives. Overall, these results and the results of additional analyses indicate that the reduction in short‐selling constraints …
Cfos Play Crucial Role In Surviving Covid-19 Crisis, Themin Suwardy
Cfos Play Crucial Role In Surviving Covid-19 Crisis, Themin Suwardy
Research Collection School Of Accountancy
In recent years, chief financial officers (CFOs) have been called upon to do many things. They have stepped beyond their traditional technical finance functions, embracing technology and innovations to partner chief executive officers (CEOs) and boards on strategic issues. But if asked at the end of 2019, probably no CFO would place "managing through a global pandemic and economic crisis at the same time" among their top five things to do in 2020. Like many others, CFOs are being asked to do even more in a very short timeframe.
Does Litigation Deter Or Encourage Real Earnings Management, Sterling Huang, Sugata Roychowdhury, Ewa Sletten
Does Litigation Deter Or Encourage Real Earnings Management, Sterling Huang, Sugata Roychowdhury, Ewa Sletten
Research Collection School Of Accountancy
In this paper, we rely on an exogenous shock to examine the impact of litigation risk on real earnings management (REM). We conduct differences-in-differences tests centered on an unanticipated court ruling that reduced litigation risk for firms headquartered in the Ninth Circuit. REM increases significantly following the ruling for Ninth-Circuit firms relative to other firms, consistent with litigation risk deterring REM. Additional analyses reveal that REM rises more following the ruling when firms issue more optimistic disclosures. The evidence is consistent with litigation deterring REM by constraining managers' ability to issue optimistic and misleading disclosures that can conceal the myopic …
What Are You Saying? Using Topic To Detect Financial Misreporting, Nerissa C. Brown, Richard M. Crowley, W. Brooke Elliott
What Are You Saying? Using Topic To Detect Financial Misreporting, Nerissa C. Brown, Richard M. Crowley, W. Brooke Elliott
Research Collection School Of Accountancy
We use a machine learning technique to assess whether the thematic content of financial statement disclosures (labeled topic) is incrementally informative in predicting intentional misreporting. Using a Bayesian topic modeling algorithm, we determine and empirically quantify the topic content of a large collection of 10‐K narratives spanning 1994 to 2012. We find that the algorithm produces a valid set of semantically meaningful topics that predict financial misreporting, based on samples of Securities and Exchange Commission (SEC) enforcement actions (Accounting and Auditing Enforcement Releases [AAERs]) and irregularities identified from financial restatements and 10‐K filing amendments. Our out‐of‐sample tests indicate that topic …
Family Entrenchment And Internal Control: Evidence From S&P 1500 Firms, Xia Chen, Mei Feng, Chan Li
Family Entrenchment And Internal Control: Evidence From S&P 1500 Firms, Xia Chen, Mei Feng, Chan Li
Research Collection School Of Accountancy
We examine whether family owners exploit internal control weaknesses for entrenchment purposes and whether the public disclosure requirement under SOX 404 helps alleviate this entrenchment. We find supportive evidence for both questions. In the initial years of SOX 404 implementation (2004 and 2005), ineffective internal control in family CEO firms is more conducive to entrenchment - measured by the occurrence of misstatements, frauds, and related party transactions - than ineffective internal control in nonfamily firms is. With the public disclosure requirement of SOX 404 in place, family CEO firms are more likely to remediate internal control weaknesses, and the resulting …
An Illustrative Explanation Of Changes In Ownership Interests, Pearl Hock-Neo Tan
An Illustrative Explanation Of Changes In Ownership Interests, Pearl Hock-Neo Tan
Research Collection School Of Accountancy
The ISCA Breakfast Talk on January 15 brought together 94 members to hear from Dr Pearl Tan, Associate Professor (Education), Singapore Management University. Dr Tan explained and illustrated the principles behind the accounting for changes in ownership interests with and without change in control, in Financial Reporting Standard (FRS) 103 Business Combinations and FRS 110 Consolidated Financial Statements. Although the standards are not new, she emphasised that clarity in their principles is essential in group reporting.
Information Externalities And Voluntary Disclosure: Evidence From A Major Customer’S Earnings Announcement, Young Jun Cho, Yongtae Kim, Yoonseok Zang
Information Externalities And Voluntary Disclosure: Evidence From A Major Customer’S Earnings Announcement, Young Jun Cho, Yongtae Kim, Yoonseok Zang
Research Collection School Of Accountancy
We examine the relation between information externalities along the supply chain and voluntary disclosure. Information transfers from a major customer's earnings announcement (EA) can substitute for its supplier's disclosure. Conversely, if the customer's EA increases uncertainties regarding the supplier's future prospects, it can increase the demand for disclosure. After controlling for information incorporated in supplier returns, we find that the supplier is more likely to issue earnings guidance after the customer's EA when the EA news deviates more from the market's expectation. The positive effect of the customer's news on earnings guidance is weaker when common investors, supply-chain analysts, or …