Business Commons^™

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 …

Estimating Financial Information Asymmetry In Real Estate Transactions In China: An Application Of Two-Tier Frontier Model, Ganlin Pu, Ying Zhang, Li-Chen Chou

Research Collection School Of Computing and Information Systems

This study applies the two-tier stochastic frontier model to estimate the distribution of housing transaction information in Hangzhou, Wenzhou, Ningbo, and Jinhua (four cities in Zhejiang Province, China) during the year 2018, to analyze the difference in the price information acquired by the buyers and sellers in the transaction, and the effect of information asymmetry on the transaction price. The empirical results show that in each city, during the housing transaction process, the supplier has more complete information about house prices than consumers, and can therefore implement price discrimination strategies in setting service prices. Due to the disadvantage in acquired …

The First Sign: Detecting Future Financial Fraud From The Ipo Prospectus, Lisa Spadaccini Anderson

Graduate Theses and Dissertations

In this study, I examine whether it is possible to predict future financial statement fraud using disclosure content prior to the fraud. Specifically, I employ a machine learning algorithm to construct a unique measure based on the lexical cues embedded within a firm’s first public disclosure, the Management’s Discussion and Analysis section of the S-1 filing, during the Initial Public Offering process. I use this measure to predict whether a firm that is not already committing fraud will commit fraud within five years of the Initial Public Offering (IPO) that results in an Accounting or Enforcement Release (AAER). I find …

Essays On Information Asymmetry And Leakage, Jun Hyun (Joseph) Ryoo

Electronic Thesis and Dissertation Repository

Since the underlying qualities of products and firms are not readily apparent, information asymmetry exists at the heart of marketing. This dissertation investigates information asymmetry that is present specifically between: (1) firms and consumers, and (2) firms and investors. I advance our knowledge of how information asymmetry can be reduced in beneficial ways for the firm either by voluntary or involuntary means. This dissertation consists of two essays. In Essay 1, I examine involuntary information leakage in the movie industry. I find that spoilers, which prematurely resolve plot uncertainty for those who have yet to see the movie, can increase …

Buying Products From Whom You Know: Personal Connections And Information Asymmetry In Supply Chain Relationships, Ting Chen, Hagit Levy, Xiumin Martin, Ron Shalev

Publications and Research

This study investigates the role personal connections play in a crucial element of the supply chain—supplier selection. We find that the likelihood that a potential supplier (hereafter, a vendor) is selected to be an actual supplier (hereafter, supplier) increases when personal connections between executives of the vendor and the customer exist. The magnitude of the effect varies predictably across management ranks and positions and is stronger when information asymmetries between a vendor and a customer are high. Conditioning on the existence of a supply-chain partnership, a departure of a personally connected executive prompts the termination of the supply-chain relationship more …

Does Corporate Eco-Innovation Affect Stock Price Crash Risk?, Rashid Zaman, Nader Atawnah, Muhammad Haseeb, Muhammad Nadeem, Saadia Irfan

Research outputs 2014 to 2021

We examine the effect of corporate environmental innovation (hereafter eco-innovation) on stock price crash risk and document a significant negative association. Utilising a large sample of publicly listed U.S. firms for the period 2003 to 2017, we find that an increase in eco-innovation from the 25th to the 75th percentile is associated with 17.62% reduction in stock price crash risk. This outcome remains robust to a variety of sensitivity tests and after accounting for potential endogeneity concerns. Eco-innovative firms attract more institutional investors and equity analyst following and disclose more information leading to lower stock price crash risk. Additional tests …

Sustainability Of Rewards-Based Crowdfunding: A Quasi-Experimental Analysis Of Funding Targets And Backer Satisfaction, Michael Wessel, Rob Gleasure, Robert John Kauffman

Research Collection School Of Computing and Information Systems

Rewards-based crowdfunding presents an information asymmetry for participants due to the funding mechanism used. Campaign-backers trust creators to complete projects and deliver rewards as outlined prior to the fundraising process, but creators may discover better opportunities as they progress with a project. Despite this, the all-or-nothing (AON) mechanism on crowdfunding platforms incentivizes creators to set meager funding-targets that are easier to achieve but may offer limited slack when creators wish to simultaneously pursue emerging opportunities later in the project. We explore the related issues of how funding targets seem to be selected by the creators, and how dissatisfaction with the …

Feedback’S Effect On Budgetary Slack And Self-Efficacy As Moderation Variable, Aryani Intan Endah Rahmawati, Supriyadi ,

Jurnal Akuntansi dan Keuangan Indonesia

This study aimed to examine the effect of positive and negative feedback on budgetary slack and the interaction between feedback and self-efficacy on budgetary slack under a condition of information asymmetry. Preliminary researches have tested various ways of mitigating budgetary slack practices, which did not separate the effects of positive and negative feedback. This study hypothesized that positive feedback minimizes the potential for budgetary slack under conditions of information asymmetry—and vice versa. Additionally, high self-efficacy reinforces positive feedback in reducing budgetary slack under conditions of information asymmetry—and vice versa. By employing experimental data, this study documented the results that positive …

Two Sides Of The Same Coin: Essays Investigating The Founder And Backer Dynamics Of Crowdfunding, Ruben Ceballos

Theses and Dissertations

Crowdfunding provides the opportunity for entrepreneurs to acquire capital for their projects by utilizing a platform that allows the masses to provide funds towards the completion of the project. Thus, it can be looked at as two sides of the same coin. On one side you have the entrepreneurs seeking the funds otherwise known as founders, and on the other are those that provide the funds also known as backers. The purpose of this study is to investigate what factors lead to founders successfully attaining their funding, what motivates backers to support the projects, and whether the founders can deliver …

Analysts’ Cash Flow Forecasts, Information Asymmetry, And Financing Choices Of Firms, Mengyu Ma

FIU Electronic Theses and Dissertations

Prior research documents mixed results regarding the usefulness of cash flow forecasts. One stream of literature documents analysts provided cash flow information is associated with more accurate earnings forecasts, better accruals quality, stronger market reaction, and more precious information about future valuation. Another stream of literature claims that cash flow forecasts are a simple extension of analysts’ own earnings forecasts and are not useful. I contribute to this debate by examining potential implications of cash flow forecasts for information environment. My dissertation consists of three separate but closely related studies, which investigate how analysts’ cash flow forecasts are linked with …

Linguistic Complexity And The Post-Earnings Announcement Drift, Johnathan Youngs

DU Undergraduate Research Journal Archive

In this paper, I investigate the relationship between the verbal complexity of annual earnings announcement conference calls and the Post-Earnings Announcement Drift. I determine the degree of linguistic complexity in conference calls of large public companies in the S&P 500 using the Fog Index from computational linguistics. Consistent with my hypotheses, I find that both the timeliness and magnitude of the market’s reaction to qualitative information in annual conference calls exhibit evidence of a price drift. This research may be relevant to analysts, investors, managers, and regulators that wish to standardize how information within earnings conference calls is presented.

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 …

Credit Ratings And The Cost Of Issuing Seasoned Equity, Garrett A. Mcbrayer

Finance Faculty Publications and Presentations

I examine the effects of issuer credit ratings on the costs associated with seasoned equity offerings (SEOs). The evidence from a panel of SEOs from 1990 to 2014 shows that when firms issue seasoned equity, those with issuer credit ratings pay reduced investment banking fees. I confirm these results by conducting a propensity-score matched-sample comparison analysis of firms that obtain new, long-term issuer credit ratings with an unrated control group. Controlling for known determinants of SEO fees, I find that firms that obtain a new credit rating before issuing seasoned equity pay significantly reduced investment banking fees. In economic terms, …

Informed Trading And Expected Returns, James J. Choi, Li Jin, Hongjun Yan

Hongjun Yan

Does information asymmetry affect the cross-section of expected stock returns? We explore this question using representative portfolio holdings data from the Shanghai Stock Exchange. We show that institutional investors have a strong information advantage, and that past aggressiveness of institutional trading in a stock positively predicts institutions’ future information advantage in this stock. Sorting stocks on this predictor and controlling for other correlates of expected returns, we find that the top quintile’s average annualized return in the next month is 10.8% higher than the bottom quintile’s, indicating that information asymmetry increases expected returns.

Does Institutional Ownership Affect Information Sharing With Independent Board Members?, Deborah D. Smith, Heidi H. Meier, Pervaiz Alam

Business Faculty Publications

Research Question This is an investigation of board independence to determine whether management shares information with the board, or withholds information to retain autonomy. A key contribution is to examine the interaction of institutional ownership with the main test variables to determine whether institutional governance influences the information environment as board independence is increased. Research Findings The results show that information asymmetry decreases internally and increases externally as board independence increases, yet institutional ownership appears to moderate or reverse this relationship. The following variables are used to explain why managers of firms are likely to have more information than outsiders: …

Information Asymmetry In Corporate Bond Markets, Vivian Li

Joseph Wharton Scholars

Using data from all U.S. corporate bond transactions in 2008, intermediation chains are identified. Dealer centrality and past experience are used as proxies for the amount of information that a dealer has about the valuation of a given bond. It is shown that dealers that are closer together on a given intermediation chain are also expected to have closer levels of information. These relationships hold for both investment grade bonds and junk bonds, as well as both before and after the onset of the 2008 financial crisis. This implies that intermediation chains in an over-the-counter market can be an effective …

Essays On External Forces In Capital Markets, Marcus Painter

Theses and Dissertations--Finance and Quantitative Methods

In the first chapter, I find counties more likely to be affected by climate change pay more in underwriting fees and initial yields to issue long-term municipal bonds compared to counties unlikely to be affected by climate change. This difference disappears when comparing short-term municipal bonds, implying the market prices climate change risks for long-term securities only. Higher issuance costs for climate risk counties are driven by bonds with lower credit ratings. Investor attention is a driving factor, as the difference in issuance costs on bonds issued by climate and non-climate affected counties increases after the release of the 2006 …

Strategies To Access Business Loans For Small And Medium Enterprises In Jordan, Saleh Ahmed

Walden Dissertations and Doctoral Studies

Abstract

Business financing is crucial to the development and performance of small and medium enterprises (SME) in developing countries. Obtaining loans by SMEs in Jordan is vital for creating employment, reducing poverty ratio, and augmenting SMEs growth. The purpose of this qualitative multiple case study was to discover strategies SME owners use to access credit. The population comprised of 3 SME owners in Jordan who successfully accessed credit. The conceptual frameworks for this study were the social capital theory and the pecking order theory. Data were gathered using semistructured interviews and companies' archived records. Data were analyzed using thematic analysis; …

Assessing The Value Of Ventures: Crowd Investors Vs. Sophisticated Investors, Marco Bade

The Journal of Entrepreneurial Finance

Recent regulatory approaches in crowdfunding democratize capital markets. Adverse wealth effects may arise because of information asymmetry. Firoozi et al. (2017) argue that crowdfunding has wealth-reducing effects on crowd investors because they systematically assign less value to good ventures, and more to bad ventures. This paper aims to take a more differentiated perspective by incorporating two dimensions of uncertainty determining ventures’ value. It further takes into account that different investor types learn different information. This yields new findings concerning the assessment of venture value by crowd investors and sophisticated investors. Crowd investors’ may be able to better assess venture value, …

A Signaling Theory Of Institutional Activism: How Norway’S Sovereign Wealth Fund Investments Affect Firms’ Foreign Acquisitions, Gurneeta Vasudeva, Lilac Nachum, Gui-Deng Say

Research Collection Lee Kong Chian School Of Business

Combining perspectives from institutional activism and signaling theory literatures, we suggest that an activist sovereign wealth fund (SWF) can serve as an intermediary signaler, providing cues about host countries’ institutional environment to internationalizing firms. By publicizing its investments and engaging in institutional activism, a SWF can signal the institutional quality of host countries to internationalizing firms, thus allowing them to overcome the well-known “lemons problem” in international decision-making. We examine the impact of a SWF’s signals on firms’ ownership choices in their foreign acquisitions. Our empirical analysis of Norway’s socially responsible SWF and firms from Norway and Sweden during 1998–2011 …

Relationship Banking And Loan Syndicate Structure: The Role Of Private Equity Sponsors, Rongbing Huang, Donghang Zhang, Yija (Eddie) Zhao

Faculty and Research Publications

Using a sample of syndicated loans to private equity (PE)-backed IPO companies, we examine how a third-party bank relationship influences the syndicate structure of a loan. We find that a stronger relationship between the lead bank and the borrower’s PE firm enables the lead bank to retain a smaller share of the loan and form a larger and less concentrated syndicate, especially when the borrower is less transparent. A stronger PE-bank relationship also attracts greater foreign bank participation. Our findings suggest that the lead bank’s relationship with a large equity holder of the borrower facilitates information production in lending.

Can Relationship Banking Reduce Firms' Ipo Underpricing, Kai Lu

Doctor of Business Administration Dissertations

IPO underpricing harms pre-existing shareholders and reduces the capital firms can raise to fund their growth. This paper shows that relationship banking can reduce IPO underpricing by decreasing information uncertainty. I develop a theoretical model showing that good firms – those with a lower dispersion of market value – are harmed and bad firms benefit from IPO price uncertainty when there is no borrowing and, thus, no distinguishing information on firm quality. When investors receive signals about firm value only from publicly observable transaction lending, good firms benefit while bad firms suffer. However, when firms have access to loans through …

Option Listing And Information Asymmetry, Jianfeng Hu

Research Collection Lee Kong Chian School Of Business

Option listing increases informed and uninformed trading by 12.4% and 23.9%, respectively, in the US between 2001 and 2010, hence reducing relative information risk. We establish the causal effects using control stocks with similar propensities of listing and a quasi-natural experiment using option listing standards. The benefits are more prominent for stocks with active options trading and opaque stocks. The reduction of information risk is larger for good news than bad news, and the stock price response to earnings surprise weakens after listing. The results suggest that options improve the overall market information environment beyond substitutional effects to stock trading.

Do Private Firms Benefit From Trading In The Private Securities Market?, Robert Loveland, Eric Fricke, Sinan Goktan

The Journal of Entrepreneurial Finance

The trading of private securities has recently gained greater visibility and importance with the advent of organized, private security exchanges. This paper uses data on IPO firms that list on the SharesPost private securities exchange platform to examine the potential benefits of a listing. Specifically, we test whether a listing reduces IPO underpricing or enables liquidity provision to firm employees. Controlling for endogeneity, we find no evidence that a pre-IPO listing on SharesPost lessens IPO underpricing. However, we also find that SharesPost-listed companies are able to pay their employees less in cash and more in stock and stock options than …

Essays On Information And Derivative Markets, Kevin Smith

Publicly Accessible Penn Dissertations

In the first chapter ("Option Prices and Disclosure: Theory and Measurement"), I develop an option-pricing model that formally incorporates a disclosure event. The model suggests that an understanding of a firm's disclosure policies can aid in efficiently pricing its options. Specifically, I find that 1) more informative disclosures lead to greater volatility in the firm's equity price upon their release, raising pre-disclosure option prices and 2) disclosures that are more informative for good-versus-bad news lead to skewness in the firm's equity price upon their release, adjusting the relative pre-disclosure prices of out-of-the-money and in-the-money options. Using these results, I develop …

Essays In Corporate Cash Holdings, Chenxi Liu

Dissertations and Theses Collection

This dissertation addresses three topics in corporate cash holdings. The first paper provides a new determinant of cash holdings by examining the impact of earnings transparency on corporate cash holdings. Motivated by Barth et al. (2013), who show that firms with less earnings transparency tend to have higher cost of equity, this paper shows that the cross-section differences in earnings transparency cause variations in firm cash holdings because firms with less earnings transparency have more incentives to hold cash in order to avoid costly external financing. Using data of US firms from 1980 to 2013, it is found that earnings …

Conditional Conservatism And Debt Versus Equity Financing, Beng Wee Goh, Chee Yeow Lim, Gerald J. Lobo, Yen H. Tong

Research Collection School Of Accountancy

Extant research suggests that conditional conservatism reduces information asymmetry between a firm and its shareholders as well as its debtholders. However, there is little evidence on whether conditional conservatism reduces information asymmetry differentially for shareholders and debtholders. We use the setting of a firm's choice between equity versus debt when it seeks a significant amount of external financing to examine this research question. We find that when firms raise a significant amount of external financing, the use of equity (versus debt) increases with the level of conservatism. We also find that the reduction in cost of equity associated with conservatism …

News Management Around Equity Private Placements, Hsiao-Chen Liang, Woan-Yuh Jang

The Journal of Entrepreneurial Finance

Private placement is the sale of securities to a limited number of qualified institutions or high-wealth investors. Although private placement is favorable for firms raising capital, it is relatively easy for managers to exploit it to benefit specific investors. Using a sample of Taiwanese private placements covering 2006 to 2010, we use both quantitative and qualitative variables to examine the determinants of the valence and tenor of media coverage around private placement announcements and study whether managers strategically perform news management. The results show that issuers will engage in news management around private placement announcements to facilitate the issue process. …

Supply Chain Coordination With Two-Part Tariffs Under Information Asymmetry, Chongqi Wu, Kunpeng Lu, Tianqin Shi

Faculty Publications

Supply chain coordination literature indicates that two-part tariff contracts cannot coordinate a supply chain with a supplier and a retailer under information asymmetry, but can coordinate the channel under full information, while leaving the retailer zero profit. Motivated by the practice of Costco Business Centres, we incorporate customer heterogeneity, near-saturated retail market and asymmetric information into a stylised model. The retailer has the knowledge of customer heterogeneity while the supplier does not. The supplier, on the other hand, designs a menu of two-part tariffs for the retailer to choose from. We have found that two-part tariffs can coordinate the supply …

Corporate Governance And The Shareholder: Asymmetry, Confidence, And Decision-Making, John Buchanan

Walden Dissertations and Doctoral Studies

In the decade following the ten-plus percent stockmarket collapse of 2000, regulators enacted a myriad of regulations in response to increasing angst experienced by U.S. capital market retail investors. Systemic asymmetric disclosures have fractured investor confidence prompting many commentators to characterize the relationship between Wall Street and the investment community on main street as dire. Though copious works exist on the phenomenon of corporate behaviors, especially matters of shareholder welfare, weak boards, pervious governance mechanisms, and managerial excess, current literature has revealed a dearth in corporate governance praxis specific to the question and effects of asymmetric disseminations and its principal …