Contemporary Accounting Research最新文献

When evaluating the potential financial effects of climate change, investors demand disclosures of the climate-related risks and opportunities that companies need to manage. We examine how and why management control over climate change performance affects investors' evaluations of such disclosures. In a series of experiments, we find that investors believe that managerial optimism is beneficial and, thus, are more willing to invest when climate-related disclosures focus on opportunities rather than risks. This effect, however, occurs only when management has high control over the company's future climate change performance. When that control is low, investors believe that managerial realism is beneficial and, thus, are more willing to invest when these disclosures focus on risks rather than opportunities. Our study has implications for companies and standard setters considering the consequences of focusing on either risks or opportunities in climate change reporting and the conditions under which one focus or the other may be beneficial.

This paper examines the role of patent texts in the stock market valuation of patents. Utilizing the large language model BERT (Bidirectional Encoder Representations from Transformers) to summarize contextual information within patent texts, I find that patent texts explain 31.5% of the variation in the stock market valuation of patents and provide large incremental explanatory power beyond other structured patent characteristics, firm characteristics, and technological trends. Additionally, patent texts significantly predict the level, volatility, and cumulation speed of future earnings, suggesting they contain genuine information about firms' performance. However, investors do not fully incorporate such information within patent texts into stock prices, as evidenced by the predictive power of patent texts for future stock returns. This underreaction is diminished after the pre-grant publication of patent applications is mandated. My findings underscore the value of patent texts as a source of information on internally developed intangibles and have implications for academics, practitioners, and regulators.

We examine whether foreign national directors (FNDs) on US corporate boards help their firms mitigate the adverse effects of economic policy uncertainty (EPU) shocks originating from the directors' home countries. Using a comprehensive data set of US manufacturing firms' international supply chain relationships from 2003 to 2019, we find that EPU spikes in supplier countries lead to significant declines in aggregate US imports as well as in buyer firms' inventory purchases, sales, and market valuation. However, firms with FNDs from the affected countries are better able to mitigate these negative impacts. Cross-sectional analyses reveal that the beneficial role of FNDs is more pronounced in firms with limited operational slack, greater difficulty accessing information about supplier countries, and higher financial constraints. Robust to a battery of sensitivity tests, our findings underscore the importance of FNDs on corporate boards during times of increased global uncertainty, especially for firms heavily reliant on foreign suppliers, and inform the debate on board diversity and supply chain resilience amid economic policy-driven uncertainties.

The US Department of Justice's increasing use of deferred prosecution and non-prosecution agreements (D/NPAs) over the past two decades has sparked debate about their merits compared with traditional plea deals, which often result in criminal convictions. This study examines the factors influencing prosecutors' decisions to use D/NPAs in disciplining firms for corporate misconduct. We analyze whether the likelihood of a firm's future misconduct varies by the type of discipline imposed, comparing the effectiveness of D/NPAs to traditional prosecution. Our findings reveal that prosecutors are more likely to employ D/NPAs with firms when a criminal conviction could cause significant economic harm to stakeholders. However, firms subject to D/NPAs are more likely to commit subsequent violations compared with those entering plea deals. As D/NPAs gain traction in the United States and internationally, our research highlights a trade-off: while D/NPAs mitigate harm to innocent stakeholders, they are less effective at deterring future misconduct than traditional prosecutions.

This study examines whether better performance on the Certified Public Accountant (CPA) exam is associated with an auditor's career success and whether any relation differs based on gender. Our study adds to prior studies on the career development of auditors by showing that the auditor's performance on the exam predicts success during the auditor's career. Although there is little difference in the average CPA exam scores of male versus female auditors, we document gender differences in the relation between performance on the CPA exam and career success. Male auditors who pass the exam with superior results receive higher annual compensation than those with weaker results. They are also more likely to become partners in Big 4 accounting firms and have larger client portfolios. For female auditors, we find weaker or no association between CPA exam scores and compensation or other indicators of career success. Our path analysis shows that the mechanisms underlying career success work differently for men and women. CPA exam scores of male auditors have a direct effect on compensation and an indirect (mediating) effect through promotion to partner and client portfolio size. However, for female auditors, exam scores have no effect on promotion to partner or client portfolio size, and exam scores have a much smaller effect on compensation. Our findings suggest that CPA exam scores translate into career success for male auditors but not for female auditors.

While prior studies have examined whether financial analysts affect corporate innovation, there is little research on the mechanism through which this occurs. In this paper, we examine whether and how analysts' questions about innovation during site visits affect corporate innovation. Using a sample of corporate site visits in China, we find that when analysts ask questions about innovation during site visits, firms invest more in R&D in the future. Consistent with knowledge diffusion across firms, this association is stronger when analysts cover more firms in the same industry, when firms share similar technologies as industry peers, and when an innovation-expert analyst is present at site visits. We also find that analysts' questions about innovation during site visits are positively associated with the quantity and quality of firms' patent applications in the future. Overall, we provide evidence that analysts can affect corporate innovation through their questions about firms' innovation activities.

We document strikingly opposite time-series patterns of analyst forecast errors (FEs) and associated market reactions, illustrating that analyst forecasts have become a less useful benchmark of the market's earnings expectations in recent years. The mean FE has increased from negative one to two cents in the 1990s to positive one to two cents in the 2010s, whereas average earnings announcement returns have declined from 0.30% in the 1990s to −0.30% in the 2010s, turning negative in the past 17 years. Underlying the time-series pattern of increasing FEs is a secular trend where firms move away from just meeting or beating, to which the market reaction has become increasingly negative, toward a large beat, while the frequency of meeting or beating the consensus analyst forecast remains stable during the same period. We develop a parsimonious predictive model of earnings surprises based on peer and past analysts' FEs and find that our predicted FE closely mirrors reported FE, with the average value hovering around one to two cents in most years of the past two decades. The market reaction to “around zero” unexpected FE (FE minus predicted FE) is indistinguishable from zero over time, suggesting that our model serves as a good benchmark of the market's expectation. Our evidence has broad implications for appropriate earnings benchmarking, for the disappearing discontinuity of the earnings surprise distribution around zero, for earnings management to beat analysts' forecasts, for empirical designs when examining the earnings-return relation, and for the disappearing earnings announcement premium.

We examine how common institutional investors (CIIs) facilitate the financial reporting comparability (FRC) of US firms. Common ownership increases FRC of firms that are directly owned by CIIs (via a direct effect) and has positive spillover effects on other firms in the same industry. We find spillover effects in two types of firms: (1) those that are commonly owned by different institutional investors but are connected through common firms, and (2) those that do not have any common ownership. These results suggest that the effect of common ownership goes beyond commonly owned firms and extends to non-commonly owned firms. Furthermore, we find two mechanisms for the direct and spillover effects of common ownership on reporting comparability: firms' hiring of common auditors and their adoption of similar accounting practices. Overall, we provide comprehensive evidence on how common institutional ownership benefits the comparability of financial reporting in the United States.

This study finds that accounting standards play an important role in cross-border investor reactions to peer firm earnings. Specifically, we document that when international peer firms report under the same accounting standards, investors overreact to peer firms' earnings announcements. Using a sample of 35,116 firm-pair-years from 51 countries between 2000 and 2010, we show that heightened information transfers for international same-standard firms are followed by predictable price reversals when investors observe own-firm earnings. However, overreactions are not present for international firm-pairs that follow different accounting standards. While we find that institutional investors learn over time, overreactions do not decline among retail investors. Additional tests suggest that overreactions cause significant excess volatility, which results in economically significant costs. Collectively, our findings document an unintended consequence of financial reporting harmonization in the form of increased investor overreactions.

We analyze whether and how the perceived federal-level legal liability linked to federal judge ideology is associated with the likelihood of firms receiving going-concern modified audit opinions and analyze the differential effects on Big 4 and non–Big 4 auditors. We find that Big 4 and non–Big 4 auditors converge in their going-concern reporting decisions in circuits with more liberal judges. This convergence is caused by the greater effect of judge ideology on non–Big 4 auditors. Furthermore, we empirically examine the association between federal judge ideology and actual lawsuits against auditors and find that judge ideology has a greater impact on lawsuit likelihood for non–Big 4 auditors for the restating companies. When auditors are sued, both the payout likelihood and amount are greater in circuits with more liberal judges, with the effect being more pronounced for non–Big 4 auditors. This study provides evidence on how the perceived exposure to a gross negligence legal standard shapes auditors' going-concern reporting incentives for the two tiers of auditors in the market. It also adds to the literature on auditor litigation.