Using abnormal audit fees to capture any added charges associated with incremental audit effort beyond the effort level needed under normal or expected circumstances, we find that the incremental audit effort is positively associated with goodwill to total assets. Additionally, when goodwill is impaired, auditors exert incrementally more effort for testing the magnitude of a goodwill impairment loss than when goodwill is not impaired. Further, we document predictable temporal and cross-sectional variations in audit effort with goodwill. As the standards on accounting for goodwill became more (less) stringent, there is a corresponding increase (decrease) in audit effort. The effort also varies cross sectionally with auditor quality (Big 4 versus non-Big 4). Using audit delay as an alternative proxy for audit effort, we find that only a goodwill impairment loss is associated with longer audit delays. Finally, we provide corroborating evidence based on survey responses obtained from expert auditors. Our results contradict the perception that auditors do not exert incrementally more effort when testing goodwill for impairment.
{"title":"Goodwill Impairment and Audit Effort","authors":"A. Ghosh, Cunyu Xing","doi":"10.2308/HORIZONS-19-055","DOIUrl":"https://doi.org/10.2308/HORIZONS-19-055","url":null,"abstract":"Using abnormal audit fees to capture any added charges associated with incremental audit effort beyond the effort level needed under normal or expected circumstances, we find that the incremental audit effort is positively associated with goodwill to total assets. Additionally, when goodwill is impaired, auditors exert incrementally more effort for testing the magnitude of a goodwill impairment loss than when goodwill is not impaired. Further, we document predictable temporal and cross-sectional variations in audit effort with goodwill. As the standards on accounting for goodwill became more (less) stringent, there is a corresponding increase (decrease) in audit effort. The effort also varies cross sectionally with auditor quality (Big 4 versus non-Big 4). Using audit delay as an alternative proxy for audit effort, we find that only a goodwill impairment loss is associated with longer audit delays. Finally, we provide corroborating evidence based on survey responses obtained from expert auditors. Our results contradict the perception that auditors do not exert incrementally more effort when testing goodwill for impairment.","PeriodicalId":12319,"journal":{"name":"Financial Accounting eJournal","volume":"126 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-02-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"72845250","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
H. S. Asay, R. Guggenmos, Kathryn Kadous, Lisa Koonce, R. Libby
This paper discusses the role of process evidence in accounting research. We define process evidence broadly as data providing insight into how and why cause-effect relationships occur, and we provide a framework to guide the provision and evaluation of process evidence in accounting studies. Our definition allows for an expanded understanding of techniques for gathering process evidence. The framework highlights the importance of the study’s goals and theory in choosing how to provide process evidence as well as how much process evidence to provide. The paper also outlines the strengths and limitations of three approaches to providing process evidence: mediation, moderation, and multiple-study based designs. We provide recommendations for best practices for each approach to minimize threats to validity and maximize the value of process evidence.
{"title":"Theory Testing and Process Evidence in Accounting Experiments","authors":"H. S. Asay, R. Guggenmos, Kathryn Kadous, Lisa Koonce, R. Libby","doi":"10.2139/ssrn.3485844","DOIUrl":"https://doi.org/10.2139/ssrn.3485844","url":null,"abstract":"This paper discusses the role of process evidence in accounting research. We define process evidence broadly as data providing insight into how and why cause-effect relationships occur, and we provide a framework to guide the provision and evaluation of process evidence in accounting studies. Our definition allows for an expanded understanding of techniques for gathering process evidence. The framework highlights the importance of the study’s goals and theory in choosing how to provide process evidence as well as how much process evidence to provide. The paper also outlines the strengths and limitations of three approaches to providing process evidence: mediation, moderation, and multiple-study based designs. We provide recommendations for best practices for each approach to minimize threats to validity and maximize the value of process evidence.","PeriodicalId":12319,"journal":{"name":"Financial Accounting eJournal","volume":"92 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-02-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83884288","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We analyze the consequences of a firm hiring a generalist CEO in terms of the audit fees paid by the firm. We find that audit fees of clients with generalist CEOs are higher than those of clients with specialist CEOs. This relation is robust to considering managerial ability, other CEO characteristics, various fixed effects, instrumental variables, and change analyses. We further show that fee differences are larger for firms with weaker monitoring and higher corporate litigation risks. Through path analysis, we find that both client business risk and misreporting risk contribute to the fee difference. Finally, we find that auditors are more likely to issue going-concern opinions to clients with generalist CEOs. Our study should be of interest to auditing standard setters who link management operating styles to audit risk. We shed light on how management operating styles associated with the CEOs' general or specialized skills affect audit pricing.
{"title":"Generalist CEOs and Audit Pricing","authors":"Zhiming Ma, Rencheng Wang, Kaitang Zhou","doi":"10.2139/ssrn.3795167","DOIUrl":"https://doi.org/10.2139/ssrn.3795167","url":null,"abstract":"We analyze the consequences of a firm hiring a generalist CEO in terms of the audit fees paid by the firm. We find that audit fees of clients with generalist CEOs are higher than those of clients with specialist CEOs. This relation is robust to considering managerial ability, other CEO characteristics, various fixed effects, instrumental variables, and change analyses. We further show that fee differences are larger for firms with weaker monitoring and higher corporate litigation risks. Through path analysis, we find that both client business risk and misreporting risk contribute to the fee difference. Finally, we find that auditors are more likely to issue going-concern opinions to clients with generalist CEOs. Our study should be of interest to auditing standard setters who link management operating styles to audit risk. We shed light on how management operating styles associated with the CEOs' general or specialized skills affect audit pricing.","PeriodicalId":12319,"journal":{"name":"Financial Accounting eJournal","volume":"4 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-02-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"91135282","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study examines how dividend taxation affects corporate voluntary disclosure. Using a sample of firms in 32 OECD countries from 2001 to 2017, our difference-in-differences regressions find that higher dividend tax rates reduce both the issuance and the frequency of management forecasts. The decreases are more pronounced when governance is weaker or agency problems are potentially more severe. Also, the effect of dividend tax rates on management forecasts is asymmetric. That is, tax cuts increase management forecasts, but tax hikes do not decrease management forecasts. In addition, the change in management forecasting behavior following dividend tax changes significantly affects firms’ cost of equity and stock market liquidity. Overall, our findings are consistent with the prediction of the agency theory framework that dividend taxation negatively affects corporate voluntary disclosure behavior.
{"title":"Does Dividend Taxation Affect Voluntary Disclosure? International Evidence","authors":"Mark (Shuai) Ma, Hanlin Zhong","doi":"10.2139/ssrn.3780190","DOIUrl":"https://doi.org/10.2139/ssrn.3780190","url":null,"abstract":"This study examines how dividend taxation affects corporate voluntary disclosure. Using a sample of firms in 32 OECD countries from 2001 to 2017, our difference-in-differences regressions find that higher dividend tax rates reduce both the issuance and the frequency of management forecasts. The decreases are more pronounced when governance is weaker or agency problems are potentially more severe. Also, the effect of dividend tax rates on management forecasts is asymmetric. That is, tax cuts increase management forecasts, but tax hikes do not decrease management forecasts. In addition, the change in management forecasting behavior following dividend tax changes significantly affects firms’ cost of equity and stock market liquidity. Overall, our findings are consistent with the prediction of the agency theory framework that dividend taxation negatively affects corporate voluntary disclosure behavior.","PeriodicalId":12319,"journal":{"name":"Financial Accounting eJournal","volume":"78 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-02-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"73668773","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Recent theories posit that investment opportunities encourage managers to provide voluntary disclosures to elicit informational feedback from stock prices to improve investment decisions, even as doing so encourages informed trading and worsens adverse selection among investors. We test this prediction in a difference-in-differences framework using the shale oil revolution in the early 2010s as an exogenous shock to investment opportunities for oil and gas (“O&G”) firms. During this period, we find that O&G firms increased capex forecasts and decreased earnings forecasts relative to similar, capital-intensive firms outside of the O&G industry and that these effects are concentrated among O&G firms with more informed trading and relatively poorer managerial information. We also find that O&G firms that adjusted their earnings and capex forecasts display both an increase in investment-q sensitivity and a decrease in stock liquidity during the shale oil revolution. Taken together, these results suggest that managers adjust their portfolio of voluntary disclosures to facilitate managerial learning from stock prices in response to investment opportunities, despite worsening adverse selection costs in the process.
{"title":"Investment Opportunities, Market Feedback, and Voluntary Disclosure: Evidence from the Shale Oil Revolution","authors":"Zackery Fox, Jaewoo Kim, B. Schonberger","doi":"10.2139/ssrn.3782638","DOIUrl":"https://doi.org/10.2139/ssrn.3782638","url":null,"abstract":"Recent theories posit that investment opportunities encourage managers to provide voluntary disclosures to elicit informational feedback from stock prices to improve investment decisions, even as doing so encourages informed trading and worsens adverse selection among investors. We test this prediction in a difference-in-differences framework using the shale oil revolution in the early 2010s as an exogenous shock to investment opportunities for oil and gas (“O&G”) firms. During this period, we find that O&G firms increased capex forecasts and decreased earnings forecasts relative to similar, capital-intensive firms outside of the O&G industry and that these effects are concentrated among O&G firms with more informed trading and relatively poorer managerial information. We also find that O&G firms that adjusted their earnings and capex forecasts display both an increase in investment-q sensitivity and a decrease in stock liquidity during the shale oil revolution. Taken together, these results suggest that managers adjust their portfolio of voluntary disclosures to facilitate managerial learning from stock prices in response to investment opportunities, despite worsening adverse selection costs in the process.","PeriodicalId":12319,"journal":{"name":"Financial Accounting eJournal","volume":"43 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-02-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"90743248","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We investigate the effects of foreign ownership on a key monitoring mechanism, the appointment of independent directors, for a sample of Japanese firms after the Tokyo Stock Exchange passed rules requiring appointment of at least one independent director or an independent statutory auditor. We find that foreign ownership is significantly positively associated with the appointment of independent directors and firm value respectively. We also find, using path analysis, that foreign ownership affects firm value via the appointment of independent directors. In robustness tests, we also examine whether foreign ownership affects a monitoring outcome (earnings management). We find that foreign ownership is significantly negatively related to benchmark beating using both accrual and real earnings management. Overall, our evidence suggests that despite their smaller shareholdings, foreign investors enhance firm value through improving monitoring of managers.
{"title":"Foreign Ownership, Appointment of Independent Directors, and Firm Value: Evidence from Japanese Firms","authors":"Anwer S. Ahmed, T. Iwasaki","doi":"10.2139/ssrn.3796226","DOIUrl":"https://doi.org/10.2139/ssrn.3796226","url":null,"abstract":"We investigate the effects of foreign ownership on a key monitoring mechanism, the appointment of independent directors, for a sample of Japanese firms after the Tokyo Stock Exchange passed rules requiring appointment of at least one independent director or an independent statutory auditor. We find that foreign ownership is significantly positively associated with the appointment of independent directors and firm value respectively. We also find, using path analysis, that foreign ownership affects firm value via the appointment of independent directors. In robustness tests, we also examine whether foreign ownership affects a monitoring outcome (earnings management). We find that foreign ownership is significantly negatively related to benchmark beating using both accrual and real earnings management. Overall, our evidence suggests that despite their smaller shareholdings, foreign investors enhance firm value through improving monitoring of managers.","PeriodicalId":12319,"journal":{"name":"Financial Accounting eJournal","volume":"18 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"74289537","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We study interdepartment knowledge sharing in an investment research setting where the benefits are potentially significant for the brokerage and the capital market, but so are the frictions impeding it. Using hand-collected data on equity analyst access to in-house debt research expertise, we find significant benefits to equity analysts in the form of improved ability to forecast cash flows and to anticipate credit rating downgrades. Moreover, we find evidence that access to management and research expertise underlie in-house debt analysts’ capacity to generate information beneficial to equity analysts. Finally, these benefits exist only in the presence of a collaborative brokerage culture or debt-equity analyst collocation, consistent with these factors promoting knowledge sharing in the investment research industry. This paper was accepted by Brian Bushee, accounting. Supplemental Material: The data files and online appendix are available at https://doi.org/10.1287/mnsc.2023.4809 .
{"title":"Intra-Firm Knowledge Sharing in the Investment Research Industry","authors":"Artur Hugon, An-Ping Lin, S. Markov","doi":"10.2139/ssrn.2854519","DOIUrl":"https://doi.org/10.2139/ssrn.2854519","url":null,"abstract":"We study interdepartment knowledge sharing in an investment research setting where the benefits are potentially significant for the brokerage and the capital market, but so are the frictions impeding it. Using hand-collected data on equity analyst access to in-house debt research expertise, we find significant benefits to equity analysts in the form of improved ability to forecast cash flows and to anticipate credit rating downgrades. Moreover, we find evidence that access to management and research expertise underlie in-house debt analysts’ capacity to generate information beneficial to equity analysts. Finally, these benefits exist only in the presence of a collaborative brokerage culture or debt-equity analyst collocation, consistent with these factors promoting knowledge sharing in the investment research industry. This paper was accepted by Brian Bushee, accounting. Supplemental Material: The data files and online appendix are available at https://doi.org/10.1287/mnsc.2023.4809 .","PeriodicalId":12319,"journal":{"name":"Financial Accounting eJournal","volume":"140 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-01-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"77755759","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2021-01-08DOI: 10.1108/SAMPJ-03-2019-0114
A. Lakshan, Mary Low, C. de Villiers
Purpose Integrated reporting (IR) promotes the disclosure of future-oriented information to enable financial stakeholders to make better-informed decisions. However, the downside to this type of disclosure is the risk to management of disclosing such future-oriented information. This paper aims to explore how IR preparers manage the risk of disclosing future-oriented information in companies’ integrated reports. Design/methodology/approach This study represents an exploratory interpretative thematic analysis of 33 semi-structured interviews with managers involved in IR in eight Sri Lankan companies representing various industries. The thematic analysis is informed by the research literature and prior studies on IR. Findings This paper provides evidence of various strategies to manage the risk associated with the disclosure of future-oriented information in integrated reports. These strategies include making non-specific predictions; increasing the accuracy of the predictions; linking performance management to disclosed targets, thus ensuring individual responsibility for target achievement; disclosing ex post explanations for not achieving previously disclosed targets; and linking disclosed targets to the company’s risk management procedures. However, these strategies can cause managers to provide conservative future-oriented information, rather than “best estimate” future-oriented information. Practical implications The study describes the strategies that managers use to mitigate the risks involved in disclosing future-oriented information. These strategies can provide support or raise concerns, for managers in deciding how to deal with such risks. Regulators tasked with investor protection, as well as stock exchanges interested in the transparency and accountability of listed companies’ activities should be aware of these strategies. Furthermore, the International Integrated Reporting Council (IIRC) should be interested in the implications of this study because some of the identified strategies could undermine the usefulness of integrated reports to stakeholders. This is a significant concern given that the IIRC envisages integrated reporting and thinking as vehicles that could align capital allocation and corporate behaviour with wider sustainable development goals. Social implications The trend of future-oriented information moving from being used only in organisations’ internal management systems to being externally reported in integrated reports has implications for stakeholder groups interested in the reported targets. This study reveals management strategies that could affect future-oriented information reliability and reduce their usefulness for users of integrated reports. Originality/value This study provides unique insights into the emerging area of how managers deal with the risks involved in disclosing future-oriented IR information.
{"title":"Management of Risks Associated with the Disclosure of Future-Oriented Information in Integrated Reports","authors":"A. Lakshan, Mary Low, C. de Villiers","doi":"10.1108/SAMPJ-03-2019-0114","DOIUrl":"https://doi.org/10.1108/SAMPJ-03-2019-0114","url":null,"abstract":"\u0000Purpose\u0000Integrated reporting (IR) promotes the disclosure of future-oriented information to enable financial stakeholders to make better-informed decisions. However, the downside to this type of disclosure is the risk to management of disclosing such future-oriented information. This paper aims to explore how IR preparers manage the risk of disclosing future-oriented information in companies’ integrated reports.\u0000\u0000\u0000Design/methodology/approach\u0000This study represents an exploratory interpretative thematic analysis of 33 semi-structured interviews with managers involved in IR in eight Sri Lankan companies representing various industries. The thematic analysis is informed by the research literature and prior studies on IR.\u0000\u0000\u0000Findings\u0000This paper provides evidence of various strategies to manage the risk associated with the disclosure of future-oriented information in integrated reports. These strategies include making non-specific predictions; increasing the accuracy of the predictions; linking performance management to disclosed targets, thus ensuring individual responsibility for target achievement; disclosing ex post explanations for not achieving previously disclosed targets; and linking disclosed targets to the company’s risk management procedures. However, these strategies can cause managers to provide conservative future-oriented information, rather than “best estimate” future-oriented information.\u0000\u0000\u0000Practical implications\u0000The study describes the strategies that managers use to mitigate the risks involved in disclosing future-oriented information. These strategies can provide support or raise concerns, for managers in deciding how to deal with such risks. Regulators tasked with investor protection, as well as stock exchanges interested in the transparency and accountability of listed companies’ activities should be aware of these strategies. Furthermore, the International Integrated Reporting Council (IIRC) should be interested in the implications of this study because some of the identified strategies could undermine the usefulness of integrated reports to stakeholders. This is a significant concern given that the IIRC envisages integrated reporting and thinking as vehicles that could align capital allocation and corporate behaviour with wider sustainable development goals.\u0000\u0000\u0000Social implications\u0000The trend of future-oriented information moving from being used only in organisations’ internal management systems to being externally reported in integrated reports has implications for stakeholder groups interested in the reported targets. This study reveals management strategies that could affect future-oriented information reliability and reduce their usefulness for users of integrated reports.\u0000\u0000\u0000Originality/value\u0000This study provides unique insights into the emerging area of how managers deal with the risks involved in disclosing future-oriented IR information.\u0000","PeriodicalId":12319,"journal":{"name":"Financial Accounting eJournal","volume":"20 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-01-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"75786045","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Andrew Stephan, Beverly R. Walther, Laura A. Wellman
Abstract This study investigates whether brokerage houses appear to provide stock tips to politicians. Our results indicate that trades by politicians who are politically connected to the brokerage house where the trade is executed are more profitable. Our estimates suggest that these connected trades earn an incremental 0.3% over a five-day window relative to the politician’s average profitability. Given the average number of trades our sample politicians execute in a year, the 0.3% return per trade translates to an incremental $3,411 in trading profits each year. We provide additional support by investigating the frequency and differential profitability of politicians’ trades immediately before the brokerage house issues a revised recommendation, as well as during a period when Goldman, Sachs & Co. was sanctioned for providing stock tips to high priority clients. Additional tests suggest that brokerages may provide stock tips to politicians in exchange for favorable legislative outcomes or political information.
{"title":"Profiting from Connections: Do Politicians Receive Stock Tips from Brokerage Houses?","authors":"Andrew Stephan, Beverly R. Walther, Laura A. Wellman","doi":"10.2139/ssrn.3761236","DOIUrl":"https://doi.org/10.2139/ssrn.3761236","url":null,"abstract":"Abstract This study investigates whether brokerage houses appear to provide stock tips to politicians. Our results indicate that trades by politicians who are politically connected to the brokerage house where the trade is executed are more profitable. Our estimates suggest that these connected trades earn an incremental 0.3% over a five-day window relative to the politician’s average profitability. Given the average number of trades our sample politicians execute in a year, the 0.3% return per trade translates to an incremental $3,411 in trading profits each year. We provide additional support by investigating the frequency and differential profitability of politicians’ trades immediately before the brokerage house issues a revised recommendation, as well as during a period when Goldman, Sachs & Co. was sanctioned for providing stock tips to high priority clients. Additional tests suggest that brokerages may provide stock tips to politicians in exchange for favorable legislative outcomes or political information.","PeriodicalId":12319,"journal":{"name":"Financial Accounting eJournal","volume":"22 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83707244","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper characterizes the equilibrium stock price reaction to arbitrarily distributed signals when the prior distribution of the payoff is normal and the utility is exponential. This stock price reaction is shown to be proportional to the Fisher score of the news calculated under a risk-neutral probability measure. As an application of our analysis, we (i) characterize the stock price reaction to news whose arrival is content-dependent, (ii) develop a model of "agenda-setting" disclosures, and (iii) construct an equilibrium in a voluntary disclosure model with multidimensional information and risk averse investors.
{"title":"Bayesian Pricing of News","authors":"Dmitry Livdan, Alexander Nezlobin","doi":"10.2139/ssrn.3225448","DOIUrl":"https://doi.org/10.2139/ssrn.3225448","url":null,"abstract":"This paper characterizes the equilibrium stock price reaction to arbitrarily distributed signals when the prior distribution of the payoff is normal and the utility is exponential. This stock price reaction is shown to be proportional to the Fisher score of the news calculated under a risk-neutral probability measure. As an application of our analysis, we (i) characterize the stock price reaction to news whose arrival is content-dependent, (ii) develop a model of \"agenda-setting\" disclosures, and (iii) construct an equilibrium in a voluntary disclosure model with multidimensional information and risk averse investors.<br>","PeriodicalId":12319,"journal":{"name":"Financial Accounting eJournal","volume":"39 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-12-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"74814128","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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