Consistent with theoretical models that show disclosure can reduce uncertain investments, we find that mandating risk disclosure is negatively associated with corporate innovation. Using a textual analysis of a large sample of 10-K filings for US firms, we identify a negative relationship between risk disclosure and firm-level investments in R&D and innovation output in terms of patents and citations. Furthermore, the channel for this decline seems to be linked to financial constraints, with risk disclosure having a larger impact on innovation among firms with financial constraints. These results suggest that a mandatory risk disclosure requirement can have unintended real consequences for firms making uncertain investments, such as innovation.
{"title":"Too Much of a Good Thing? Risk Disclosure and Corporate Innovation","authors":"Shiu-Yik Au, Hongping Tan","doi":"10.2139/ssrn.3043952","DOIUrl":"https://doi.org/10.2139/ssrn.3043952","url":null,"abstract":"Consistent with theoretical models that show disclosure can reduce uncertain investments, we find that mandating risk disclosure is negatively associated with corporate innovation. Using a textual analysis of a large sample of 10-K filings for US firms, we identify a negative relationship between risk disclosure and firm-level investments in R&D and innovation output in terms of patents and citations. Furthermore, the channel for this decline seems to be linked to financial constraints, with risk disclosure having a larger impact on innovation among firms with financial constraints. These results suggest that a mandatory risk disclosure requirement can have unintended real consequences for firms making uncertain investments, such as innovation.","PeriodicalId":181062,"journal":{"name":"Corporate Governance: Disclosure","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-05-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129756537","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}
The newspaper industry has struggled in recent decades, as readers and marketing revenue have migrated to digital outlets. Facing these pressures, many US newspapers have downsized or closed completely. We examine changes in firm behavior after they experience a shock to the local newspaper industry. Compared to a sample of matched control firms, we find that following newspaper closures and large industry layoffs, nearby public companies react by (1) increasing voluntary disclosure, consistent with firms responding to an increased demand for their information, and (2) increasing dividend payouts, consistent with firms attempting to alleviate concerns about agency problems exacerbated by the loss of a local watchdog. Cross-sectional analyses confirm that these results are driven by geographically-concentrated firms that rely more heavily on local newspapers to create and disseminate information about them to the public. We match treatment and control firms on both firm and local economic characteristics to mitigate concerns that differences between the two groups are driven by changes between local economies. Finally, we observe no change in either the financial reporting quality or performance of treatment firms, relative to control firms, in the post period, suggesting that the changes we document to payout and disclosure policy are not driven by changes in firm performance or firms’ accounting choices.
{"title":"Stop the Presses! Or Wait, We Might Need Them: Firm Responses to Local Newspaper Closures and Layoffs","authors":"Min Kim, D. Stice, Han Stice, Roger M. White","doi":"10.2139/ssrn.3393199","DOIUrl":"https://doi.org/10.2139/ssrn.3393199","url":null,"abstract":"The newspaper industry has struggled in recent decades, as readers and marketing revenue have migrated to digital outlets. Facing these pressures, many US newspapers have downsized or closed completely. We examine changes in firm behavior after they experience a shock to the local newspaper industry. Compared to a sample of matched control firms, we find that following newspaper closures and large industry layoffs, nearby public companies react by (1) increasing voluntary disclosure, consistent with firms responding to an increased demand for their information, and (2) increasing dividend payouts, consistent with firms attempting to alleviate concerns about agency problems exacerbated by the loss of a local watchdog. Cross-sectional analyses confirm that these results are driven by geographically-concentrated firms that rely more heavily on local newspapers to create and disseminate information about them to the public. We match treatment and control firms on both firm and local economic characteristics to mitigate concerns that differences between the two groups are driven by changes between local economies. Finally, we observe no change in either the financial reporting quality or performance of treatment firms, relative to control firms, in the post period, suggesting that the changes we document to payout and disclosure policy are not driven by changes in firm performance or firms’ accounting choices.","PeriodicalId":181062,"journal":{"name":"Corporate Governance: Disclosure","volume":"8 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-05-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134107541","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}
In this paper, we introduce a primal-dual algorithm for solving (martingale) optimal transportation problems, with cost functions satisfying the twist condition, close to the one that has been used recently for training generative adversarial networks. As some additional applications, we consider anomaly detection and automatic generation of financial data.
{"title":"(Martingale) Optimal Transport and Anomaly Detection with Neural Networks: A Primal-Dual Algorithm","authors":"P. Henry-Labordère","doi":"10.2139/ssrn.3370910","DOIUrl":"https://doi.org/10.2139/ssrn.3370910","url":null,"abstract":"In this paper, we introduce a primal-dual algorithm for solving (martingale) optimal transportation problems, with cost functions satisfying the twist condition, close to the one that has been used recently for training generative adversarial networks. As some additional applications, we consider anomaly detection and automatic generation of financial data.","PeriodicalId":181062,"journal":{"name":"Corporate Governance: Disclosure","volume":"13 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-04-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128262360","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}
Although there have been significant efforts towards the creation of an overarching global style for company reporting, currently there is no accepted style. Most of the countries do not have laws related to companies’ general reporting. As such, company directors tend to follow their own formats for preparing non-financial reports and disseminate only the information necessary to promote companies’ images. This trend undermines the capacity of reporting as a mechanism to promote accountability practice of the companies. By providing an assessment of the development and challenges of company reporting, this chapter suggests that companies must provide clear information regarding the economic benefit they created and the social cost attached to the creation of the economic benefits in their non-financial reports.
{"title":"Reporting by the Companies: Development and Challenges","authors":"I. Dube, M. Rahim","doi":"10.2139/ssrn.3359519","DOIUrl":"https://doi.org/10.2139/ssrn.3359519","url":null,"abstract":"Although there have been significant efforts towards the creation of an overarching global style for company reporting, currently there is no accepted style. Most of the countries do not have laws related to companies’ general reporting. As such, company directors tend to follow their own formats for preparing non-financial reports and disseminate only the information necessary to promote companies’ images. This trend undermines the capacity of reporting as a mechanism to promote accountability practice of the companies. By providing an assessment of the development and challenges of company reporting, this chapter suggests that companies must provide clear information regarding the economic benefit they created and the social cost attached to the creation of the economic benefits in their non-financial reports.","PeriodicalId":181062,"journal":{"name":"Corporate Governance: Disclosure","volume":"34 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-03-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130783731","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}
Maximiliano González, Alexander Guzmán, Diego Téllez, María-Andrea Trujillo
Firms in Latin America could differentiate themselves by adopting better information disclosure practices. In this paper, we construct an Information Disclosure Index (IDI) for a sample of 454 firms in the six largest Latin America countries. We look at 3.191 company reports and show that firms with better disclosure practices have better market valuation (Tobin’s Q) and operating performance (ROE). We then measure the tone of the information disclosed using word content analysis, and find that uncertainty in tone is negatively associated with higher firm valuation (Tobin’s Q) and better financial performance (ROE).
{"title":"What You Say and How You Say It: Information Disclosure in Latin American Firms","authors":"Maximiliano González, Alexander Guzmán, Diego Téllez, María-Andrea Trujillo","doi":"10.2139/ssrn.2929833","DOIUrl":"https://doi.org/10.2139/ssrn.2929833","url":null,"abstract":"Firms in Latin America could differentiate themselves by adopting better information disclosure practices. In this paper, we construct an Information Disclosure Index (IDI) for a sample of 454 firms in the six largest Latin America countries. We look at 3.191 company reports and show that firms with better disclosure practices have better market valuation (Tobin’s Q) and operating performance (ROE). We then measure the tone of the information disclosed using word content analysis, and find that uncertainty in tone is negatively associated with higher firm valuation (Tobin’s Q) and better financial performance (ROE).","PeriodicalId":181062,"journal":{"name":"Corporate Governance: Disclosure","volume":"35 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-03-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129755346","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}
Corporations have facilitated the most dynamic economic growth in history. Addressing adverse externalities, like dark money and climate change, has been hampered by dispersed ownership. Mechanisms are needed to define common values and increase individual empowerment within corporate dominated economies. Ironically, recent concentration of corporate ownership by giant index funds presents an opportunity to increase corporate accountability, creating an economy that better serves our larger society by empowering people. Real-time disclosure of corporate proxy votes will lead to competition among funds, based not only on historic costs and returns, but also on the values expressed in their proxy votes. Internet sites and phone applications will revolutionize how such information is shared, allowing much wider participation in the development of corporate strategies and practice around environmental, social and governance (ESG) issues. In this draft rulemaking petition to the SEC, I address how some adverse externalities and other concerns can be addressed on a near-term basis through a combination of emerging technologies, real-time disclosure of proxy votes, and market forces. Given the tenuous legitimacy of shareholder primacy, I end by arguing participation in share ownership and corporate governance needs to dramatically increase if democracy by the people is to be sustained.
{"title":"Rulemaking Petition for Real-Time Disclosure of Proxy Votes","authors":"J. McRitchie","doi":"10.2139/SSRN.3353456","DOIUrl":"https://doi.org/10.2139/SSRN.3353456","url":null,"abstract":"Corporations have facilitated the most dynamic economic growth in history. Addressing adverse externalities, like dark money and climate change, has been hampered by dispersed ownership. Mechanisms are needed to define common values and increase individual empowerment within corporate dominated economies. Ironically, recent concentration of corporate ownership by giant index funds presents an opportunity to increase corporate accountability, creating an economy that better serves our larger society by empowering people. \u0000 \u0000Real-time disclosure of corporate proxy votes will lead to competition among funds, based not only on historic costs and returns, but also on the values expressed in their proxy votes. Internet sites and phone applications will revolutionize how such information is shared, allowing much wider participation in the development of corporate strategies and practice around environmental, social and governance (ESG) issues. \u0000 \u0000In this draft rulemaking petition to the SEC, I address how some adverse externalities and other concerns can be addressed on a near-term basis through a combination of emerging technologies, real-time disclosure of proxy votes, and market forces. Given the tenuous legitimacy of shareholder primacy, I end by arguing participation in share ownership and corporate governance needs to dramatically increase if democracy by the people is to be sustained.","PeriodicalId":181062,"journal":{"name":"Corporate Governance: Disclosure","volume":"126 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-03-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114645715","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}
Since 2010, proprietary companies have had a choice of preparing three types of financial reports that vary in scope. We find that between 2010 and 2015, most proprietary companies in our random sample chose the lowest scope option, with very low quality financial reports. Few adopted the new option provided by AASB 1053 Application of Tiers of Australian Accounting Standards. The characteristics of the firms that adopted each type of report are consistent with the regulator's intention. Our findings should provide a better understanding of how accounting standards impact practice, and should assist regulators to reform private company financial reporting.
{"title":"Keeping it Private: Financial Reporting by Large Proprietary Companies in Australia","authors":"B. Potter, Matt Pinnuck, G. Tanewski, Sue Wright","doi":"10.1111/acfi.12436","DOIUrl":"https://doi.org/10.1111/acfi.12436","url":null,"abstract":"Since 2010, proprietary companies have had a choice of preparing three types of financial reports that vary in scope. We find that between 2010 and 2015, most proprietary companies in our random sample chose the lowest scope option, with very low quality financial reports. Few adopted the new option provided by AASB 1053 Application of Tiers of Australian Accounting Standards. The characteristics of the firms that adopted each type of report are consistent with the regulator's intention. Our findings should provide a better understanding of how accounting standards impact practice, and should assist regulators to reform private company financial reporting.","PeriodicalId":181062,"journal":{"name":"Corporate Governance: Disclosure","volume":"143 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114886170","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}
The forward-looking nature of option prices provides an appealing way to extract risk measures. In this paper, we extract forecast densities from option prices that can be used in forecasting risk measures. More specifically, we extract a real-world return density forecast, implied from option prices, using the recovery theorem. In addition, we backtest and compare the predictive power of this real-world return density forecast with a risk-neutral return density forecast, implied from option prices, and a simple historical simulation approach. In an empirical study, using the South African FTSE/JSE Top 40 index, we found that the extracted real-world density forecasts, using the recovery theorem, yield satisfying forecasts of risk measures.
{"title":"The Recovery Theorem With Application to Risk Management","authors":"Vaughan van Appel, E. Maré","doi":"10.2139/ssrn.3407209","DOIUrl":"https://doi.org/10.2139/ssrn.3407209","url":null,"abstract":"The forward-looking nature of option prices provides an appealing way to extract risk measures. In this paper, we extract forecast densities from option prices that can be used in forecasting risk measures. More specifically, we extract a real-world return density forecast, implied from option prices, using the recovery theorem. In addition, we backtest and compare the predictive power of this real-world return density forecast with a risk-neutral return density forecast, implied from option prices, and a simple historical simulation approach. In an empirical study, using the South African FTSE/JSE Top 40 index, we found that the extracted real-world density forecasts, using the recovery theorem, yield satisfying forecasts of risk measures.","PeriodicalId":181062,"journal":{"name":"Corporate Governance: Disclosure","volume":"8 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-02-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115045671","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 consider the classical problem of building an arbitrage-free implied volatility surface from bid-ask quotes. We design a fast numerical procedure, for which we prove the convergence, based on the Sinkhorn algorithm that has been recently used to solve efficiently (martingale) optimal transport problems.
{"title":"Building Arbitrage-Free Implied Volatility: Sinkhorn's Algorithm and Variants","authors":"Hadrien De March, P. Henry-Labordère","doi":"10.2139/ssrn.3326486","DOIUrl":"https://doi.org/10.2139/ssrn.3326486","url":null,"abstract":"We consider the classical problem of building an arbitrage-free implied volatility surface from bid-ask quotes. We design a fast numerical procedure, for which we prove the convergence, based on the Sinkhorn algorithm that has been recently used to solve efficiently (martingale) optimal transport problems.","PeriodicalId":181062,"journal":{"name":"Corporate Governance: Disclosure","volume":"10 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-01-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128593618","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}
P. Hribar, Richard D. Mergenthaler, Aaron Roeschley, Spencer Young, Chris X. Zhao
We examine whether managers convey more information via voluntary disclosure channels when standard-setters limit managers’ discretion in GAAP. We estimate the extent to which standard setters limit managers’ discretion by counting the number of times obligatory modal verbs are mentioned in the text of each standard. Our primary findings indicate managers issue more earnings forecasts, are more likely to disclose non-GAAP earnings, and provide longer yet more readable MD&A disclosures when GAAP limits managers’ discretion. We find the effect is stronger when investors demand more information and when there is better external oversight, and weaker when managers have conflicting reporting objectives. A difference-in-differences analysis around standard changes corroborates these results by finding more non-GAAP adjustments and greater discussion about the standard and its underlying transaction in the MD&A when the new standard limits managers’ discretion more than its predecessor. Collectively, our results suggest managers use additional channels to convey important information when accounting standards limit their ability to do so.
{"title":"Do Managers Issue More Voluntary Disclosure When GAAP Limits Their Reporting Discretion in Financial Statements?","authors":"P. Hribar, Richard D. Mergenthaler, Aaron Roeschley, Spencer Young, Chris X. Zhao","doi":"10.2139/ssrn.3308900","DOIUrl":"https://doi.org/10.2139/ssrn.3308900","url":null,"abstract":"We examine whether managers convey more information via voluntary disclosure channels when standard-setters limit managers’ discretion in GAAP. We estimate the extent to which standard setters limit managers’ discretion by counting the number of times obligatory modal verbs are mentioned in the text of each standard. Our primary findings indicate managers issue more earnings forecasts, are more likely to disclose non-GAAP earnings, and provide longer yet more readable MD&A disclosures when GAAP limits managers’ discretion. We find the effect is stronger when investors demand more information and when there is better external oversight, and weaker when managers have conflicting reporting objectives. A difference-in-differences analysis around standard changes corroborates these results by finding more non-GAAP adjustments and greater discussion about the standard and its underlying transaction in the MD&A when the new standard limits managers’ discretion more than its predecessor. Collectively, our results suggest managers use additional channels to convey important information when accounting standards limit their ability to do so.","PeriodicalId":181062,"journal":{"name":"Corporate Governance: Disclosure","volume":"29 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131054103","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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