ABSTRACT Under the Current Expected Credit Loss (CECL) model, banks should fully recognize expected lifetime credit losses upon loan origination while gradually recognizing interest revenues. This timelier recognition of losses versus gains (i.e., conditional conservatism) makes banks more capital constrained. To mitigate this, banks may (1) offset timelier credit losses by lowering conservatism in other earnings components and (2) reduce credit losses by demanding greater borrower conservatism. We find that, under CECL, banks increase conservatism in loan losses but decrease conservatism in other earnings components, making overall conservatism only marginally increase. In sharp contrast, their borrowers increase conservatism by 40 percent, and borrowers’ increase is twice that of banks. This substantial spillover effect suggests that, by greatly increasing borrowers’ conservatism, CECL may strengthen debt governance of a broad scope of firms in the economy, thereby having economy-wide consequences beyond the banking industry and potentially enhancing the stability of the entire economy. Data Availability: Data are publicly available from the sources identified in the study. JEL Classifications: G21; M41; M48.
{"title":"The Effect of the Current Expected Credit Loss Model on Conditional Conservatism of Banks and Its Spillover Effect on Borrower Conservatism","authors":"Xinrong Qiang, Jing Wang","doi":"10.2308/tar-2022-0279","DOIUrl":"https://doi.org/10.2308/tar-2022-0279","url":null,"abstract":"<jats:title>ABSTRACT</jats:title> Under the Current Expected Credit Loss (CECL) model, banks should fully recognize expected lifetime credit losses upon loan origination while gradually recognizing interest revenues. This timelier recognition of losses versus gains (i.e., conditional conservatism) makes banks more capital constrained. To mitigate this, banks may (1) offset timelier credit losses by lowering conservatism in other earnings components and (2) reduce credit losses by demanding greater borrower conservatism. We find that, under CECL, banks increase conservatism in loan losses but decrease conservatism in other earnings components, making overall conservatism only marginally increase. In sharp contrast, their borrowers increase conservatism by 40 percent, and borrowers’ increase is twice that of banks. This substantial spillover effect suggests that, by greatly increasing borrowers’ conservatism, CECL may strengthen debt governance of a broad scope of firms in the economy, thereby having economy-wide consequences beyond the banking industry and potentially enhancing the stability of the entire economy. Data Availability: Data are publicly available from the sources identified in the study. JEL Classifications: G21; M41; M48.","PeriodicalId":22240,"journal":{"name":"The Accounting Review","volume":"25 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2024-07-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141794529","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}
ABSTRACT This study provides novel evidence on the magnitude of switching costs in auditing. Using a discrete choice approach, we infer switching costs from clients’ audit firm choices. The demand estimation reveals that switching costs are significant and vary by direction, with the highest costs associated with switching from non-Big 4 to Big 4 audit firms. Counterfactual analyses of forced switches suggest that switching costs are substantial, ranging from 0.7 billion U.S. dollars (14.2 percent of audit fees) to 1.2 billion U.S. dollars (24.0 percent of audit fees) when aggregated across all clients. Counterfactual analyses of voluntary switching show that the audit market would become highly dynamic and more concentrated if switching costs were removed. Additionally, clients would gain consumer surplus of up to 306 million U.S. dollars (5.4 percent of audit fees) in such a scenario. Overall, our study documents the importance of switching costs for understanding audit market dynamics. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: M42; M48; L11; L84.
{"title":"Switching Costs and Market Power in Auditing: Evidence from a Structural Approach","authors":"Qiang Guo, Christopher Koch, Aiyong Zhu","doi":"10.2308/tar-2022-0416","DOIUrl":"https://doi.org/10.2308/tar-2022-0416","url":null,"abstract":"<jats:title>ABSTRACT</jats:title> This study provides novel evidence on the magnitude of switching costs in auditing. Using a discrete choice approach, we infer switching costs from clients’ audit firm choices. The demand estimation reveals that switching costs are significant and vary by direction, with the highest costs associated with switching from non-Big 4 to Big 4 audit firms. Counterfactual analyses of forced switches suggest that switching costs are substantial, ranging from 0.7 billion U.S. dollars (14.2 percent of audit fees) to 1.2 billion U.S. dollars (24.0 percent of audit fees) when aggregated across all clients. Counterfactual analyses of voluntary switching show that the audit market would become highly dynamic and more concentrated if switching costs were removed. Additionally, clients would gain consumer surplus of up to 306 million U.S. dollars (5.4 percent of audit fees) in such a scenario. Overall, our study documents the importance of switching costs for understanding audit market dynamics. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: M42; M48; L11; L84.","PeriodicalId":22240,"journal":{"name":"The Accounting Review","volume":"44 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2024-07-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141794528","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}
Byung Hyun Ahn, Robert M. Bushman, Panos N. Patatoukas
ABSTRACT Although activist short sellers can play a crucial role in fraud detection, they have come under scrutiny following accusations of systematically disseminating false negative information. We develop a framework delineating the roles of campaign-specific private information quality and short-selling dynamics in shaping disclosure incentives. We predict that the act of disclosure combined with pre-disclosure stock lending dynamics is informative about the quality of an activist’s private information. We find that increased pre-disclosure shorting intensity is associated with more negative post-disclosure returns, adverse media coverage, and consequential campaign outcomes, including auditor turnover, accounting restatements, class-action lawsuits, and performance-related delistings. Furthermore, elevated short-selling costs and risks magnify the association between pre-disclosure shorting intensity and post-disclosure underperformance. Finally, we examine V-shaped reversals and short covering following activists’ disclosures and find no evidence of systematic manipulation. We conclude that activists disclosing fraud allegations under their own names are discouraged from engaging in “short-and-distort” schemes. Data Availability: Data are available from the sources cited in the text. JEL Classifications: G12; G14; G23; M41.
ABSTRACT 虽然激进卖空者在欺诈检测中能起到至关重要的作用，但他们因被指控系统性地传播虚假负面信息而备受关注。我们建立了一个框架，界定了活动特定的私人信息质量和卖空动态在形成信息披露激励方面的作用。我们预测，信息披露行为与披露前的股票借贷动态相结合，能为活动家的私人信息质量提供信息。我们发现，披露前做空强度的增加与披露后更多的负面回报、不利的媒体报道以及随之而来的竞选结果（包括审计师更替、会计重述、集体诉讼和与业绩相关的退市）有关。此外，卖空成本和风险的上升会放大披露前做空强度与披露后业绩不佳之间的关联。最后，我们研究了激进分子披露信息后的 V 型反转和空头回补，没有发现系统性操纵的证据。我们的结论是，以自己的名义披露欺诈指控的激进分子不会参与 "做空并扭曲 "计划。数据可用性：数据可从文中引用的来源获得。JEL Classifications：G12；G14；G23；M41。
{"title":"Under the Hood of Activist Fraud Campaigns: Private Information Quality, Disclosure Incentives, and Stock Lending Dynamics","authors":"Byung Hyun Ahn, Robert M. Bushman, Panos N. Patatoukas","doi":"10.2308/tar-2023-0392","DOIUrl":"https://doi.org/10.2308/tar-2023-0392","url":null,"abstract":"<jats:title>ABSTRACT</jats:title> Although activist short sellers can play a crucial role in fraud detection, they have come under scrutiny following accusations of systematically disseminating false negative information. We develop a framework delineating the roles of campaign-specific private information quality and short-selling dynamics in shaping disclosure incentives. We predict that the act of disclosure combined with pre-disclosure stock lending dynamics is informative about the quality of an activist’s private information. We find that increased pre-disclosure shorting intensity is associated with more negative post-disclosure returns, adverse media coverage, and consequential campaign outcomes, including auditor turnover, accounting restatements, class-action lawsuits, and performance-related delistings. Furthermore, elevated short-selling costs and risks magnify the association between pre-disclosure shorting intensity and post-disclosure underperformance. Finally, we examine V-shaped reversals and short covering following activists’ disclosures and find no evidence of systematic manipulation. We conclude that activists disclosing fraud allegations under their own names are discouraged from engaging in “short-and-distort” schemes. Data Availability: Data are available from the sources cited in the text. JEL Classifications: G12; G14; G23; M41.","PeriodicalId":22240,"journal":{"name":"The Accounting Review","volume":"70 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2024-07-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141794530","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}
ABSTRACT Organizations invest heavily in supervision to increase the competitive advantage of their human capital. Although recent studies show that supervisors add value in general, it is not well understood what specific supervisory behaviors are relevant for employee career outcomes. To that end, this study explores the performance evaluation process and focuses on supervisors’ evaluation behavior. Interpreting a supervisor’s tendency to differentiate as a way of advancing employee development, I provide theory-consistent evidence revealing the relevance of differentiation for employee career outcomes. Using proprietary archival data, I demonstrate that differentiation relates positively to employees (1) performing more successfully in a new position upon promotion, (2) receiving a promotion to the next position, and (3) remaining in the organization. Therefore, this study presents novel and relevant evidence on the importance of specific supervisory behaviors in establishing effective human capital management practices.
{"title":"Supervisor Impact on Employee Careers: The Role of Rating Differentiation","authors":"Judith Künneke","doi":"10.2308/tar-2020-0289","DOIUrl":"https://doi.org/10.2308/tar-2020-0289","url":null,"abstract":"<jats:title>ABSTRACT</jats:title> Organizations invest heavily in supervision to increase the competitive advantage of their human capital. Although recent studies show that supervisors add value in general, it is not well understood what specific supervisory behaviors are relevant for employee career outcomes. To that end, this study explores the performance evaluation process and focuses on supervisors’ evaluation behavior. Interpreting a supervisor’s tendency to differentiate as a way of advancing employee development, I provide theory-consistent evidence revealing the relevance of differentiation for employee career outcomes. Using proprietary archival data, I demonstrate that differentiation relates positively to employees (1) performing more successfully in a new position upon promotion, (2) receiving a promotion to the next position, and (3) remaining in the organization. Therefore, this study presents novel and relevant evidence on the importance of specific supervisory behaviors in establishing effective human capital management practices.","PeriodicalId":22240,"journal":{"name":"The Accounting Review","volume":"52 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2024-07-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141870330","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}
ABSTRACT We examine the relationship between audit quality and office-level auditor turnover. Using resumes of over 106,000 Big 4 auditors, we find that audit offices with higher turnover have a greater likelihood of client annual report restatements. This detrimental effect is more pronounced when the departing auditors are more experienced and when the office faces tighter human capital constraints and is primarily attributable to voluntary turnover. Further, such negative effect is borne mostly by complex clients and intangible-intensive clients but is weakened for clients with greater product similarity to the client portfolio of the audit office. Last, the impact of office-level turnover on audit quality persists after controlling for firm-level turnover. Our findings inform the current policy debate on whether and to what extent audit firms should disclose auditor turnover as a potential indicator of audit quality. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: M42.
{"title":"Individual Auditor Turnover and Audit Quality—Large Sample Evidence from U.S. Audit Offices","authors":"Tao Ma, Chi Wan, Yakun Wang, Yuping Zhao","doi":"10.2308/tar-2021-0862","DOIUrl":"https://doi.org/10.2308/tar-2021-0862","url":null,"abstract":"<jats:title>ABSTRACT</jats:title> We examine the relationship between audit quality and office-level auditor turnover. Using resumes of over 106,000 Big 4 auditors, we find that audit offices with higher turnover have a greater likelihood of client annual report restatements. This detrimental effect is more pronounced when the departing auditors are more experienced and when the office faces tighter human capital constraints and is primarily attributable to voluntary turnover. Further, such negative effect is borne mostly by complex clients and intangible-intensive clients but is weakened for clients with greater product similarity to the client portfolio of the audit office. Last, the impact of office-level turnover on audit quality persists after controlling for firm-level turnover. Our findings inform the current policy debate on whether and to what extent audit firms should disclose auditor turnover as a potential indicator of audit quality. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: M42.","PeriodicalId":22240,"journal":{"name":"The Accounting Review","volume":"96 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2024-07-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141870378","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 : 2024-07-01DOI: 10.2308/0001-4826-99.4.i
{"title":"Covers and Front Matter","authors":"","doi":"10.2308/0001-4826-99.4.i","DOIUrl":"https://doi.org/10.2308/0001-4826-99.4.i","url":null,"abstract":"","PeriodicalId":22240,"journal":{"name":"The Accounting Review","volume":"14 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2024-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141870379","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}
ABSTRACT We study the real effects on innovation of a transformative change in corporate disclosure dissemination, the implementation of the SEC’s EDGAR system. On the one hand, increased disclosure dissemination can lower firms’ cost of capital, thereby stimulating innovative activity. On the other hand, increased dissemination can exacerbate proprietary disclosure costs, reducing firms’ incentives to innovate. We show that treated firms reduce innovation investment following EDGAR’s implementation. In contrast, EDGAR reporting firms’ innovation investment cuts are met with an increase in innovation investment by their technology rivals. Consistent with an increase in proprietary costs, EDGAR-filers disclose less about their innovation activities. We also find evidence of a redistribution of innovative activity from public to private firms not subject to EDGAR disclosure requirements. Overall, our results are consistent with increased disclosure dissemination crowding out investment in innovative projects, whose returns negatively depend on information spillovers. JEL Classifications: D23; L86; M40; M41; O30; O31; O32; O34.
摘要 我们研究了公司信息披露传播的变革--美国证券交易委员会 EDGAR 系统的实施--对创新的实际影响。一方面，信息披露传播的增加可以降低企业的资本成本，从而刺激创新活动。另一方面，信息传播的增加会加剧专有信息披露成本，从而降低企业的创新动力。我们的研究表明，EDGAR 实施后，接受治疗的企业减少了创新投资。相反，EDGAR 报告公司减少创新投资的同时，其技术竞争对手却增加了创新投资。与专有成本增加相一致的是，EDGAR 申报企业减少了对其创新活动的披露。我们还发现了创新活动从上市公司向不受 EDGAR 披露要求限制的私营企业重新分配的证据。总体而言，我们的研究结果表明，信息披露的增加会挤出对创新项目的投资，而创新项目的收益与信息溢出效应呈负相关。JEL 分类：D23；L86；M40；M41；O30；O31；O32；O34。
{"title":"Unintended Real Effects of EDGAR: Evidence from Corporate Innovation","authors":"Michael Dambra, Atanas Mihov, Leandro Sanz","doi":"10.2308/tar-2023-0310","DOIUrl":"https://doi.org/10.2308/tar-2023-0310","url":null,"abstract":"<jats:title>ABSTRACT</jats:title> We study the real effects on innovation of a transformative change in corporate disclosure dissemination, the implementation of the SEC’s EDGAR system. On the one hand, increased disclosure dissemination can lower firms’ cost of capital, thereby stimulating innovative activity. On the other hand, increased dissemination can exacerbate proprietary disclosure costs, reducing firms’ incentives to innovate. We show that treated firms reduce innovation investment following EDGAR’s implementation. In contrast, EDGAR reporting firms’ innovation investment cuts are met with an increase in innovation investment by their technology rivals. Consistent with an increase in proprietary costs, EDGAR-filers disclose less about their innovation activities. We also find evidence of a redistribution of innovative activity from public to private firms not subject to EDGAR disclosure requirements. Overall, our results are consistent with increased disclosure dissemination crowding out investment in innovative projects, whose returns negatively depend on information spillovers. JEL Classifications: D23; L86; M40; M41; O30; O31; O32; O34.","PeriodicalId":22240,"journal":{"name":"The Accounting Review","volume":"52 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2024-06-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141870384","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}
ABSTRACT I investigate whether algorithmic trading (AT) affects the provision of management guidance. Existing research finds that AT decreases fundamental information acquisition before earnings announcements and consequently reduces the informativeness of prices. To compensate for reduced information acquisition, I predict and find that managers at firms with more AT activity increase the quantity and quality of guidance issued at earnings announcements. Evidence is consistent with managers responding to reduced information acquisition, as opposed to changes in liquidity, and results suggest guidance in response to AT is effective at reducing information asymmetry. These findings identify a new channel through which AT affects stock price informativeness by documenting a link to managers’ disclosure decisions. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: G14; G19; G10.
摘要 我研究了算法交易（AT）是否会影响管理层指导的提供。现有研究发现，算法交易会减少收益公布前的基本面信息获取，从而降低价格的信息性。为了弥补信息获取的减少，我预测并发现 AT 活动较多的公司的管理者会在盈利公布时提高指导意见的数量和质量。与流动性的变化相比，证据显示管理者对信息获取的减少做出了反应，结果表明针对 AT 的指导能有效减少信息不对称。这些发现通过记录与管理者披露决策的联系，确定了AT影响股价信息性的新渠道。数据可用性：数据可从文中引用的公共来源获得。JEL 分类：G14；G19；G10。
{"title":"The Effect of Algorithmic Trading on Management Guidance","authors":"Andrew Stephan","doi":"10.2308/tar-2022-0080","DOIUrl":"https://doi.org/10.2308/tar-2022-0080","url":null,"abstract":"<jats:title>ABSTRACT</jats:title> I investigate whether algorithmic trading (AT) affects the provision of management guidance. Existing research finds that AT decreases fundamental information acquisition before earnings announcements and consequently reduces the informativeness of prices. To compensate for reduced information acquisition, I predict and find that managers at firms with more AT activity increase the quantity and quality of guidance issued at earnings announcements. Evidence is consistent with managers responding to reduced information acquisition, as opposed to changes in liquidity, and results suggest guidance in response to AT is effective at reducing information asymmetry. These findings identify a new channel through which AT affects stock price informativeness by documenting a link to managers’ disclosure decisions. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: G14; G19; G10.","PeriodicalId":22240,"journal":{"name":"The Accounting Review","volume":"106 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2024-06-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141870382","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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