Yoon and Serafeim (2022) provide a review of the history of materiality, a brief discussion of selected research, and a discourse on measurement noise. They do not address the results of our research, our critique of their analysis, or our evidence that the main finding of Khan, Yoon, and Serafeim (2016) is a statistical artifact. In total, their response illustrates the danger of placing excessive faith in the findings from a single study.
{"title":"Material sustainability and stock return: faith is not enough","authors":"A. King, L. Berchicci","doi":"10.2308/jfr-2022-011","DOIUrl":"https://doi.org/10.2308/jfr-2022-011","url":null,"abstract":"Yoon and Serafeim (2022) provide a review of the history of materiality, a brief discussion of selected research, and a discourse on measurement noise. They do not address the results of our research, our critique of their analysis, or our evidence that the main finding of Khan, Yoon, and Serafeim (2016) is a statistical artifact. In total, their response illustrates the danger of placing excessive faith in the findings from a single study.","PeriodicalId":42044,"journal":{"name":"Journal of Financial Reporting","volume":null,"pages":null},"PeriodicalIF":1.5,"publicationDate":"2022-06-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"73211650","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}
For more than thirty years, scholars have investigated the connection between corporate sustainability and financial performance. In 2016, Khan, Serafeim, and Yoon published what appeared to be a major breakthrough in this quest: guidance from the Sustainability Accounting Standards Board (SASB) enabled the formation of scales of sustainability measures that robustly predicted stock returns. Their publication is widely interpreted as evidencing a real connection between corporate sustainability and financial performance, but remains, in its authors’ words, just “first evidence”. In this article, we further explore the relationship between material-sustainability and stock return by performing a “model uncertainty analysis”. We reproduce the 2016 estimate, but show it is both fragile to changes in assumptions and unrepresentative of results from most reasonable models. We infer from the totality of our analysis, that for one popular source of data on corporate sustainability, accurate guidance on materiality may be difficult to achieve.
{"title":"Corporate Sustainability: A Model Uncertainty Analysis of Materiality","authors":"L. Berchicci, Andrew King","doi":"10.2308/jfr-2021-022","DOIUrl":"https://doi.org/10.2308/jfr-2021-022","url":null,"abstract":"For more than thirty years, scholars have investigated the connection between corporate sustainability and financial performance. In 2016, Khan, Serafeim, and Yoon published what appeared to be a major breakthrough in this quest: guidance from the Sustainability Accounting Standards Board (SASB) enabled the formation of scales of sustainability measures that robustly predicted stock returns. Their publication is widely interpreted as evidencing a real connection between corporate sustainability and financial performance, but remains, in its authors’ words, just “first evidence”. In this article, we further explore the relationship between material-sustainability and stock return by performing a “model uncertainty analysis”. We reproduce the 2016 estimate, but show it is both fragile to changes in assumptions and unrepresentative of results from most reasonable models. We infer from the totality of our analysis, that for one popular source of data on corporate sustainability, accurate guidance on materiality may be difficult to achieve.","PeriodicalId":42044,"journal":{"name":"Journal of Financial Reporting","volume":null,"pages":null},"PeriodicalIF":1.5,"publicationDate":"2022-06-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"86582519","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}
Considering the voluminous published research confirming and extending the original findings of Cohen, Dey, Lys (2008), we conclude that Pincus, Wu, and Hwang (2022, this issue) make a modest contribution to the earnings management literature. Specifically, their analysis does not incorporate recent advances in the earnings management literature, especially the measurement and estimation of real earnings management activities and the incorporation of the changing information environment. As a result, we conclude that Pincus, Wu, and Hwang results and conclusions with regards to the substitution between accrual-based and real earnings management activities should be interpreted with caution.
考虑到大量已发表的研究证实并扩展了Cohen, Dey, Lys(2008)的原始发现，我们得出结论，Pincus, Wu, and Hwang(2022，本期)对盈余管理文献的贡献不大。具体来说，他们的分析没有纳入盈余管理文献的最新进展，特别是对真实盈余管理活动的测量和估计以及对不断变化的信息环境的纳入。因此，我们得出结论，Pincus、Wu和Hwang关于权责发生制和真实盈余管理活动之间的替代的结果和结论应该谨慎解释。
{"title":"Substitution between Accrual-Based Earnings Management and Real Activities Manipulation - A Commentary and Guidance for Future Research","authors":"D. Cohen, Thomas Z Lys","doi":"10.2308/jfr-2022-009","DOIUrl":"https://doi.org/10.2308/jfr-2022-009","url":null,"abstract":"Considering the voluminous published research confirming and extending the original findings of Cohen, Dey, Lys (2008), we conclude that Pincus, Wu, and Hwang (2022, this issue) make a modest contribution to the earnings management literature. Specifically, their analysis does not incorporate recent advances in the earnings management literature, especially the measurement and estimation of real earnings management activities and the incorporation of the changing information environment. As a result, we conclude that Pincus, Wu, and Hwang results and conclusions with regards to the substitution between accrual-based and real earnings management activities should be interpreted with caution.","PeriodicalId":42044,"journal":{"name":"Journal of Financial Reporting","volume":null,"pages":null},"PeriodicalIF":1.5,"publicationDate":"2022-06-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"91181805","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 use plain-English, figures, and simple math to explain how to use path analysis to test for mediation and moderation. Many theories in accounting research can be conceptualized as mediated, moderated or moderated-mediation models to investigate both simple and complex hypothesized relationships. Analyses using these models capture the dependent nature of an entire set of relationships rather than attempting to make piecemeal inferences from a series of individual regressions that may not be as revealing and may even yield misleading inferences. We introduce tools that help build theory, reduce the number of inferential tests that are relied on, and use bootstrapping for inferential tests of moderated mediation that do not rely on distributional assumptions. We provide two examples from published research to illustrate and apply these concepts. Tools for analysis include PROCESS (Hayes 2020) and structural equation modeling (SEM).
{"title":"A Practical Guide to using Path Analysis: Mediation and Moderation in Accounting Research","authors":"S. J. Jollineau, R. M. Bowen","doi":"10.2308/jfr-2021-004","DOIUrl":"https://doi.org/10.2308/jfr-2021-004","url":null,"abstract":"We use plain-English, figures, and simple math to explain how to use path analysis to test for mediation and moderation. Many theories in accounting research can be conceptualized as mediated, moderated or moderated-mediation models to investigate both simple and complex hypothesized relationships. Analyses using these models capture the dependent nature of an entire set of relationships rather than attempting to make piecemeal inferences from a series of individual regressions that may not be as revealing and may even yield misleading inferences. We introduce tools that help build theory, reduce the number of inferential tests that are relied on, and use bootstrapping for inferential tests of moderated mediation that do not rely on distributional assumptions. We provide two examples from published research to illustrate and apply these concepts. Tools for analysis include PROCESS (Hayes 2020) and structural equation modeling (SEM).","PeriodicalId":42044,"journal":{"name":"Journal of Financial Reporting","volume":null,"pages":null},"PeriodicalIF":1.5,"publicationDate":"2022-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"90666543","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 Chinese firms’ use of variable interest entities (VIEs) to evade Chinese regulation on foreign ownership and list in the US. Since VIEs are explicitly designed to circumvent the intent of Chinese law on restricting foreign control, they potentially increase the risk of government intervention and agency conflicts within the firm. The use of VIEs among Chinese firms listed in the US is widespread, growing, and associated with valuation discounts of approximately 25% relative to Chinese non-VIE firms listed in the US. The discount varies predictably with events that change VIE risks and is tempered by better oversight (large auditor and institutional investment) and factors that lower regulatory risk (politically connected directors and high media visibility). To remediate investor concerns, VIE firms are more likely to have these characteristics. Finally, the risk of intervention disciplines VIE managers to curry government favor by funding disaster relief and hiring excess employees.
{"title":"The Rise of VIEs in China Balancing State Control and Access to Foreign Capital","authors":"Justin J. Hopkins, Mark Lang, Donny Zhao","doi":"10.2308/jfr-2021-017","DOIUrl":"https://doi.org/10.2308/jfr-2021-017","url":null,"abstract":"We investigate Chinese firms’ use of variable interest entities (VIEs) to evade Chinese regulation on foreign ownership and list in the US. Since VIEs are explicitly designed to circumvent the intent of Chinese law on restricting foreign control, they potentially increase the risk of government intervention and agency conflicts within the firm. The use of VIEs among Chinese firms listed in the US is widespread, growing, and associated with valuation discounts of approximately 25% relative to Chinese non-VIE firms listed in the US. The discount varies predictably with events that change VIE risks and is tempered by better oversight (large auditor and institutional investment) and factors that lower regulatory risk (politically connected directors and high media visibility). To remediate investor concerns, VIE firms are more likely to have these characteristics. Finally, the risk of intervention disciplines VIE managers to curry government favor by funding disaster relief and hiring excess employees.","PeriodicalId":42044,"journal":{"name":"Journal of Financial Reporting","volume":null,"pages":null},"PeriodicalIF":1.5,"publicationDate":"2022-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85495378","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 respond to and rebut a number of comments in Daniel Cohen and Thomas Lys’s commentary (2022, this issue) (hereinafter CL) on our paper (Pincus, Wu, and Hwang, 2022, this issue), which re-examines and extends the research in Cohen, Dey, and Lys (2008) (hereinafter CDL). Specifically, we rebut most of the claims CL make regarding the lack of a conceptual framework and research design limitations, and we clarify CL’s misinterpretation on the inconsistency between our findings and prior published work. CL argue for the need to adjust the methodology that CDL employed, but fail to acknowledge the enhancements we made to CDL’s methodological framework, which enabled us to separate the substitution effects associated with the pre-SOX and post-SOX periods.
我们的论文(Pincus, Wu, and Hwang, 2022, this issue)对Daniel Cohen和Thomas Lys的评论(2022,this issue)(以下简称CL)中的一些评论进行了回应和反驳，重新审视和扩展了Cohen, Dey, and Lys(2008)(以下简称CDL)的研究。具体来说，我们反驳了CL关于缺乏概念框架和研究设计局限性的大多数主张，并澄清了CL对我们的发现与先前发表的工作不一致的误解。CL认为需要调整CDL所采用的方法，但没有承认我们对CDL的方法框架所做的改进，这使我们能够分离与sox前和sox后时期相关的替代效应。
{"title":"“Enhancing and Updating Cohen, Dey, and Lys’s (2008) Methodological Framework to Re-Examine the Relation between Accrual-Based and Real Earnings Management After SOX”","authors":"Morton Pincus, Prof. Shijia Wu","doi":"10.2308/jfr-2022-014","DOIUrl":"https://doi.org/10.2308/jfr-2022-014","url":null,"abstract":"We respond to and rebut a number of comments in Daniel Cohen and Thomas Lys’s commentary (2022, this issue) (hereinafter CL) on our paper (Pincus, Wu, and Hwang, 2022, this issue), which re-examines and extends the research in Cohen, Dey, and Lys (2008) (hereinafter CDL). Specifically, we rebut most of the claims CL make regarding the lack of a conceptual framework and research design limitations, and we clarify CL’s misinterpretation on the inconsistency between our findings and prior published work. CL argue for the need to adjust the methodology that CDL employed, but fail to acknowledge the enhancements we made to CDL’s methodological framework, which enabled us to separate the substitution effects associated with the pre-SOX and post-SOX periods.","PeriodicalId":42044,"journal":{"name":"Journal of Financial Reporting","volume":null,"pages":null},"PeriodicalIF":1.5,"publicationDate":"2022-05-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"90901829","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}
Focusing on quarterly earnings conference call transcripts, we provide evidence that order backlog is positively priced by investors. Pricing is efficient whether these discussions are accompanied by quantitative support or are solely qualitative. We find these disclosures to have stronger pricing effects for growth firms and firms with weaker information environments. Our study contributes to the body of order backlog research by incorporating more timely disclosures as well as by incorporating qualitative disclosures.
{"title":"Order Backlog in Earnings Conference Calls","authors":"Kate Suslava","doi":"10.2308/jfr-2019-0007","DOIUrl":"https://doi.org/10.2308/jfr-2019-0007","url":null,"abstract":"Focusing on quarterly earnings conference call transcripts, we provide evidence that order backlog is positively priced by investors. Pricing is efficient whether these discussions are accompanied by quantitative support or are solely qualitative. We find these disclosures to have stronger pricing effects for growth firms and firms with weaker information environments. Our study contributes to the body of order backlog research by incorporating more timely disclosures as well as by incorporating qualitative disclosures.","PeriodicalId":42044,"journal":{"name":"Journal of Financial Reporting","volume":null,"pages":null},"PeriodicalIF":1.5,"publicationDate":"2022-05-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"81369233","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}
Thomas D’Angelo, M. Lam, Samir M. El-Gazzar, Rudolph A. Jacob
Purpose - This paper investigates the impact of generally accepted accounting principles (GAAP) and non-GAAP voluntary disclosures on equity returns for im-portant financial reporting dates. Design/methodology - Using hand-coded archival data, we developed 2,329 matched pairs consisting of non-GAAP (control) and GAAP (treatment) quarterly observations and compared the equity returns for each group around the earnings release and SEC filing dates. Findings - Our findings suggest that the valuation relevance of GAAP disclos-ing firms significantly exceeds that of non-GAAP firms in the case of earnings and cash flow surprises. These results support the notion that investors perceive GAAP-compliant disclosures as necessary, complementary information about a firm's performance and equity value. We also reveal that the market revaluation of equi-ty on the earnings release date significantly exceeded that on the SEC filing date. This finding confirms that the more comprehensive disclosure provided by GAAP firms on the earlier date preempted at least some of the information subsequently disclosed on the SEC filing date. Value - Extends the voluntary disclosure literature, in particular the valuation relevance of GAAP versus non-GAAP disclosures. The findings discussed in this paper are of special interest to policymakers and regulators, financial analysts, corporate managers, firm stakeholders, and academics interested in financial re-porting as they continue to study voluntary disclosure rules and practices.
{"title":"GAAP-compliant versus non-GAAP voluntary disclosures relative to critical reporting dates","authors":"Thomas D’Angelo, M. Lam, Samir M. El-Gazzar, Rudolph A. Jacob","doi":"10.3280/fr2022-001001","DOIUrl":"https://doi.org/10.3280/fr2022-001001","url":null,"abstract":"Purpose - This paper investigates the impact of generally accepted accounting principles (GAAP) and non-GAAP voluntary disclosures on equity returns for im-portant financial reporting dates. Design/methodology - Using hand-coded archival data, we developed 2,329 matched pairs consisting of non-GAAP (control) and GAAP (treatment) quarterly observations and compared the equity returns for each group around the earnings release and SEC filing dates. Findings - Our findings suggest that the valuation relevance of GAAP disclos-ing firms significantly exceeds that of non-GAAP firms in the case of earnings and cash flow surprises. These results support the notion that investors perceive GAAP-compliant disclosures as necessary, complementary information about a firm's performance and equity value. We also reveal that the market revaluation of equi-ty on the earnings release date significantly exceeded that on the SEC filing date. This finding confirms that the more comprehensive disclosure provided by GAAP firms on the earlier date preempted at least some of the information subsequently disclosed on the SEC filing date. Value - Extends the voluntary disclosure literature, in particular the valuation relevance of GAAP versus non-GAAP disclosures. The findings discussed in this paper are of special interest to policymakers and regulators, financial analysts, corporate managers, firm stakeholders, and academics interested in financial re-porting as they continue to study voluntary disclosure rules and practices.","PeriodicalId":42044,"journal":{"name":"Journal of Financial Reporting","volume":null,"pages":null},"PeriodicalIF":1.5,"publicationDate":"2022-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"79343558","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}
{"title":"Book Review. Lorenzo Simoni, Business Models and Corporate Reporting: Defining the Platform to Illustrate Value Creation, Routledge, 2022 by Sam Rawsthorne","authors":"Roberto Di Pietra, S. Zambon","doi":"10.3280/fr2022-001006","DOIUrl":"https://doi.org/10.3280/fr2022-001006","url":null,"abstract":"","PeriodicalId":42044,"journal":{"name":"Journal of Financial Reporting","volume":null,"pages":null},"PeriodicalIF":1.5,"publicationDate":"2022-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"82062839","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 purpose of this paper is to investigate whether the firms with the same Big Four audit firm and from the same legal system disclose more comparable non-GAAP measures. Using 23,436 pairs of European firms, we hand-collected infor-mation on the non-GAAP measures disclosed in the statement of comprehensive income. The results showed that the firms with the same Big Four audit firm or from the same legal system are positively and significantly associated with non-GAAP comparability. Our work adds to the studies on accounting comparability. Furthermore, it provides fresh insights that support the latest IASB activity on the Primary Financial Statement project, under which the standard setter has en-dorsed ED/2019/7 General Presentation and Disclosures.
{"title":"The role of the Big Four audit firms and the legal system in non-GAAP comparability","authors":"Riccardo Macchioni, Alessandra Allini, M. Prisco","doi":"10.3280/fr2022-001003","DOIUrl":"https://doi.org/10.3280/fr2022-001003","url":null,"abstract":"The purpose of this paper is to investigate whether the firms with the same Big Four audit firm and from the same legal system disclose more comparable non-GAAP measures. Using 23,436 pairs of European firms, we hand-collected infor-mation on the non-GAAP measures disclosed in the statement of comprehensive income. The results showed that the firms with the same Big Four audit firm or from the same legal system are positively and significantly associated with non-GAAP comparability. Our work adds to the studies on accounting comparability. Furthermore, it provides fresh insights that support the latest IASB activity on the Primary Financial Statement project, under which the standard setter has en-dorsed ED/2019/7 General Presentation and Disclosures.","PeriodicalId":42044,"journal":{"name":"Journal of Financial Reporting","volume":null,"pages":null},"PeriodicalIF":1.5,"publicationDate":"2022-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"79327779","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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