Pub Date : 2025-09-09DOI: 10.1016/j.jcae.2025.100504
Yewon Kim , Jaehee Jo , Meeok Cho
This study investigates whether and how external auditors’ communication with the audit committee (AC) influences opportunistic auditor changes by corporations. We adopt the framework developed by Lennox (2000) to measure the likelihood of firms engaging in opinion shopping. Using data from Korean listed firms that established an AC from 2018 to 2020, we find that greater communication between auditors and the AC is associated with a decrease in opinion shopping behavior. This effect is more pronounced when AC members are independent, when the AC chair has accounting financial expertise, and when communication between auditors and the AC addresses internal control deficiencies. Overall, our study sheds light on the effectiveness of auditors’ communication with the AC in deterring opportunistic auditor choices, offering valuable insights for policymakers and regulators.
{"title":"Auditors’ communication with the audit committee and audit opinion shopping","authors":"Yewon Kim , Jaehee Jo , Meeok Cho","doi":"10.1016/j.jcae.2025.100504","DOIUrl":"10.1016/j.jcae.2025.100504","url":null,"abstract":"<div><div>This study investigates whether and how external auditors’ communication with the audit committee (AC) influences opportunistic auditor changes by corporations. We adopt the framework developed by <span><span>Lennox (2000)</span></span> to measure the likelihood of firms engaging in opinion shopping. Using data from Korean listed firms that established an AC from 2018 to 2020, we find that greater communication between auditors and the AC is associated with a decrease in opinion shopping behavior. This effect is more pronounced when AC members are independent, when the AC chair has accounting financial expertise, and when communication between auditors and the AC addresses internal control deficiencies. Overall, our study sheds light on the effectiveness of auditors’ communication with the AC in deterring opportunistic auditor choices, offering valuable insights for policymakers and regulators.</div></div>","PeriodicalId":46693,"journal":{"name":"Journal of Contemporary Accounting & Economics","volume":"21 3","pages":"Article 100504"},"PeriodicalIF":2.9,"publicationDate":"2025-09-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145104639","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-09-03DOI: 10.1016/j.jcae.2025.100501
Hannah E. Richards , Yuan Shi , Hongkang Xu
We examine whether product recalls impact the likelihood of disclosure and quality of non-GAAP earnings. With increased scrutiny, firms may limit voluntary disclosures or use them to counteract negative publicity. Similarly, product recalls could motivate firms to report higher-quality non-GAAP earnings to provide a more accurate view of the financial impact of product recalls or report more aggressive non-GAAP earnings to counteract the decline in financial performance. Using a sample period of 2004 to 2017, we find that firms are less likely to disclose non-GAAP earnings after announcing a product recall. For firms that choose to release non-GAAP earnings after announcing a product recall, we find that the quality of non-GAAP earnings improves. This finding suggests that product recalls may prompt firms to adopt more conservative reporting practices, both in terms of the likelihood and quality of disclosures. Our study provides insights into firms’ strategic disclosure decisions and highlights the nuanced ways firms manage non-GAAP disclosures to navigate the challenges posed by product recalls.
{"title":"The impact of product recalls on Non-GAAP reporting decisions","authors":"Hannah E. Richards , Yuan Shi , Hongkang Xu","doi":"10.1016/j.jcae.2025.100501","DOIUrl":"10.1016/j.jcae.2025.100501","url":null,"abstract":"<div><div>We examine whether product recalls impact the likelihood of disclosure and quality of non-GAAP earnings. With increased scrutiny, firms may limit voluntary disclosures or use them to counteract negative publicity. Similarly, product recalls could motivate firms to report higher-quality non-GAAP earnings to provide a more accurate view of the financial impact of product recalls or report more aggressive non-GAAP earnings to counteract the decline in financial performance. Using a sample period of 2004 to 2017, we find that firms are less likely to disclose non-GAAP earnings after announcing a product recall. For firms that choose to release non-GAAP earnings after announcing a product recall, we find that the quality of non-GAAP earnings improves. This finding suggests that product recalls may prompt firms to adopt more conservative reporting practices, both in terms of the likelihood and quality of disclosures. Our study provides insights into firms’ strategic disclosure decisions and highlights the nuanced ways firms manage non-GAAP disclosures to navigate the challenges posed by product recalls.</div></div>","PeriodicalId":46693,"journal":{"name":"Journal of Contemporary Accounting & Economics","volume":"21 3","pages":"Article 100501"},"PeriodicalIF":2.9,"publicationDate":"2025-09-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145104638","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-09-01DOI: 10.1016/j.jcae.2025.100503
Atul Singh , Vicki Wei Tang
We examine whether social media presence and engagement have a feedback effect on corporate investment efficiency. Utilizing 352 million responses from the corporate Twitter accounts of 2062 US firms, we find that both underinvesting and overinvesting firms deviate less from predicted investment levels after initiating presence on Twitter. Furthermore, the more engaged the followers are, the smaller the deviation from expected investment levels. The effects are robust to including information incorporated in stock prices and other information sources. Our findings provide evidence that managerial learning is one channel underlying the link between social media and corporate investment efficiency. Cross-sectional results suggest that the managerial learning effect is more pronounced for consumer-facing firms. We also find that underinvesting firms learn from their peers’ social media presence. Additionally, firms’ operational efficiency also improves, corroborating the feedback effect of social media. Additional tests rule out endogeneity-related issues.
{"title":"Feedback effect of social media on corporate investment Efficiency: Evidence from Firm’s Twitter presence and engagement","authors":"Atul Singh , Vicki Wei Tang","doi":"10.1016/j.jcae.2025.100503","DOIUrl":"10.1016/j.jcae.2025.100503","url":null,"abstract":"<div><div>We examine whether social media presence and engagement have a feedback effect on corporate investment efficiency. Utilizing 352 million responses from the corporate Twitter accounts of 2062 US firms, we find that both underinvesting and overinvesting firms deviate less from predicted investment levels after initiating presence on Twitter. Furthermore, the more engaged the followers are, the smaller the deviation from expected investment levels. The effects are robust to including information incorporated in stock prices and other information sources. Our findings provide evidence that managerial learning is one channel underlying the link between social media and corporate investment efficiency. Cross-sectional results suggest that the managerial learning effect is more pronounced for consumer-facing firms. We also find that underinvesting firms learn from their peers’ social media presence. Additionally, firms’ operational efficiency also improves, corroborating the <em>feedback</em> effect of social media. Additional tests rule out endogeneity-related issues.</div></div>","PeriodicalId":46693,"journal":{"name":"Journal of Contemporary Accounting & Economics","volume":"21 3","pages":"Article 100503"},"PeriodicalIF":2.9,"publicationDate":"2025-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145018966","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-09-01DOI: 10.1016/j.jcae.2025.100502
Yafei Zu, Chenmin Ma, Qian Sun
Taking Chinese A-share listed enterprises from 2009 to 2019 as samples, this study finds that executive compensation stickiness exhibits a significantly positive impact on enterprise innovation, with social trust playing a positive moderating role. This finding remains valid in a series of robustness tests. Channel analyses show that risk-taking plays a mediating role in the relationship between executive compensation stickiness and enterprise innovation. Cross-sectional analyses show that such positive effect is more significant for state-owned enterprises and enterprises with risk-averse executives, better supervisions, and in economically developed regions. Additional analyses indicate that, different types of executive compensation stickiness have great differences in incentive effect, and executive compensation stickiness can improve enterprise performance through enterprise innovation. This paper not only enriches the research on the consequences of executive compensation stickiness, but also expands insights into the interaction between formal and informal controls.
{"title":"Executive compensation stickiness, social trust and enterprise innovation","authors":"Yafei Zu, Chenmin Ma, Qian Sun","doi":"10.1016/j.jcae.2025.100502","DOIUrl":"10.1016/j.jcae.2025.100502","url":null,"abstract":"<div><div>Taking Chinese A-share listed enterprises from 2009 to 2019 as samples, this study finds that executive compensation stickiness exhibits a significantly positive impact on enterprise innovation, with social trust playing a positive moderating role. This finding remains valid in a series of robustness tests. Channel analyses show that risk-taking plays a mediating role in the relationship between executive compensation stickiness and enterprise innovation. Cross-sectional analyses show that such positive effect is more significant for state-owned enterprises and enterprises with risk-averse executives, better supervisions, and in economically developed regions. Additional analyses indicate that, different types of executive compensation stickiness have great differences in incentive effect, and executive compensation stickiness can improve enterprise performance through enterprise innovation. This paper not only enriches the research on the consequences of executive compensation stickiness, but also expands insights into the interaction between formal and informal controls.</div></div>","PeriodicalId":46693,"journal":{"name":"Journal of Contemporary Accounting & Economics","volume":"21 3","pages":"Article 100502"},"PeriodicalIF":2.9,"publicationDate":"2025-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145010406","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We examine the relationship between carbon risk and accounting conservatism using 7,636 firm-year observations from 29 countries. Using firms’ carbon emissions as a proxy for carbon risk, we find that firms with higher carbon risk exhibit greater conditional accounting conservatism. However, this positive relationship is weaker in firms with stronger corporate governance and higher institutional ownership, suggesting that effective internal and external monitoring reduces the reliance on conservative reporting in response to carbon-related exposures. Further analysis shows that the relationship becomes more pronounced after the 2015 Paris Agreement. The effect is also stronger in countries with active emissions trading schemes (ETS), higher governance quality, and stakeholder-oriented business cultures. These findings offer timely and policy-relevant insights for regulators, standard-setters, and policymakers, particularly in light of the introduction of IFRS S2 by the International Sustainability Standards Board (ISSB), which mandates climate-related financial disclosures and emphasizes the importance of integrating carbon risk into core financial reporting practices.
{"title":"From corporate emissions to financial statements: Understanding accounting conservatism in the wake of carbon risks","authors":"Farhana Islam , Sudipta Bose , Sammy Xiaoyan Ying , Syed Shams","doi":"10.1016/j.jcae.2025.100500","DOIUrl":"10.1016/j.jcae.2025.100500","url":null,"abstract":"<div><div>We examine the relationship between carbon risk and accounting conservatism using 7,636 firm-year observations from 29 countries. Using firms’ carbon emissions as a proxy for carbon risk, we find that firms with higher carbon risk exhibit greater conditional accounting conservatism. However, this positive relationship is weaker in firms with stronger corporate governance and higher institutional ownership, suggesting that effective internal and external monitoring reduces the reliance on conservative reporting in response to carbon-related exposures. Further analysis shows that the relationship becomes more pronounced after the 2015 Paris Agreement. The effect is also stronger in countries with active emissions trading schemes (ETS), higher governance quality, and stakeholder-oriented business cultures. These findings offer timely and policy-relevant insights for regulators, standard-setters, and policymakers, particularly in light of the introduction of IFRS S2 by the International Sustainability Standards Board (ISSB), which mandates climate-related financial disclosures and emphasizes the importance of integrating carbon risk into core financial reporting practices.</div></div>","PeriodicalId":46693,"journal":{"name":"Journal of Contemporary Accounting & Economics","volume":"21 3","pages":"Article 100500"},"PeriodicalIF":2.9,"publicationDate":"2025-08-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145157516","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-08-06DOI: 10.1016/j.jcae.2025.100499
Zhenghao Chang , Hang Zhou , Mengyu Ruan , Qin Li
The phenomenon of different ESG rating agencies evaluating the same firm’s ESG performance differently has attracted widespread attention. This study examines how customer concentration influences ESG rating disagreement using a sample of Chinese A-share listed companies spanning 2015–2022. Our findings demonstrate that customer concentration significantly increases ESG rating disagreement, with results remaining robust across various robustness tests. Dimensional analysis reveals that customer concentration exhibits a positive correlation with rating disagreements in the social (S) and governance (G) dimensions, while showing no significant relationship with disagreements in the environmental (E) dimension. Through mechanism testing, we identify three mechanisms: the quantity of ESG information disclosures, inventory turnover, and the stability of the top management team. Heterogeneity analysis further demonstrates that customer concentration exerts a more pronounced positive influence on ESG rating disagreement among firms operating in highly competitive industries, companies experiencing low supply and demand deviations, and industries significantly affected by supply chain dynamics. These findings contribute substantively to the literature examining both the role of customer concentration and the determinants of ESG rating disagreement from a supply chain perspective. The insights provided are crucial for understanding the mechanisms that influence sustainable development practices within firms.
{"title":"When major customers matter: customer concentration and ESG rating disagreement","authors":"Zhenghao Chang , Hang Zhou , Mengyu Ruan , Qin Li","doi":"10.1016/j.jcae.2025.100499","DOIUrl":"10.1016/j.jcae.2025.100499","url":null,"abstract":"<div><div>The phenomenon of different ESG rating agencies evaluating the same firm’s ESG performance differently has attracted widespread attention. This study examines how customer concentration influences ESG rating disagreement using a sample of Chinese A-share listed companies spanning 2015–2022. Our findings demonstrate that customer concentration significantly increases ESG rating disagreement, with results remaining robust across various robustness tests. Dimensional analysis reveals that customer concentration exhibits a positive correlation with rating disagreements in the social (S) and governance (G) dimensions, while showing no significant relationship with disagreements in the environmental (E) dimension. Through mechanism testing, we identify three mechanisms: the quantity of ESG information disclosures, inventory turnover, and the stability of the top management team. Heterogeneity analysis further demonstrates that customer concentration exerts a more pronounced positive influence on ESG rating disagreement among firms operating in highly competitive industries, companies experiencing low supply and demand deviations, and industries significantly affected by supply chain dynamics. These findings contribute substantively to the literature examining both the role of customer concentration and the determinants of ESG rating disagreement from a supply chain perspective. The insights provided are crucial for understanding the mechanisms that influence sustainable development practices within firms.</div></div>","PeriodicalId":46693,"journal":{"name":"Journal of Contemporary Accounting & Economics","volume":"21 3","pages":"Article 100499"},"PeriodicalIF":2.9,"publicationDate":"2025-08-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144826708","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-08-05DOI: 10.1016/j.jcae.2025.100498
Ujjawal Sawarn , Abhishek Rohit , Ankit Kumar
We investigate the impact of innovations in the level of economic activity—first-moment shocks—and its volatility, or uncertainty—second-moment shocks—on related party transactions (RPT) in India. Related parties face trade-offs between supporting the firm and extracting the private benefit, given the nature of first and second-moment shocks. Using fixed effects panel data regression for India, we find that during periods of high economic growth and low uncertainty, firms engage more in related party transactions to leverage existing relationships with affiliated entities, reduce transaction costs, and support one another. Furthermore, we find that the effect of economic growth on RPT increases after the enactment of the Indian Companies Act (2013), which mandates shareholders’ approval for material-related party transactions. We also explore the motives of RPT and find that this increase is due to business RPT and not opportunistic RPT, confirming the increase in economic activities. Apart from this, we also find that this relationship is more pronounced in manufacturing and profitable firms. We confirm our results using various robustness exercises such as alternate measures, instrumental variables, and serial correlation.
{"title":"Economic conditions and related party transactions in India","authors":"Ujjawal Sawarn , Abhishek Rohit , Ankit Kumar","doi":"10.1016/j.jcae.2025.100498","DOIUrl":"10.1016/j.jcae.2025.100498","url":null,"abstract":"<div><div>We investigate the impact of innovations in the level of economic activity—first-moment shocks—and its volatility, or uncertainty—second-moment shocks—on related party transactions (RPT) in India. Related parties face trade-offs between supporting the firm and extracting the private benefit, given the nature of first and second-moment shocks. Using fixed effects panel data regression for India, we find that during periods of high economic growth and low uncertainty, firms engage more in related party transactions to leverage existing relationships with affiliated entities, reduce transaction costs, and support one another. Furthermore, we find that the effect of economic growth on RPT increases after the enactment of the Indian Companies Act (2013), which mandates shareholders’ approval for material-related party transactions. We also explore the motives of RPT and find that this increase is due to business RPT and not opportunistic RPT, confirming the increase in economic activities. Apart from this, we also find that this relationship is more pronounced in manufacturing and profitable firms. We confirm our results using various robustness exercises such as alternate measures, instrumental variables, and serial correlation.</div></div>","PeriodicalId":46693,"journal":{"name":"Journal of Contemporary Accounting & Economics","volume":"21 3","pages":"Article 100498"},"PeriodicalIF":2.9,"publicationDate":"2025-08-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144893238","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-07-28DOI: 10.1016/j.jcae.2025.100497
Yunsen Chen , Zizhen Feng , Yao Yu , Wei Yuan
We examine the capital market consequences of the exercise of rights by the regulatory minority shareholder. Using a manually collected sample from the China Securities Investor Services Center (CSISC), a novel regulatory investor protection institution controlled by the China Securities Regulatory Commission, we employ a stacked difference-in-differences model in our main regression analysis to estimate the impact of the CSISC’s actions. We find that the CSISC’s exercise of rights has a risk signaling effect, increasing perceived risk among investors, which is reflected in reduced stock liquidity and an increased cost of equity. Event studies indicate negative market reactions to actions taken by the CSISC against targeted firms. Additional analyses show that a negative tone and increased investor attention toward the CSISC’s actions further amplify the market responses. Cross-sectional analyses reveal a stronger effect for firms with regulatory alliances, while effective internal governance mitigates this effect. Collectively, our study highlights the market consequences of the regulator-led minority shareholder’s interventions in an emerging market that lacks strong private enforcement.
{"title":"The capital market consequences of the regulator-led minority shareholder: Evidence from China","authors":"Yunsen Chen , Zizhen Feng , Yao Yu , Wei Yuan","doi":"10.1016/j.jcae.2025.100497","DOIUrl":"10.1016/j.jcae.2025.100497","url":null,"abstract":"<div><div>We examine the capital market consequences of the exercise of rights by the regulatory minority shareholder. Using a manually collected sample from the China Securities Investor Services Center (CSISC), a novel regulatory investor protection institution controlled by the China Securities Regulatory Commission, we employ a stacked difference-in-differences model in our main regression analysis to estimate the impact of the CSISC’s actions. We find that the CSISC’s exercise of rights has a risk signaling effect, increasing perceived risk among investors, which is reflected in reduced stock liquidity and an increased cost of equity. Event studies indicate negative market reactions to actions taken by the CSISC against targeted firms. Additional analyses show that a negative tone and increased investor attention toward the CSISC’s actions further amplify the market responses. Cross-sectional analyses reveal a stronger effect for firms with regulatory alliances, while effective internal governance mitigates this effect. Collectively, our study highlights the market consequences of the regulator-led minority shareholder’s interventions in an emerging market that lacks strong private enforcement.</div></div>","PeriodicalId":46693,"journal":{"name":"Journal of Contemporary Accounting & Economics","volume":"21 3","pages":"Article 100497"},"PeriodicalIF":2.9,"publicationDate":"2025-07-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144771713","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-07-18DOI: 10.1016/j.jcae.2025.100496
Aaraadhya Srivastava
In 2016, the Government of India (GoI) implemented the Insolvency and Bankruptcy Code (IBC), a reform aimed at enhancing creditor rights by enabling creditors to swiftly ‘seize’ and ‘liquidate’ a defaulter’s assets within a defined timeframe. This reform was designed to strengthen creditor protections in India. Our study examines the impact of this reform on firm-level innovation. We hypothesize that creditor-friendly reforms improve access to debt capital, thereby encouraging firms to intensify their innovation activities. Utilizing an entropy-balanced difference-in-differences (Entropy-DiD) approach and leveraging pre-reform variation in firms’ ‘proportion of debt’ for identification, we find that firms with a lower pre-reform ‘proportion of debt’ increased their R&D investment by 29.4 % more than firms with a higher pre-reform ‘proportion of debt’ in the post-IBC period. Supporting our baseline result, we further document that this effect is stronger among more profitable firms within the ‘treated’ group. Our findings are robust to firm-level time-varying control variables, fixed effects for firm and industry by year, and a placebo test using a fictitious IBC promulgation year. These results indicate that stronger creditor rights foster an environment conducive to risk-taking, encouraging firms to pursue ventures that, while risky, hold significant potential for profitability. Consequently, our research highlights the welfare implications of creditor-friendly bankruptcy reforms, providing insights that could inform future policy decisions.
{"title":"Creditor rights and innovation: evidence from a quasi-natural experiment","authors":"Aaraadhya Srivastava","doi":"10.1016/j.jcae.2025.100496","DOIUrl":"10.1016/j.jcae.2025.100496","url":null,"abstract":"<div><div>In 2016, the Government of India (GoI) implemented the Insolvency and Bankruptcy Code (IBC), a reform aimed at enhancing creditor rights by enabling creditors to swiftly ‘seize’ and ‘liquidate’ a defaulter’s assets within a defined timeframe. This reform was designed to strengthen creditor protections in India. Our study examines the impact of this reform on firm-level innovation. We hypothesize that creditor-friendly reforms improve access to debt capital, thereby encouraging firms to intensify their innovation activities. Utilizing an entropy-balanced difference-in-differences (Entropy-DiD) approach and leveraging pre-reform variation in firms’ ‘proportion of debt’ for identification, we find that firms with a lower pre-reform ‘proportion of debt’ increased their R&D investment by 29.4 % more than firms with a higher pre-reform ‘proportion of debt’ in the post-IBC period. Supporting our baseline result, we further document that this effect is stronger among more profitable firms within the ‘treated’ group. Our findings are robust to firm-level time-varying control variables, fixed effects for firm and industry by year, and a placebo test using a fictitious IBC promulgation year. These results indicate that stronger creditor rights foster an environment conducive to risk-taking, encouraging firms to pursue ventures that, while risky, hold significant potential for profitability. Consequently, our research highlights the welfare implications of creditor-friendly bankruptcy reforms, providing insights that could inform future policy decisions.</div></div>","PeriodicalId":46693,"journal":{"name":"Journal of Contemporary Accounting & Economics","volume":"21 3","pages":"Article 100496"},"PeriodicalIF":2.9,"publicationDate":"2025-07-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144670440","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-07-12DOI: 10.1016/j.jcae.2025.100495
Benjamin Angelo
The Private Securities Litigation Reform Act protects firms against litigation stemming from forward-looking statements. This paper considers whether these protections contribute to post-earnings announcement drift. The results did not suggest that the inherent uncertainty of forward-looking statements contributes to a delayed price reaction. However, the results provide evidence that backward-looking statements are associated with a delayed price response. This result is consistent with Bernard and Thomas (1990) suggestion that post-earnings announcement drift is caused by investors not fully understanding how current earnings map into future earnings. Overall, the results suggests that the PSLRA does not contribute to post-earnings announcement drift. Further, the results have practical implications for firms. Managers should focus their prepared remarks on the prior performance of the firm and focus their responses during the question-and-answer session on the future performance of the firm.
{"title":"The private securities litigation reform act and post-earnings announcement drift","authors":"Benjamin Angelo","doi":"10.1016/j.jcae.2025.100495","DOIUrl":"10.1016/j.jcae.2025.100495","url":null,"abstract":"<div><div>The Private Securities Litigation Reform Act protects firms against litigation stemming from forward-looking statements. This paper considers whether these protections contribute to post-earnings announcement drift. The results did not suggest that the inherent uncertainty of forward-looking statements contributes to a delayed price reaction. However, the results provide evidence that backward-looking statements are associated with a delayed price response. This result is consistent with <span><span>Bernard and Thomas (1990)</span></span> suggestion that post-earnings announcement drift is caused by investors not fully understanding how current earnings map into future earnings. Overall, the results suggests that the PSLRA does not contribute to post-earnings announcement drift. Further, the results have practical implications for firms. Managers should focus their prepared remarks on the prior performance of the firm and focus their responses during the question-and-answer session on the future performance of the firm.</div></div>","PeriodicalId":46693,"journal":{"name":"Journal of Contemporary Accounting & Economics","volume":"21 3","pages":"Article 100495"},"PeriodicalIF":2.9,"publicationDate":"2025-07-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144665805","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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