Journal of Contemporary Accounting & Economics最新文献

We find that pure insider share purchases—which we define as insider purchases over two successive years without any corresponding sales—are a strong predictor of a firm’s patent applications. The predictability increases with the quality of the patent: Applications for the highest-quality, breakthrough patents increase by 21% in the year following pure insider purchases in our sample. These purchases are associated with large abnormal stock returns of 1.1% per month (14% annualized) over the subsequent three-year period. We also document that stock price responds less to the subsequent announcement of the grant of patent if the application for the patent has been preceded by pure insider purchases, consistent with the idea that insider purchases reveal information about future firm innovation. Our evidence has implications for understanding insider trading within technology companies that have become a dominant feature of US stock markets in recent decades.

In this paper we investigate the relationship between chief executive officer (CEO) inside debt holdings (pension benefits and deferred compensation) and long-term credit ratings. We provide evidence that firms with a higher level of inside debt holdings enjoy better credit ratings. Our results are robust to the use of alternative regression estimation and alternative measures of key variables. We employ instrumental variable–based two-stage least squares regression and instrumental variable regression estimation using heteroskedasticity-based instruments to mitigate the endogeneity concern. In addition, we employ propensity-matched sample and entropy balancing estimates to alleviate endogeneity concerns. Our cross-sectional analyses reveal that the relationship between CEO inside debt holdings and credit ratings is more pronounced in firms with a poor information environment, a weak monitoring mechanism, and powerful CEOs. Overall, findings from our study suggest that credit rating agencies evaluate CEO insider debt holdings positively in assessing the creditworthiness of a firm.

Using, as a natural experiment, the Public Company Accounting Oversight Board’s May 18, 2010, release stating that its oversight of certain foreign auditors had been denied, we examine investors’ early valuation of the PCAOB’s international audit oversight on U.S.-listed foreign companies. Comparing reactions for the release-exposed U.S.-listed foreign companies to reactions for other U.S.-listed foreign companies, we find a significant decline in the share values of the release-exposed companies. The decline is driven by companies with auditors from China; the on-list companies from the 19 on-list European jurisdictions do not experience significantly negative stock market reactions. Using difference-in-differences analyses of earnings response coefficients, abnormal stock returns and trading volumes surrounding earnings announcements, and analyst forecast dispersions, we find a decline in perceived financial reporting quality for the release-exposed foreign listings from China but not for the release-exposed companies from the 19 European jurisdictions—a finding in line with the results of the stock market reaction analyses. These results are consistent with the view that the PCAOB’s international inspection would create a net value for U.S.-listed companies from China.

Management earnings forecasts have received significant attention as an important source for setting firm expectations. Our paper argues that how these forecasts are presented to the public is important for managing these expectations. We present both analytical and empirical analyses demonstrating that managers’ disclosure framing choices will depend on the information type, managerial overoptimism, and managerial compensation structures. We also provide evidence showing that disclosure framing choices can dampen stock return volatility. Finally, we indicate that disclosure strategies alter the misreporting results found in Guttman et al. (2006).

Prior literature established that managers engage in Revenue Shifting (RS) and Expense Shifting (ES) with an intent to report favourable operating performance; our paper extends such research in a new direction by investigating both forms based on the need, ease, and advantage of each form of shifting strategy. The study identifies firm-specific factors that incentivize firms to prefer RS over ES and vice-versa. We undertake a longitudinal study (2001–2019) using a sample size of 39,634 firm-years, enlisted in the Bombay Stock Exchange (BSE). Our results show that peer-performance, size, financial leverage, growth opportunities, accounting flexibility, and age of the firm are important determinants of RS and ES. Specifically, our results exhibit that large, levered, old, and high-growth firms are engaged in RS, whereas small, young, firms with lesser accounting flexibility, and firms operating below peer-performance are involved in ES. These results are robust to controlling for accruals earnings management, real earnings management, endogeneity, self-selection bias, and alternative measures of RS and ES. Our findings are helpful to auditors and investors in improving awareness of forms of classification shifting.

Theory and prior research suggest that corporate lobbying is a primary means that corporations use to influence government policies either for improving firm performance (i.e., strategic decisions) or for rent-seeking activities (i.e., agency costs) but the evidence between lobbying activities and auditor assessments of audit risk remains unclear. Our results show that lobbying firms are associated with higher audit risks and fees, consistent with the idea that lobbying is related to rent-seeking and higher agency costs. In cross-sectional analyses, we find that the positive association between lobbying and audit fees is weaker for firms with strong corporate governance. Further analysis shows that firm financial returns or low earnings quality mediate the relationship between lobbying and audit fees. The results suggest that practitioners, users of financial statements and regulators could benefit by recognizing that lobbying activities could signal managerial opportunistic behavior.

This paper examines how real estate appreciation correspondingly changes collateral value, which affects debt structure choices and consequent operating decisions. Specifically, we explore whether collateral-based financing provides a link between real estate values and corporate cost behavior. Our baseline results show that an appreciation of a firm’s real estate assets alleviates its cost stickiness. A further analysis shows that this influence is stronger for firms with less prior bank debt, less dependence on external financing, and a lower leverage ratio. We also observe that the impact of collateral shocks on cost stickiness is more pronounced when selling, general and administrative (SG&A) costs create less future value for mature firms and for firms with weaker external governance. Collectively, our results support the argument that an increase in bank debt arising from collateral value appreciation mitigates agency problems and thus lessens cost stickiness.

We investigate whether market competition affects the relationship between corporate transparency and firm value in the United States using a sample of 12,665 firm-year observations, representing 1,644 individual firms for the period 1996–2018. The results show that stronger transparency enhances firm value, and market competition has a significantly positive effect on that relationship. More importantly, we use hierarchical linear models further to explore the cross-level interaction impact of market competition, and we find evidence suggesting that the industry-level competition has a significant cross-level moderating effect. Additionally, consistent with the substitute perspective, we also find that the disciplinary power of competition on the relationship between transparency and value is more pronounced for firms with weak corporate governance. Overall, our evidence supports the “bright side” of the competition view and highlights the active external governance role that competition plays in the value promotion effect of corporate transparency at both the individual and the industry levels.

In this study, we examine the effect of hubris in the “tone at the top” on goodwill accounting, specifically the proportion of the purchase price allocated to goodwill following a business combination, and subsequent decisions to write down goodwill. Using a sample of CEO letters to shareholders from firms listed on the Stockholm Stock Exchange, we carry out textual analysis of CEO letters to identify hubristic language markers. Regression analyses show that hubristic tone is positively and significantly associated with the purchase price allocation to goodwill. Furthermore, we predict that hubristic managers are more likely to overestimate future cash inflows related to goodwill and are less likely to perceive the need for a potential write-down. Consistent with this prediction, we find that hubristic tone in the CEO letters is associated with less timely goodwill write-downs. This study contributes to the literature on goodwill accounting, the role of CEO attributes on corporate decision making, and to research on CEO-speak, by providing evidence that a hubristic tone at the top can explain strategic choices by management and accounting outcomes.

Perpetual securities are classified as equity under the International Financial Reporting Standards, but various contract terms embedded in the securities create additional debt- and equity-like characteristics. This study examines whether stock market investors differentiate between diverse contract attributes. Using quarterly data on listed non-financial firms in the Korea Exchange that issued perpetual securities during 2012–2020, we document the following findings. First, perpetual securities are positively associated with stock prices. Second, the positive association is driven by perpetual securities convertible to stocks rather than non-convertible ones. Third, when further decomposing convertible perpetual securities based on whether the conversion price is fixed or floating, only fixed-priced convertibles show a positive association with stock prices. Overall, our findings suggest that equity investors consider the detailed contract attributes important for financial instruments.