Pub Date : 2024-11-01DOI: 10.1016/j.bar.2024.101320
John Richard Edwards
Return on capital employed is recognised both as a symbol of capitalism and as a calculation designed to help achieve the more effective deployment of available resources. Dating the emergence of this ‘accounting signature’ has been the subject of vigorous debate. Rob Bryer believes that calculation of the return on capital employed played a meaningful role in business life from the eighteenth century onwards whereas Steven Toms (2006, p. 206) finds scant evidence of the existence of this emblem of a capitalist mentality until ‘much later’. This paper seeks to contribute to this debate based on the contents of the Spencer Stanhope archive, Eighteenth Century Collections Online and UK Parliamentary Papers.
{"title":"Capitalism and the return on capital employed. Some further evidence","authors":"John Richard Edwards","doi":"10.1016/j.bar.2024.101320","DOIUrl":"10.1016/j.bar.2024.101320","url":null,"abstract":"<div><div>Return on capital employed is recognised both as a symbol of capitalism and as a calculation designed to help achieve the more effective deployment of available resources. Dating the emergence of this ‘accounting signature’ has been the subject of vigorous debate. Rob Bryer believes that calculation of the return on capital employed played a meaningful role in business life from the eighteenth century onwards whereas Steven Toms (2006, p. 206) finds scant evidence of the existence of this emblem of a capitalist mentality until ‘much later’. This paper seeks to contribute to this debate based on the contents of the Spencer Stanhope archive, Eighteenth Century Collections Online and UK Parliamentary Papers.</div></div>","PeriodicalId":47996,"journal":{"name":"British Accounting Review","volume":"56 6","pages":"Article 101320"},"PeriodicalIF":5.5,"publicationDate":"2024-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139420147","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-11-01DOI: 10.1016/j.bar.2024.101442
Cristina Bailey , Joshua J. Filzen
Audit committees in the U.S. oversee risk management within organizations, including oversight of the disclosure of risk factors in periodic filings. Because audit committees have become increasingly over-burdened, we examine the impact of the busyness of audit committee members, measured via members’ service on other boards, on risk factor disclosures. We find firms with busy members issue disclosures that are of lower quality (i.e., less readable and less focused on firm fundamentals). Further, we find that firms with busy members are more likely to issue timely updates to disclosures. However, these updates are more likely to be vague—implying they are inconsequential to the market. We find these results are primarily driven by service in other non-audit committee roles. In additional cross-sectional tests, we find that our results are strongest when there is more uncertainty or complexity in the business environment. Finally, additional specifications and tests show that our results are robust to concerns related to endogeneity. Overall, we find that the busyness of audit committee members has important implications for risk factor disclosures.
{"title":"Audit committee member busyness and risk factor disclosure","authors":"Cristina Bailey , Joshua J. Filzen","doi":"10.1016/j.bar.2024.101442","DOIUrl":"10.1016/j.bar.2024.101442","url":null,"abstract":"<div><div>Audit committees in the U.S. oversee risk management within organizations, including oversight of the disclosure of risk factors in periodic filings. Because audit committees have become increasingly over-burdened, we examine the impact of the busyness of audit committee members, measured via members’ service on other boards, on risk factor disclosures. We find firms with busy members issue disclosures that are of lower quality (i.e., less readable and less focused on firm fundamentals). Further, we find that firms with busy members are more likely to issue timely updates to disclosures. However, these updates are more likely to be vague—implying they are inconsequential to the market. We find these results are primarily driven by service in other non-audit committee roles. In additional cross-sectional tests, we find that our results are strongest when there is more uncertainty or complexity in the business environment. Finally, additional specifications and tests show that our results are robust to concerns related to endogeneity. Overall, we find that the busyness of audit committee members has important implications for risk factor disclosures.</div></div>","PeriodicalId":47996,"journal":{"name":"British Accounting Review","volume":"56 6","pages":"Article 101442"},"PeriodicalIF":5.5,"publicationDate":"2024-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141697343","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}
The COVID-19 pandemic resulted in an extremely rare instance of a shock to global product markets. Using quarterly data for a sample of 7397 firms from 54 countries over the period 2017–2020, we study the causal impact of this shock on trade credit. Employing a difference-in-difference analysis, we find that, in contrast to findings in the literature on financial market shocks, low-credit quality firms are credit-rationed by their suppliers during a shock to product markets and that for low-credit quality firms, there is no substitution of trade credit with financial credit. Importantly, however, our analysis shows that low-credit quality firms with better stakeholder relations are able to obtain more trade credit than those with weaker stakeholder relations. Our results are robust to alternative definitions of key variables, alternative methodologies that address endogeneity concerns, a placebo test, stage of market development, and various levels of controls for unobserved heterogeneity. We show that trade credit is conditional on product market conditions and is not always a generous substitute for financial credit. However, maintaining good relations with stakeholders serves as an antidote to the adverse effect of product market shocks on trade credit.
{"title":"Product market shock, stakeholder relationships, and trade credit","authors":"Jagriti Srivastava , Balagopal Gopalakrishnan , Rajesh Tharyan","doi":"10.1016/j.bar.2024.101458","DOIUrl":"10.1016/j.bar.2024.101458","url":null,"abstract":"<div><div>The COVID-19 pandemic resulted in an extremely rare instance of a shock to global product markets. Using quarterly data for a sample of 7397 firms from 54 countries over the period 2017–2020, we study the causal impact of this shock on trade credit. Employing a difference-in-difference analysis, we find that, in contrast to findings in the literature on financial market shocks, low-credit quality firms are credit-rationed by their suppliers during a shock to product markets and that for low-credit quality firms, there is no substitution of trade credit with financial credit. Importantly, however, our analysis shows that low-credit quality firms with better stakeholder relations are able to obtain more trade credit than those with weaker stakeholder relations. Our results are robust to alternative definitions of key variables, alternative methodologies that address endogeneity concerns, a placebo test, stage of market development, and various levels of controls for unobserved heterogeneity. We show that trade credit is conditional on product market conditions and is not always a generous substitute for financial credit. However, maintaining good relations with stakeholders serves as an antidote to the adverse effect of product market shocks on trade credit.</div></div>","PeriodicalId":47996,"journal":{"name":"British Accounting Review","volume":"56 6","pages":"Article 101458"},"PeriodicalIF":5.5,"publicationDate":"2024-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S0890838924002221/pdfft?md5=17f806cbc0dff2f3ef0c625b8a7b510c&pid=1-s2.0-S0890838924002221-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142045849","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-11-01DOI: 10.1016/j.bar.2024.101445
Haerang Park , Shams Pathan , Konstantinos Stathopoulos , Alex Marwick
Over 74% of US banks share common ownership with other banks. Our analysis of a large sample of US banks reveals that those with greater common ownership demonstrate heightened transparency. This manifests as reduced discretion in loan loss provisions, improved financial statement readability, and enhanced comparability. We pinpoint three underlying mechanisms: decreased private information gathering, increased stock liquidity, and diminished managerial incentives for opacity. Furthermore, these commonly owned banks exhibit lower crash risk due to their improved transparency. Our findings hold after using various proxies and two endogeneity-reduction methods: a difference-in-differences analysis based on the 2009 Blackrock–Barclays Global Investors merger and an instrumental variable approach using Russell 2000 index inclusions. Overall, our study underscores the positive impact of common ownership in the banking sector.
{"title":"The bright side of common ownership: Evidence from bank transparency","authors":"Haerang Park , Shams Pathan , Konstantinos Stathopoulos , Alex Marwick","doi":"10.1016/j.bar.2024.101445","DOIUrl":"10.1016/j.bar.2024.101445","url":null,"abstract":"<div><div>Over 74% of US banks share common ownership with other banks. Our analysis of a large sample of US banks reveals that those with greater common ownership demonstrate heightened transparency. This manifests as reduced discretion in loan loss provisions, improved financial statement readability, and enhanced comparability. We pinpoint three underlying mechanisms: decreased private information gathering, increased stock liquidity, and diminished managerial incentives for opacity. Furthermore, these commonly owned banks exhibit lower crash risk due to their improved transparency. Our findings hold after using various proxies and two endogeneity-reduction methods: a difference-in-differences analysis based on the 2009 Blackrock–Barclays Global Investors merger and an instrumental variable approach using Russell 2000 index inclusions. Overall, our study underscores the positive impact of common ownership in the banking sector.</div></div>","PeriodicalId":47996,"journal":{"name":"British Accounting Review","volume":"56 6","pages":"Article 101445"},"PeriodicalIF":5.5,"publicationDate":"2024-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S0890838924002099/pdfft?md5=2cde4f380841643213f3a7ddf6732701&pid=1-s2.0-S0890838924002099-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141994712","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-11-01DOI: 10.1016/j.bar.2024.101360
Chan Ke , Xuezhi Zhang , Zixun Zhou
Using a hand-collected dataset of shareholder voting on 10,805 director compensation proposals at general shareholder meetings of Chinese listed firms from 2010 to 2019, we provide novel empirical evidence on board reactions to shareholder dissent. We find that boards of directors facing shareholder dissent significantly improve their monitoring and advising effectiveness. Specifically, they reduce the likelihood of financial restatements, improve CEO performance-turnover sensitivity, and improve corporate investment efficiency. Our findings are robust to propensity score matching, instrumental variable estimation and the exogenous shock of mandatory online voting. Moreover, independent directors facing dissent are more likely to vote against board proposals and to reduce their absences from board meetings. The mechanism analysis shows that shareholder dissent operates through the reputation concern and market signal channels. The effect of dissent is more prominent for non-SOEs, for firms with more high-profile directors, and for firms with less powerful CEOs. Besides, the improved board effectiveness induced by shareholder dissent leads to better firm performance. Overall, our findings highlight the role of shareholder voting in emerging markets with concentrated ownership and weak investor protection.
{"title":"From apathy to activism: Shareholder dissent on director's pay proposals and board effectiveness","authors":"Chan Ke , Xuezhi Zhang , Zixun Zhou","doi":"10.1016/j.bar.2024.101360","DOIUrl":"10.1016/j.bar.2024.101360","url":null,"abstract":"<div><div>Using a hand-collected dataset of shareholder voting on 10,805 director compensation proposals at general shareholder meetings<span><span> of Chinese listed firms from 2010 to 2019, we provide novel empirical evidence on board reactions to shareholder dissent. We find that boards of directors facing shareholder dissent significantly improve their monitoring and advising effectiveness. Specifically, they reduce the likelihood of financial restatements, improve CEO performance-turnover sensitivity, and improve corporate investment efficiency. Our findings are robust to propensity score matching, </span>instrumental variable estimation and the exogenous shock of mandatory online voting. Moreover, independent directors facing dissent are more likely to vote against board proposals and to reduce their absences from board meetings. The mechanism analysis shows that shareholder dissent operates through the reputation concern and market signal channels. The effect of dissent is more prominent for non-SOEs, for firms with more high-profile directors, and for firms with less powerful CEOs. Besides, the improved board effectiveness induced by shareholder dissent leads to better firm performance. Overall, our findings highlight the role of shareholder voting in emerging markets with concentrated ownership and weak investor protection.</span></div></div>","PeriodicalId":47996,"journal":{"name":"British Accounting Review","volume":"56 6","pages":"Article 101360"},"PeriodicalIF":5.5,"publicationDate":"2024-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140087843","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 : 2024-11-01DOI: 10.1016/j.bar.2024.101461
Antonios Siganos , Angelos Synapis , Ioannis Tsalavoutas
This study tests the information leakage hypothesis prior to the public announcement of firms switching between the Alternative Investment Market (AIM) and the Main Market (MM) in the UK. We find significant abnormal stock returns 60 trading days prior to the announcement of these switches. The results are robust after controlling for switching anticipation, rumors, other major corporate announcements, and firm performance one year prior to the switch. We also show that having a reputable Nominated Adviser (Nomad) significantly moderates the abnormal stock returns prior to market switches. However, this effect does not hold when Nomads also act as brokers in firms that switch markets. Overall, these findings provide novel evidence about abnormal stock returns prior to the announcement of market switches in the UK and the role of Nomads. As such, we shed light on the significance and the limits of decentralized regulation on informed trading activity.
{"title":"Information leakage prior to market switches and the importance of Nominated Advisers","authors":"Antonios Siganos , Angelos Synapis , Ioannis Tsalavoutas","doi":"10.1016/j.bar.2024.101461","DOIUrl":"10.1016/j.bar.2024.101461","url":null,"abstract":"<div><div>This study tests the information leakage hypothesis prior to the public announcement of firms switching between the Alternative Investment Market (AIM) and the Main Market (MM) in the UK. We find significant abnormal stock returns 60 trading days prior to the announcement of these switches. The results are robust after controlling for switching anticipation, rumors, other major corporate announcements, and firm performance one year prior to the switch. We also show that having a reputable Nominated Adviser (Nomad) significantly moderates the abnormal stock returns prior to market switches. However, this effect does not hold when Nomads also act as brokers in firms that switch markets. Overall, these findings provide novel evidence about abnormal stock returns prior to the announcement of market switches in the UK and the role of Nomads. As such, we shed light on the significance and the limits of decentralized regulation on informed trading activity.</div></div>","PeriodicalId":47996,"journal":{"name":"British Accounting Review","volume":"56 6","pages":"Article 101461"},"PeriodicalIF":5.5,"publicationDate":"2024-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142100792","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-11-01DOI: 10.1016/j.bar.2024.101421
Chih-Liang Liu , Shu-Miao Lai , In-Mu Haw
This study examines whether connected boards of directors restore their reputation via conservative accounting after financial misstatements. Using a sample of restating firms from 2004 to 2020, we find central boards of directors are positively related to accounting conservatism in the post-restatement period. More importantly, we find accounting conservatism has positive effects on the reputation restoration of directors in central boards, leading to more prestigious board seats, additional outside directorships, and higher compensation following restatements. The reputation recovery of directors in central boards is more prominent among restating firms that seek external financing where potential benefits of director reputation are greater. The findings suggest that directors in central boards successfully recover their damaged reputation via conservative accounting after restatements and minimize adverse consequences in the director market. Our robustness tests support the causal interpretation of our evidence. Collectively, our study offers novel insights into the monitoring incentives resulted from the reputation restoration of directors in central boards via conservative accounting after financial reporting failures.
{"title":"Director networks, accounting conservatism and director reputation: Evidence after financial reporting failure","authors":"Chih-Liang Liu , Shu-Miao Lai , In-Mu Haw","doi":"10.1016/j.bar.2024.101421","DOIUrl":"10.1016/j.bar.2024.101421","url":null,"abstract":"<div><div>This study examines whether connected boards of directors restore their reputation via conservative accounting after financial misstatements. Using a sample of restating firms from 2004 to 2020, we find central boards of directors are positively related to accounting conservatism in the post-restatement period. More importantly, we find accounting conservatism has positive effects on the reputation restoration of directors in central boards, leading to more prestigious board seats, additional outside directorships, and higher compensation following restatements. The reputation recovery of directors in central boards is more prominent among restating firms that seek external financing where potential benefits of director reputation are greater. The findings suggest that directors in central boards successfully recover their damaged reputation via conservative accounting after restatements and minimize adverse consequences in the director market. Our robustness tests support the causal interpretation of our evidence. Collectively, our study offers novel insights into the monitoring incentives resulted from the reputation restoration of directors in central boards via conservative accounting after financial reporting failures.</div></div>","PeriodicalId":47996,"journal":{"name":"British Accounting Review","volume":"56 6","pages":"Article 101421"},"PeriodicalIF":5.5,"publicationDate":"2024-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141329475","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 : 2024-11-01DOI: 10.1016/j.bar.2024.101426
Khadija S. Almaghrabi , Richard Slack , Ioannis Tsalavoutas , Fanis Tsoligkas
Capitalisation of development costs mandated under IAS 38 is an important accounting issue conveying a signal to users of accounting information regarding future economic benefits. Using a longitudinal sample of UK firms, firstly, we examine the adverse effect of CEO overconfidence levels on the association between capitalised development costs and future economic benefits, proxied by cash flows. Secondly, we examine the moderating influence of board gender diversity on this association. We find that the association between capitalised development costs and future cash flows, while positive, is significantly weaker for firms with higher levels of CEO overconfidence, implying that the signalling effect of capitalisation is diluted. Moreover, our results show that board gender diversity significantly moderates the managerial bias associated with high overconfidence levels, helping to restore the neutrality of accounting and the strength of signalling with regards to future economic benefits.
{"title":"Capitalised development costs and future cash flows: The effect of CEO overconfidence and board gender diversity","authors":"Khadija S. Almaghrabi , Richard Slack , Ioannis Tsalavoutas , Fanis Tsoligkas","doi":"10.1016/j.bar.2024.101426","DOIUrl":"10.1016/j.bar.2024.101426","url":null,"abstract":"<div><div>Capitalisation of development costs mandated under IAS 38 is an important accounting issue conveying a signal to users of accounting information regarding future economic benefits. Using a longitudinal sample of UK firms, firstly, we examine the adverse effect of CEO overconfidence levels on the association between capitalised development costs and future economic benefits, proxied by cash flows. Secondly, we examine the moderating influence of board gender diversity on this association. We find that the association between capitalised development costs and future cash flows, while positive, is significantly weaker for firms with higher levels of CEO overconfidence, implying that the signalling effect of capitalisation is diluted. Moreover, our results show that board gender diversity significantly moderates the managerial bias associated with high overconfidence levels, helping to restore the neutrality of accounting and the strength of signalling with regards to future economic benefits.</div></div>","PeriodicalId":47996,"journal":{"name":"British Accounting Review","volume":"56 6","pages":"Article 101426"},"PeriodicalIF":5.5,"publicationDate":"2024-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S0890838924001902/pdfft?md5=77e9566a6aa3354727d5599486bd89ad&pid=1-s2.0-S0890838924001902-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141463493","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-11-01DOI: 10.1016/j.bar.2023.101265
Zhenjiang Gu , Louise Yi Lu , Yangxin Yu
This study examines the effect of CEO equity incentive duration on firm-specific ex ante crash risk. Using a measure that explicitly accounts for the length of stock and option grant vesting terms (Gopalan et al., 2014), we find that longer CEO equity incentive duration reduces investors' perceived crash risk, gauged by the steepness of option implied volatility smirk. This finding holds for alternative measures of duration that account for endogeneity, alternative regression specification with lagged independent variables and using an instrumental variable approach. We further find that this negative relation is more salient for firms whose CEOs have a higher level of career concerns and for firms with weaker external monitoring. Additional tests point to financial reporting obfuscation and over-investment as two possible channels through which the duration–crash risk relation operates. Overall, our results suggest that lengthening CEO equity incentive duration discourages managers from bad news hoarding and continuing negative NPV projects, which reduces a firm's expected crash risk.
{"title":"CEO equity incentive duration and expected crash risk","authors":"Zhenjiang Gu , Louise Yi Lu , Yangxin Yu","doi":"10.1016/j.bar.2023.101265","DOIUrl":"10.1016/j.bar.2023.101265","url":null,"abstract":"<div><div>This study examines the effect of CEO equity incentive duration on firm-specific ex ante crash risk. Using a measure that explicitly accounts for the length of stock and option grant vesting terms (Gopalan et al., 2014), we find that longer CEO equity incentive duration reduces investors' perceived crash risk, gauged by the steepness of option implied volatility smirk. This finding holds for alternative measures of duration that account for endogeneity, alternative regression specification with lagged independent variables and using an instrumental variable approach. We further find that this negative relation is more salient for firms whose CEOs have a higher level of career concerns and for firms with weaker external monitoring. Additional tests point to financial reporting obfuscation and over-investment as two possible channels through which the duration–crash risk relation operates. Overall, our results suggest that lengthening CEO equity incentive duration discourages managers from bad news hoarding and continuing negative NPV projects, which reduces a firm's expected crash risk.</div></div>","PeriodicalId":47996,"journal":{"name":"British Accounting Review","volume":"56 6","pages":"Article 101265"},"PeriodicalIF":5.5,"publicationDate":"2024-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135567396","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 : 2024-11-01DOI: 10.1016/j.bar.2024.101321
Varun Jindal , Rama Seth
Exploiting a unique setting of overlapping insiders between acquirers and targets in India, we examine how information asymmetry between the transacting parties influences the returns to acquiring firms' shareholders, as well as the method of payment. Using a novel dataset, we find that cash-financed deals generate greater (no significantly different) value for acquiring firms’ shareholders than stock-financed ones when insiders are non-overlapping (overlapping) between acquiring and target firms. Further, stock-financed deals with overlapping insiders outperform those without them. These results indicate that the adverse selection effect of stock issues in stock-financed acquisitions with asymmetric information between the transacting parties is the key reason behind the underperformance of stock-financed deals. We also find that acquisitions with overlapping insiders on both sides of the deal have a significantly higher incidence of financing with stock than those with non-overlapping insiders. However, the positive effect of overlapping insiders on the propensity of acquisition financing with stock becomes weaker when acquiring and target firms are in the same industry. These results suggest that the effect of a particular channel of information asymmetry reduction on the payment method is greatest in the absence of other channels. Our results are robust to several checks.
{"title":"Overlapping insiders and the method of payment in acquisitions: New tests and evidence on adverse selection","authors":"Varun Jindal , Rama Seth","doi":"10.1016/j.bar.2024.101321","DOIUrl":"10.1016/j.bar.2024.101321","url":null,"abstract":"<div><div>Exploiting a unique setting of overlapping insiders between acquirers and targets in India, we examine how information asymmetry<span> between the transacting parties influences the returns to acquiring firms' shareholders, as well as the method of payment. Using a novel dataset, we find that cash-financed deals generate greater (no significantly different) value for acquiring firms’ shareholders than stock-financed ones when insiders are non-overlapping (overlapping) between acquiring and target firms. Further, stock-financed deals with overlapping insiders outperform those without them. These results indicate that the adverse selection effect of stock issues in stock-financed acquisitions with asymmetric information between the transacting parties is the key reason behind the underperformance of stock-financed deals. We also find that acquisitions with overlapping insiders on both sides of the deal have a significantly higher incidence of financing with stock than those with non-overlapping insiders. However, the positive effect of overlapping insiders on the propensity of acquisition financing with stock becomes weaker when acquiring and target firms are in the same industry. These results suggest that the effect of a particular channel of information asymmetry reduction on the payment method is greatest in the absence of other channels. Our results are robust to several checks.</span></div></div>","PeriodicalId":47996,"journal":{"name":"British Accounting Review","volume":"56 6","pages":"Article 101321"},"PeriodicalIF":5.5,"publicationDate":"2024-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139436901","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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