In this study, we examine the impact of rank-and-file employee stock options on audit fees. We document compelling evidence that option grants to rank-and-file employees are positively related to audit fees. Further analyses show that this positive relation is more pronounced when a firm's real earnings manipulation risk is higher and when rank-and-file employees are more sensitive to monetary incentives. We also find that options granted to rank-and-file employees are positively related to audit efforts. The evidence suggests that auditors perceive options to rank-and-file employees to be associated with increased audit risk.
{"title":"Rank-and-file employee stock options and audit pricing: Evidence from S&P 1500 firms","authors":"Xiaoqi Chen , Maoliang Li , Emmanuel Obiri-Yeboah , Qiang Wu","doi":"10.1016/j.bar.2024.101422","DOIUrl":"10.1016/j.bar.2024.101422","url":null,"abstract":"<div><div>In this study, we examine the impact of rank-and-file employee stock options on audit fees. We document compelling evidence that option grants to rank-and-file employees are positively related to audit fees. Further analyses show that this positive relation is more pronounced when a firm's real earnings manipulation risk is higher and when rank-and-file employees are more sensitive to monetary incentives. We also find that options granted to rank-and-file employees are positively related to audit efforts. The evidence suggests that auditors perceive options to rank-and-file employees to be associated with increased audit risk.</div></div>","PeriodicalId":47996,"journal":{"name":"British Accounting Review","volume":"56 6","pages":"Article 101422"},"PeriodicalIF":5.5,"publicationDate":"2024-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141416059","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.2024.101428
Niamh M. Brennan , Sean Bradley Power
The research comprises a case study focussed on the wording of 34 audit reports of the British South Africa Company (BSAC), which Cecil Rhodes established by Royal Charter to colonise Rhodesia from 1889 to 1924. The accounts were audited by Cooper Brothers & Co., now PricewaterhouseCoopers. The research analyses three audit-report characteristics that influenced audit-report wording. Of the 34 audit reports, eight contained qualified (i.e., unfavourable) audit opinions. Based on verbatim annual general meeting minutes and private correspondence, we provide evidence of the effect of the audit qualifications. The research further analyses the evolution of the audit-report wording over the period. Initially, the auditors customised the audit-report wording. Each year, they made micro changes to improve the precision of the wording. Then, in 1911, well in advance of any audit-report regulations, the wording became standardised and remained so until the end of the study period. The paper adds insights into why auditors standardised audit-report wording. We conjecture that years of struggling with customised wording prompted the auditors to adopt standardised wording. We do not know whether this decision applied just to the BSAC audit reports, or whether 1911 heralded standardised audit-report wording for all Cooper Brothers & Co. audit reports.
{"title":"Nineteenth century audit reports: Evolution from free-form to standardised wording","authors":"Niamh M. Brennan , Sean Bradley Power","doi":"10.1016/j.bar.2024.101428","DOIUrl":"10.1016/j.bar.2024.101428","url":null,"abstract":"<div><div>The research comprises a case study focussed on the wording of 34 audit reports of the British South Africa Company (BSAC), which Cecil Rhodes established by Royal Charter to colonise Rhodesia from 1889 to 1924. The accounts were audited by Cooper Brothers & Co., now PricewaterhouseCoopers. The research analyses three audit-report characteristics that influenced audit-report wording. Of the 34 audit reports, eight contained qualified (i.e., unfavourable) audit opinions. Based on verbatim annual general meeting minutes and private correspondence, we provide evidence of the effect of the audit qualifications. The research further analyses the evolution of the audit-report wording over the period. Initially, the auditors customised the audit-report wording. Each year, they made micro changes to improve the precision of the wording. Then, in 1911, well in advance of any audit-report regulations, the wording became standardised and remained so until the end of the study period. The paper adds insights into why auditors standardised audit-report wording. We conjecture that years of struggling with customised wording prompted the auditors to adopt standardised wording. We do not know whether this decision applied just to the BSAC audit reports, or whether 1911 heralded standardised audit-report wording for all Cooper Brothers & Co. audit reports.</div></div>","PeriodicalId":47996,"journal":{"name":"British Accounting Review","volume":"56 6","pages":"Article 101428"},"PeriodicalIF":5.5,"publicationDate":"2024-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S0890838924001926/pdfft?md5=c427e0eddb2a60dae873012357e4f338&pid=1-s2.0-S0890838924001926-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141717807","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}
We examine the association between the origin of chief executive officer (CEO) succession (i.e., promoting a CEO from within the firm as opposed to recruiting from outside) and annual reports readability. Based on a sample of large U.S. companies during the period 2004–2020, we predict and find that companies with insider CEOs issue more readable 10-K reports compared to those who hire from outside. This positive association between insider CEOs and readability is less pronounced for insider CEOs who wield greater power. We further document that the association is stronger if CEOs have a financial background. To further explore the underlying mechanism, we test whether the association is driven by earnings management or firms’ business strategies. Our results show that the effect of CEO succession origin on readability is primarily attributable to business strategies. We address endogeneity issues and check the robustness of our results in several ways. Finally, we document important policy implications emerging from our study.
我们研究了首席执行官（CEO）继任的起源（即从公司内部提拔 CEO 而不是从外部招聘 CEO）与年度报告可读性之间的关联。基于 2004-2020 年间美国大型公司的样本，我们预测并发现，与从外部招聘首席执行官的公司相比，由内部人接任首席执行官的公司发布的 10-K 报告更具可读性。内部首席执行官与可读性之间的这种正相关关系，对于拥有更大权力的内部首席执行官来说并不那么明显。我们还发现，如果首席执行官具有金融背景，这种关联性会更强。为了进一步探索内在机制，我们检验了这种关联是由收益管理还是公司的经营战略驱动的。我们的结果表明，首席执行官继任出身对可读性的影响主要归因于企业战略。我们通过多种方法解决了内生性问题，并检验了结果的稳健性。最后，我们记录了本研究产生的重要政策影响。
{"title":"CEO succession origin and annual reports readability","authors":"Javad Oradi , Reza Hesarzadeh , Sahar E-Vahdati , Muhammad Nadeem","doi":"10.1016/j.bar.2024.101384","DOIUrl":"10.1016/j.bar.2024.101384","url":null,"abstract":"<div><div>We examine the association between the origin of chief executive officer (CEO) succession (i.e., promoting a CEO from within the firm as opposed to recruiting from outside) and annual reports readability. Based on a sample of large U.S. companies during the period 2004–2020, we predict and find that companies with insider CEOs issue more readable 10-K reports compared to those who hire from outside. This positive association between insider CEOs and readability is less pronounced for insider CEOs who wield greater power. We further document that the association is stronger if CEOs have a financial background. To further explore the underlying mechanism, we test whether the association is driven by earnings management or firms’ business strategies. Our results show that the effect of CEO succession origin on readability is primarily attributable to business strategies. We address endogeneity issues and check the robustness of our results in several ways. Finally, we document important policy implications emerging from our study.</div></div>","PeriodicalId":47996,"journal":{"name":"British Accounting Review","volume":"56 6","pages":"Article 101384"},"PeriodicalIF":5.5,"publicationDate":"2024-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140643298","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.2024.101457
Hongtao Zhu , Md Jahidur Rahman
This study has two primary objectives. Firstly, it enhances the reliability and transparency of machine-learning-based models for predicting future changes in environmental, social and governance (ESG) performance. Secondly, it explores the relationship between ex-ante expected changes in ESG and future stock returns. This study collects 3258 STOXX Europe 600 firm-year observations. In the ESG prediction phase, two machine learning algorithms (logistic regression and random forest) are utilised to develop ESG forecasting models. Hyperparameter optimisation and walk-forward validation techniques are employed to address issues of underestimation and information leakage. The machine-learning-based ESG forecasting models are evaluated using three metrics: accuracy, area under the curve (AUC) and area under the precision-recall curve (AUPR). Subsequently, this study investigates the relationship between ex-ante expected ESG changes and future stock returns using the predicted ESG changes. A positive correlation is found between ex-ante expected ESG changes and future stock returns. The supplementary tests also reveal that this positive relationship is highly and statistically significant among large firms and after the COVID-19 pandemic. Moreover, this study introduces a robust and transparent approach for constructing effective machine-learning-based ESG forecasting models using hyperparameter optimisation and walk-forward validation. Additionally, traditional regression analyses are modernised by incorporating machine-learning-predicted independent variables. Furthermore, the findings provide empirical support for stakeholder, agency and resource-based theories. Finally, practical insights are provided to facilitate ESG-focused investment portfolio decision making.
{"title":"Ex-ante expected changes in ESG and future stock returns based on machine learning","authors":"Hongtao Zhu , Md Jahidur Rahman","doi":"10.1016/j.bar.2024.101457","DOIUrl":"10.1016/j.bar.2024.101457","url":null,"abstract":"<div><div>This study has two primary objectives. Firstly, it enhances the reliability and transparency of machine-learning-based models for predicting future changes in environmental, social and governance (ESG) performance. Secondly, it explores the relationship between ex-ante expected changes in ESG and future stock returns. This study collects 3258 STOXX Europe 600 firm-year observations. In the ESG prediction phase, two machine learning algorithms (logistic regression and random forest) are utilised to develop ESG forecasting models. Hyperparameter optimisation and walk-forward validation techniques are employed to address issues of underestimation and information leakage. The machine-learning-based ESG forecasting models are evaluated using three metrics: accuracy, area under the curve (AUC) and area under the precision-recall curve (AUPR). Subsequently, this study investigates the relationship between ex-ante expected ESG changes and future stock returns using the predicted ESG changes. A positive correlation is found between ex-ante expected ESG changes and future stock returns. The supplementary tests also reveal that this positive relationship is highly and statistically significant among large firms and after the COVID-19 pandemic. Moreover, this study introduces a robust and transparent approach for constructing effective machine-learning-based ESG forecasting models using hyperparameter optimisation and walk-forward validation. Additionally, traditional regression analyses are modernised by incorporating machine-learning-predicted independent variables. <span>Furthermore</span>, the findings provide empirical support for stakeholder, agency and resource-based theories. Finally, practical insights are provided to facilitate ESG-focused investment portfolio decision making.</div></div>","PeriodicalId":47996,"journal":{"name":"British Accounting Review","volume":"56 6","pages":"Article 101457"},"PeriodicalIF":5.5,"publicationDate":"2024-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141910579","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.2024.101449
Yuyuan Chang , Wen He , Lin Mi
We investigate the effect of cross-border regulatory cooperation on the cash holdings of firms cross-listed on US stock exchanges. The staggered adoption of the Multilateral Memorandum of Understanding (MMoU) facilitates cooperation among securities regulators around the world and expands their enforcement capabilities against foreign firms. Using a difference-in-differences design, we find that US-listed foreign firms significantly reduce their cash holdings after their home countries sign the MMoU, suggesting that the threat of increased SEC enforcement induced by regulatory cooperation disciplines corporate insiders from stockpiling cash holdings to enjoy private benefits of control. Information opacity and the cost of capital are two of the channels through which the threat of increased SEC enforcement affects cash holdings. The reduction in cash holdings is more pronounced for foreign firms from countries with weaker governance. After the MMoU, foreign firms make faster cash adjustments toward target levels, they reduce cash by making payouts, and their cash is valued more by investors.
{"title":"Cross-border regulatory cooperation and cash holdings: Evidence from US-listed foreign firms","authors":"Yuyuan Chang , Wen He , Lin Mi","doi":"10.1016/j.bar.2024.101449","DOIUrl":"10.1016/j.bar.2024.101449","url":null,"abstract":"<div><div>We investigate the effect of cross-border regulatory cooperation on the cash holdings of firms cross-listed on US stock exchanges. The staggered adoption of the Multilateral Memorandum of Understanding (MMoU) facilitates cooperation among securities regulators around the world and expands their enforcement capabilities against foreign firms. Using a difference-in-differences design, we find that US-listed foreign firms significantly reduce their cash holdings after their home countries sign the MMoU, suggesting that the threat of increased SEC enforcement induced by regulatory cooperation disciplines corporate insiders from stockpiling cash holdings to enjoy private benefits of control. Information opacity and the cost of capital are two of the channels through which the threat of increased SEC enforcement affects cash holdings. The reduction in cash holdings is more pronounced for foreign firms from countries with weaker governance. After the MMoU, foreign firms make faster cash adjustments toward target levels, they reduce cash by making payouts, and their cash is valued more by investors.</div></div>","PeriodicalId":47996,"journal":{"name":"British Accounting Review","volume":"56 6","pages":"Article 101449"},"PeriodicalIF":5.5,"publicationDate":"2024-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S0890838924002130/pdfft?md5=262a29094433d1caa4271139ca08b0bc&pid=1-s2.0-S0890838924002130-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141891935","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.2024.101326
Jiaying Ge , Steven F. Cahan , Jerry W. Chen
This study considers whether investor-manager private meetings serve as a potential channel to detect and restrain corporate myopic R&D behavior in firms subject to earnings pressure. To do so, we exploit a unique dataset of corporate site visits, a particular form of private meetings. Our results indicate that the myopic R&D behavior of firms under earnings pressure is significantly lower when the firm hosts more institutional investors’ site visits. To further tease out the underlying mechanisms, we conduct cross-sectional analyses and find that the constraining effect of site visits is greater when there is more need for monitoring by institutional investors, i.e., when the information environment is weak and product market competition is low. Further, this monitoring effect is stronger when more questions are asked about R&D during the site visit, when the site visit involves more than one institutional investor, and when the site visit occurs earlier in the fiscal year. The main findings are robust to alternative model specifications, estimation approaches, and endogeneity issues. Overall, our evidence suggests that site visits cannot only reduce information asymmetry, but they have an important monitoring role as well.
{"title":"Curbing myopic R&D behavior: How private meetings serve as a channel","authors":"Jiaying Ge , Steven F. Cahan , Jerry W. Chen","doi":"10.1016/j.bar.2024.101326","DOIUrl":"10.1016/j.bar.2024.101326","url":null,"abstract":"<div><div>This study considers whether investor-manager private meetings serve as a potential channel to detect and restrain corporate myopic R&D behavior in firms subject to earnings pressure. To do so, we exploit a unique dataset of corporate site visits, a particular form of private meetings. Our results indicate that the myopic R&D behavior of firms under earnings pressure is significantly lower when the firm hosts more institutional investors’ site visits. To further tease out the underlying mechanisms, we conduct cross-sectional analyses and find that the constraining effect of site visits is greater when there is more need for monitoring by institutional investors, i.e., when the information environment is weak and product market competition is low. Further, this monitoring effect is stronger when more questions are asked about R&D during the site visit, when the site visit involves more than one institutional investor, and when the site visit occurs earlier in the fiscal year. The main findings are robust to alternative model specifications, estimation approaches, and endogeneity issues. Overall, our evidence suggests that site visits cannot only reduce information asymmetry, but they have an important monitoring role as well.</div></div>","PeriodicalId":47996,"journal":{"name":"British Accounting Review","volume":"56 6","pages":"Article 101326"},"PeriodicalIF":5.5,"publicationDate":"2024-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139436900","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.2024.101390
Tauhidul Islam Tanin , Ashutosh Sarker , Shawkat Hammoudeh , Jonathan A. Batten
Panel data from publicly listed US industrial firms is used to investigate how firm-specific cost of debt (COD) determinants impact COD at different quantiles during a financial crisis. Six COD determinants: firm size, firm age, profitability, leverage, liquidity, and firm value, and advanced estimators: robust and bootstrapped fixed effects, bias-corrected least square dummy variable (LSDVC), and quantile regression, are employed within the context of pecking-order theory. The results show that firm size and leverage negatively impact COD, while liquidity positively impacts it when COD is high (90% quantile). The degree of profitability only confirms the pecking order theory when COD is extremely low (10% quantile) and contrasts with the theory for the 25% and above COD quantiles during the Global Financial Crisis (GFC). These findings confirm that the practicalities of access to finance matter during a financial crisis for corporate financing decisions.
{"title":"The determinants of corporate cost of debt during a financial crisis","authors":"Tauhidul Islam Tanin , Ashutosh Sarker , Shawkat Hammoudeh , Jonathan A. Batten","doi":"10.1016/j.bar.2024.101390","DOIUrl":"10.1016/j.bar.2024.101390","url":null,"abstract":"<div><div>Panel data from publicly listed US industrial firms is used to investigate how firm-<em>specific</em> cost of debt (COD) determinants impact COD at different quantiles during a financial crisis. Six COD determinants: firm size, firm age, profitability, leverage, liquidity, and firm value, and advanced estimators: robust and bootstrapped fixed effects, bias-corrected least square dummy variable (LSDVC), and quantile regression, are employed within the context of pecking-order theory. The results show that firm size and leverage negatively impact COD, while liquidity positively impacts it when COD is high (90% quantile). The degree of profitability only confirms the pecking order theory when COD is extremely low (10% quantile) and contrasts with the theory for the 25% and above COD quantiles during the Global Financial Crisis (GFC). These findings confirm that the practicalities of access to finance matter during a financial crisis for corporate financing decisions.</div></div>","PeriodicalId":47996,"journal":{"name":"British Accounting Review","volume":"56 6","pages":"Article 101390"},"PeriodicalIF":5.5,"publicationDate":"2024-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141026907","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.2024.101467
Yi Hu , Chao Yin
Our study reveals that companies with higher Corporate Social Responsibility (CSR) ratings exhibit superior stock returns compared to their counterparts with lower ratings during periods of political uncertainty. This phenomenon is more pronounced in a closely contested election with a higher degree of unpredictability. Our results remain robust after addressing potential endogeneity issue and are not affected by the ex-post election outcome or the political donations made by firms. Further analysis indicates that the increase in returns could be attributed to the improved relationship between firms and their internal stakeholders. Overall, our research supports the notion that investing in social capital can facilitate the establishment of stronger relationships with stakeholders, which can ultimately lead to beneficial outcomes during periods of adversity.
{"title":"Political uncertainty, corporate social responsibility, and firm performance","authors":"Yi Hu , Chao Yin","doi":"10.1016/j.bar.2024.101467","DOIUrl":"10.1016/j.bar.2024.101467","url":null,"abstract":"<div><div>Our study reveals that companies with higher Corporate Social Responsibility (CSR) ratings exhibit superior stock returns compared to their counterparts with lower ratings during periods of political uncertainty. This phenomenon is more pronounced in a closely contested election with a higher degree of unpredictability. Our results remain robust after addressing potential endogeneity issue and are not affected by the ex-post election outcome or the political donations made by firms. Further analysis indicates that the increase in returns could be attributed to the improved relationship between firms and their internal stakeholders. Overall, our research supports the notion that investing in social capital can facilitate the establishment of stronger relationships with stakeholders, which can ultimately lead to beneficial outcomes during periods of adversity.</div></div>","PeriodicalId":47996,"journal":{"name":"British Accounting Review","volume":"56 6","pages":"Article 101467"},"PeriodicalIF":5.5,"publicationDate":"2024-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S0890838924002312/pdfft?md5=d3ab03d8392523893e0442f83d23c159&pid=1-s2.0-S0890838924002312-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142100788","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.2024.101431
Jean Jinghan Chen , Peiyang Song , Fai Lim Loi
We examine whether tone management in different aspects of forward-looking statements (FLSs) is related to managers' self-serving overinvestments. Using data for U.S.-listed firms between 2003 and 2019, we provide novel evidence that the abnormal tone of nonearnings-related qualitative FLSs' is significantly and positively related to firms' overinvestments but that other aspects of FLSs are insignificant to overinvestments. Moreover, this relation is more substantial in financially unconstrained firms. Our findings reveal the heterogeneous roles of different aspects of FLSs in firms' opportunistic disclosures concerning future overinvestments. Further analyses also indicate that this relationship is more pronounced for firms with less monitoring and managers with greater career concerns. We also employ instrumental variables with a two-stage least-square approach and a Heckman selection model to mitigate the endogeneity issue. Our results are robust after conducting a battery of robustness tests. Overall, our findings provide robust evidence that managers are likely to strategically manipulate nonearnings-related qualitative FLSs to mislead investors’ perception of firms' future fundamentals to achieve self-serving purposes.
{"title":"Strategic forward-looking nonearnings disclosure and overinvestment","authors":"Jean Jinghan Chen , Peiyang Song , Fai Lim Loi","doi":"10.1016/j.bar.2024.101431","DOIUrl":"10.1016/j.bar.2024.101431","url":null,"abstract":"<div><div>We examine whether tone management in different aspects of forward-looking statements (FLSs) is related to managers' self-serving overinvestments. Using data for U.S.-listed firms between 2003 and 2019, we provide novel evidence that the abnormal tone of nonearnings-related qualitative FLSs' is significantly and positively related to firms' overinvestments but that other aspects of FLSs are insignificant to overinvestments. Moreover, this relation is more substantial in financially unconstrained firms. Our findings reveal the heterogeneous roles of different aspects of FLSs in firms' opportunistic disclosures concerning future overinvestments. Further analyses also indicate that this relationship is more pronounced for firms with less monitoring and managers with greater career concerns. We also employ instrumental variables with a two-stage least-square approach and a Heckman selection model to mitigate the endogeneity issue. Our results are robust after conducting a battery of robustness tests. Overall, our findings provide robust evidence that managers are likely to strategically manipulate nonearnings-related qualitative FLSs to mislead investors’ perception of firms' future fundamentals to achieve self-serving purposes.</div></div>","PeriodicalId":47996,"journal":{"name":"British Accounting Review","volume":"56 6","pages":"Article 101431"},"PeriodicalIF":5.5,"publicationDate":"2024-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S0890838924001951/pdfft?md5=f858185e740e8003b63f30b50ded124d&pid=1-s2.0-S0890838924001951-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141463359","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}
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