Journal of Business Finance & Accounting最新文献

This paper examines the effect of environmental policy stringency (EPS) on audit pricing. By exploiting the exogenous variation in environmental policies across 26 countries, we find that firms in countries with more stringent environmental policies incur lower audit fees. The inverse association is more pronounced in common law countries, in countries with a higher level of public enforcement of regulations and in countries with more investor protection. The lower audit fees are also more prominent for firms that are followed by more analysts and firms that have a greater institutional ownership. Furthermore, we find that firms in countries with strong regulations are better and more innovative at managing environmental risk, which implies that better environmental performance of the firms following stronger regulations could lower business risks and thus decrease audit fees. Overall, our findings suggest that compliant firms benefit from EPS.

We document that firms in competitive industries experience significantly more deterioration in financial reporting quality after a reduction in analyst coverage due to brokerage closures or mergers, as compared to firms in noncompetitive industries. Most of the effects are mainly driven by firms with smaller initial analyst coverage, lower institutional ownership and greater financial constraints. Importantly, we further show that after brokerage exits, managerial slack increases more for firms in noncompetitive than competitive industries. Consistent with the notion that agency manifestation can take different forms, we provide evidence that competition may curtail some agency issues, such as managerial slack, while also exacerbating other agency issues, such as financial misreporting.

We study whether Chief Executive Officer (CEO) narcissism affects a firm's share repurchase announcements and their implementations. Using signature characteristics as a measure of narcissism, we find that US firms with narcissist CEOs are more likely to make repurchase announcements and announce higher repurchase dollar amounts. However, these firms are less likely to follow through. Actual repurchases by these firms are less frequent, and they use a smaller amount of cash for share buyback because they have a higher cashflow sensitivity of cash. Narcissist CEOs’ repurchase announcements are less driven by market timing and have a lower announcement effect compared to those by other CEOs. The higher rate and amount of repurchase announcements are more pronounced in poorly governed firms with narcissistic CEOs. These results are robust to various specifications including a difference-in-difference set-up using CEOs’ exogenous turnover, controlling for other CEO traits and using an alternative measure of narcissism based on pronoun usage in CEO communications. Collectively, the results presented in this study demonstrate that narcissist CEOs play a critical role in the intensity of share repurchase announcements and their executions, particularly for firms with weaker governance structures.

We explore the influence of individual audit partner style on financial statement comparability in a US setting using newly available data. We find evidence of an audit partner style effect on comparability incremental to audit firm and audit office effects. Our results are consistent across several comparability measures and are economically significant. For example, the audit partner effect is associated with a 12.59% decrease in the mean difference in abnormal accruals compared with a 4.4% decrease for firm pairs audited by the same Big 4 audit office. We also find that audit partner expertise and experience have a greater influence on comparability than audit office expertise and experience. Our results are consistent in endogeneity and robustness tests including (1) auditor switching tests, (2) entropy balancing, (3) placebo tests and (4) controlling for clients’ economic similarity. Our results suggest that the association between audit partner style and financial statement comparability persists in highly regulatory environments and corroborate the PCAOB's intuition that the role of the engagement partner “is of singular importance” to the outcome of the audit (PCAOB 2011).

Strengthened tax enforcement increases firms’ expected tax liabilities and uncertainty; thus, firms have incentives to hold more cash. Considering the staggered implementation of a new tax system that increases tax enforcement across provinces in China as a quasi-natural experiment, we employ the difference-in-differences method to test the above prediction. The results indicate that stricter tax enforcement is associated with greater corporate cash holdings. This effect is stronger for financially constrained firms and those located in areas with high tax noncompliance penalties. Additionally, tax enforcement increases firms’ propensity to accumulate cash from cash flows and decreases capital expenditures and dividend payouts. The main findings are robust to the stacked difference-in-differences method, alternative cash holding measures and different sample selections.

We investigate how nonfinancial disclosure laws exacerbate agency issues in firms. Our analysis focuses on the staggered adoption of state-level notification laws that require firms to disclose data breaches. Our findings reveal that the introduction of these laws increases the risk of stock price crashes. Managers appear motivated to accumulate unfavorable news in an effort to prevent market overreactions associated with the mandatory disclosure of data breaches. Cross-sectional analyses also reveal that the impact is stronger when managers have a greater incentive, or greater ability, to hoard information. Our results highlight that nonfinancial disclosures can have unintended consequences for firm information asymmetries and potentially adverse market impacts in cases where the regulation is unable to consider all stakeholders.

We investigate the impact of audit client political contributions on various audit attributes. We find that, despite having poorer accruals quality, clients with higher political contributions have fewer restatements, receive no more going concern qualified opinions and receive fewer reported material weaknesses. Additionally, we find that auditors earn higher fees from and have longer tenure with their politically connected clients. Our evidence is indirect, but the totality of our results is most consistent with an economic bond between auditors and their politically connected clients, whereby clients are allowed more accounting discretion and receive fewer adverse audit outcomes, and the auditor charges a persistent risk premium. We conclude that client political connections likely influence audit outcomes because of either reduced scrutiny from regulators or direct influence on auditors. We extend a growing body of research on the consequences of corporate political connections.

We examine the impact of board-level control on corporate innovation in family firms. We find that excess control of family board seats (ECFBS) is negatively correlated with innovation investment, innovation output and innovation efficiency. Our findings suggest that ECFBS exacerbates type II agency problems. Mechanistic analyses show that ECFBS reduces firms’ risk-taking level, increases their financing constraints and damages channels for acquiring innovative professional knowledge. We also observe that effect of ECFBS on innovation is associated with family origin, familiarization time and family management characteristics. Our findings should be of interest to family firm manager investors and lenders who are interested in family governance mechanisms.

We examine whether and how variations in country-level institutional factors explain the intensity, diversity and informativeness of corporate disclosures around the world. Using a comprehensive corporate disclosure dataset containing more than 100 types of disclosures from firms domiciled in 35 countries, we examine the effect of four core country-level institutional factors—legal system, creditor/investor rights, political process and societal characteristics—on corporate disclosures. Our results suggest that the country-level institutional factor, which is likely to capture the legal system of a country, is negatively associated with the intensity, diversity and informativeness of disclosure. Moreover, our results suggest that the level of creditor/investor rights protection, political process and societal characteristics can also consistently affect the production, diversity and informativeness of disclosures. Overall, our evidence broadens our collective understanding of how core institutional factors at the society and country levels systematically explain corporate disclosures and their associated informativeness.

This study investigates the association between variable rate premiums (VRPs) charged by the Pension Benefit Guaranty Corporation (PBGC) and defined benefit pension funding in the United States. The PBGC requires VRPs from firms that fail to adequately fund their pension plans. Because millions rely on pension income, it is important to understand how government incentives impact pension funding decisions. In the aggregate, VRPs are positively associated with increases in pension funding. However, these premiums are not associated with excess pension contributions (EPCs) for financially distressed firms. These results suggest that financially distressed US firms engage in risk shifting. The lack of association persists even for financially distressed firms with tax benefits associated with pension funding. Finally, the association between VRPs and EPCs holds only for firms with combined lower borrowing costs and higher premiums. This finding suggests that higher premiums are not an effective incentive when firms also face higher borrowing costs and that lower premiums are not an effective incentive for EPCs, regardless of a firm's borrowing cost.