Journal of Business Finance & Accounting最新文献

This study investigates the effect of managerial discretion regarding initial earnings forecasts on future stock returns for Japanese firms. We estimate the unexpected portion of initial management earnings forecasts (“unexpected forecasts”) based on the findings of fundamental analysis research and define it as a proxy for forecast management. Using this measure, we find that firms with higher unexpected forecasts are related to negative abnormal returns over the subsequent 12 months. By contrast, the expected portion of earnings forecasts is not related to future abnormal returns. These results suggest that the market tends to appropriately price the credible portion of management forecasts, while overpricing the less credible portion. Further analysis reveals that the relationship between unexpected forecasts and future returns is (1) distinct from accruals anomaly, notably (2) in the 6-month return window, (3) in the first half of the sample period (especially in 2005 and 2006), (4) in extreme unexpected forecast news and (5) in a poor information environment. This study extends the literature by focusing on a more desirable research setting in Japan, compared to other studies, to explore management forecasts and present new implications for the market pricing of management earnings forecasts.

In an uncertain economic environment, the ability of firms to adapt their production levels to unforeseen market demand is critical for their investment, financing and trade credit policies. This paper focuses on the impact of production flexibility on trade credit values and maturity in the presence of uncertain demand. We develop a continuous-time real options framework where a buyer firm with capacity constraints orders input goods on credit from a supplier. The supplier optimally chooses the trade credit maturity, considering its influence on the buyer's optimal quantities and default timing. We distinguish between flexible firms, capable of suspending production during adverse conditions, and rigid firms, constrained to constant full-scale production. Our findings reveal that production flexibility positively affects trade credit values and maturity. Flexible firms invest in larger capacity, default later and order larger quantities, resulting in higher trade credit values. Suppliers extend longer maturities to flexible firms, reflecting their higher creditworthiness and the positive effects of extended trade credit on their installed capacity. Furthermore, we explore extensions to our framework, including switching costs, entry timing, interactions between debt and trade credit and a non-cooperative bargaining game.

We examine the effect of options trading on an optioned firm's investment decisions. We find that active options trading improves an optioned firm's investment efficiency, and that this effect holds under several alternative empirical specifications and identification strategies, including fixed-effects models, different matching methods, an instrumental variable approach, a Granger causality test and a quasi-natural experiment based on the listing decisions of the options exchanges. This relation is mediated by two factors, namely, information asymmetry and uncertainty, consistent with the notion that options trading improves investment efficiency by providing information that facilitates external monitoring and managerial learning. The results of cross-sectional analyses indicate that the effect of options trading on investment efficiency increases with firms’ tendency to overinvest or underinvest, and with managers’ risk-taking and learning incentives. We also demonstrate that the effect of options markets on investment efficiency is distinct from the effect of stock markets. Overall, our findings suggest that options trading plays a nonnegligible role in improving an optioned firm's investment efficiency.

This study examines the effect of manager sentiment on conditional conservatism. Manager sentiment refers to widely held beliefs of financial managers about their firms’ future economic prospects that are not justified by available economic fundamentals. Manager sentiment is likely to affect conditional conservative reporting because the decision to recognize unrealized economic losses in a timely manner flows from financial managers’ beliefs about their firms’ future cash flow prospects. We predict and find that manager sentiment is negatively associated with conditional conservatism, indicating that firms report less conservatively during periods of high manager sentiment (over-optimism) and more conservatively during periods of low manager sentiment (over-pessimism). Moreover, the effects of manager sentiment on conditional conservatism remain strongly negative after controlling for manager overconfidence. We further find that asset write-offs are lower during high sentiment periods but higher in subsequent periods. Importantly, the manager sentiment effect on conservatism is incremental, and the opposite in sign, to the effect of investor sentiment, which has not been demonstrated in prior literature.

In this study, we examine the impact of social capital surrounding firms’ headquarters on their chief executive officers (CEOs)’ pay duration, reflected by the vesting periods of the short-term and long-term components in their annual compensation. Our analysis reveals that CEO pay duration increases with the level of social capital in the county in which firms are headquartered. We further find that this effect is more pronounced when CEOs are more likely to be short-term-oriented, suggesting that under the influence of the local community's social capital, the board of directors uses longer pay duration to better align CEOs’ interests with long-term shareholder value. Our results are robust to a variety of additional tests and a smaller sample of firms that had relocated their headquarters to communities with a different level of social capital. Overall, our findings are consistent with the view that social capital incentivizes firms to be long-term-oriented and refrain from short-term opportunistic activities, and this lengthens CEO pay duration.

We investigate whether managers vary disclosure specificity strategically, by examining how the voluntary disclosure of a key performance indicator, the book-to-bill (BTB) ratio (the ratio of orders received to orders billed), varies with future firm performance. Consistent with theoretical predictions from prior research, we find that managers are more likely to provide precise BTB disclosures when the news is positive, while offering less precise disclosures when the news is negative. We find that managers strategically vary specificity more when valuation incentives are higher and monitoring is lower. We find that the tone of qualitative descriptions is informative, with or without precise disclosure, inconsistent with the predictions of strategic withholding models. Our results are consistent with persuasion models in which managers vary the specificity of news strategically, to affect the weight stakeholders place on the signal.

The Dodd–Fank Act mandated shareholder votes on executive's change-in-control (golden parachute) payments at the time the firm is sold. We study bid premiums surrounding the introduction of the vote and find that they are lower in the post-period. Moreover, there is a positive association between the relative size of parachute payments and premiums, particularly after the parachute vote was required. In contrast, we observe no association between premiums and parachute features questioned by many shareholders. Additionally, we find lower voting support for parachutes with features that are (i) of concern to shareholders, (ii) amended in the lead-up to the vote and (iii) identified as problematic in proxy advisor analyst reports. However, we find little evidence that directors overseeing payments with opposition from shareholders or a leading proxy advisor are penalized with lost board seats, fewer key board committee memberships or increased shareholder opposition in subsequent director elections at other firms. Overall, our findings suggest that the parachute vote requirement is too little too late.

Using establishment-level data of U.S. public firms, we construct a novel measure of geographic linkage between firms. We show that the returns of geography-linked firms have strong predictive power for focal firm returns and fundamentals. This effect is distinct from other cross-firm return predictability and is not easily attributable to risk-based explanations. It is more pronounced for focal firms that receive lower investor attention, are more costly to arbitrage, and during high sentiment periods. The cross-firm information spillovers and return predictability are also stronger for geographic peers with economic linkages and with positive information. Our results are broadly consistent with sluggish price adjustment to nuanced geographic information.

Internal governance is the process by which vice presidents (VPs) use their influence with the chief executive officer (CEO) to impact the firm's direction and policy. This study examines the effect of internal governance on corporate social responsibility (CSR) performance. Based on a large sample of US firms and after controlling for various CEO incentives, corporate governance and other determinants of CSR performance, we find that more effective internal governance is associated with a better CSR performance. These results are robust to alternative internal governance and CSR measures, alternative samples and various approaches that mitigate potential endogeneity problems. Further analysis shows that the effect of internal governance on CSR performance is more pronounced when (a) the CEO is subject to more intensive monitoring, (b) VPs are more powerful, (c) firms experience less short-term financial performance pressure and (d) they face stronger product market competition. This study advances our understanding of corporate governance's effect on CSR by showing the importance of internal governance.

Does good news cover bad news? We present evidence from the Chinese stock market, in which the fiscal year is always the same as the calendar year. Listed firms are required to announce their annual report by the end of April, coinciding with the deadline for the release of their first-quarter reports. We find that firms with negative earnings surprises in the previous year are more likely to postpone the announcement of their annual report until they announce their first-quarter report. However, we find no evidence to suggest that this bundling disclosure weakens market responses to information in annual reports.