Journal of Business Finance & Accounting最新文献

In this study, we examine the effect of ex-military Chief Executive Officers (CEO)s on the readability of 10-Ks. Using the Bog Index as a measure of readability, we find that firms run by ex-military CEOs have much more readable financial reports, mainly because of the words used in these financial reports. Ex-military CEOs also have a moderating effect—we find that their leadership lessens the adverse effects of loss and business complexity on the 10-K's readability. These results are consistent with the view that ex-military CEOs resist the temptation to obfuscate negative news and may communicate complexity in operations more clearly. Overall, our findings indicate a possible behavioral explanation for why some firms have more readable annual reports.

Does state fiscal monitoring of local governments impact firms? Exploiting the staggered adoption of state fiscal monitoring policies, our results show that state fiscal monitoring of local governments increases corporate investment. Affected firms increase their investment by increasing capital expenditures as well as research and development expenditures. Additional analyses reveal that firms fund this increase in investment by decreasing share repurchases and issuing debt. We also provide evidence that the increase in corporate investment is driven by a reduction in local corruption.

We find evidence that venture capital (VC)-backed targets receive more stock as the method of payment in mergers and acquisitions than non-VC-backed targets do, even after controlling for self-selection bias, differences of characteristics between transactions of VC-backed and non-VC-backed targets and VC information bridge-building. VC-backed targets prefer stock of acquirers that are small, young, risky or invest intensively. In addition, we document that the ratio of stock is larger when the targets are financed by reputable VCs, a syndicate of VCs or VCs with low fund maturity. Overall, our findings suggest that VCs strategically hold shares of the acquirers that meet their investment preferences.

Based on a sample of Chinese ChiNext (Growth Enterprise Market) firms during their initial public offerings (IPOs) from 2009 to 2019, this study explores whether these firms engage in sales growth management and examines its economic consequences. We provide evidence that ChiNext firms tend to manage their sales growth to influence issuance prices during IPOs. Further, the study identifies several indicators that suggest growth-managing firms engage in more aggressive and riskier promotional strategies, such as longer turnover days of receivables, lower gross profit margins and higher allowance ratios for doubtful accounts. The study also finds that growth-managing firms are more likely to have higher price-to-earnings ratios, offer prices, overfund ratios, first-day closing prices and a higher percentage of positive posts, suggesting that these firms aim to inflate their growth to attract more funds from financial markets by influencing investors' expectations. Additionally, we find a negative relationship between sales management and post-IPO stock returns, indicating that investors cannot effectively identify sales management by ChiNext IPO firms. Cross-sectional analysis also shows that growth-managing ChiNext IPO firms are likely to have depressed post-IPO performance, whereas the market intermediary (brokers, auditors and asset appraisal institutions) with a good reputation helps to alleviate future performance reversals.

We examine how uncertainty about a firm's future cash flows influences the quality of its accounting information. As uncertainty increases, information asymmetry between managers and stakeholders will almost certainly increase, amplifying the potential influence of uncertainty. We focus on a specific setting where severe levels of uncertainty can influence financial reporting, the property-casualty (P&C) insurance industry and use catastrophes as a shock to the level of uncertainty regarding P&C insurer's future cash flows. We use P&C firms’ claim loss estimation errors as a proxy for accounting information quality. Results suggest that, in times of heightened uncertainty, managers respond by increasing accounting information quality. Moreover, managerial claim loss forecasts are more accurate for publicly traded P&C firms relative to privately—or mutually—owned P&C firms as catastrophe exposure increases. Additionally, claim loss estimates are incrementally more accurate in times of heightened uncertainty for public P&C firms with higher institutional ownership or analyst following. These results corroborate the conjecture that managers’ decisions to provide more accurate forecasts in times of heightened uncertainty are attributable to an increased demand for better information by external stakeholders.

Previous studies have shown that audit quality is influenced by the audit engagement partner's characteristics. Extending this literature, we examine the association between audit engagement partner ideology (i.e. conservatism) and audit quality. We find that clients whose audit engagement partners are ideologically more conservative receive higher quality audits, as indicated by lower discretionary accruals than clients with less conservative auditors. Additionally, we find evidence that the relation between the auditor's ideology and that of the client's executives influences audit quality, as does the ideological homophily between the auditor and the client's audit committee. Homophilous pairings between the audit engagement partner and the client's executives, where the two parties share a similar ideology, are associated with both higher discretionary accruals and higher probabilities of restatement. Discretionary accruals are also shown to be higher when engagement partners share an ideology with their client's audit committee. We interpret these results as evidence of less effective monitoring by the engagement partner when they share political views with their clients.

We examine the impact of economic policy uncertainty (EPU) on the propensity of firms to engage in divestitures. We find that EPU is positively related to the likelihood of divestitures in general and cashflow-generating divestitures in particular. Consistent with the desire for cash being a driving force behind divestitures, we find that underperforming firms are more likely to engage in cashflow-increasing divestitures. Firms that do not pay dividends and are relatively more reliant on government funding are also more likely to pursue sell-offs and carve-outs when economic uncertainty is elevated. We find no evidence that firms prefer staged divestitures (spin-offs and carve-outs) over non-staged (sell-offs) when EPU is high. Instead, EPU is positively related to the likelihood of non-staged divestitures suggesting that firms do not wait until uncertainty is resolved to pursue deals with a high degree of irreversibility. Our findings point to EPU as a motivator for poor-performing firms to shore up cash during times of EPU.

We examine the effect of bank interventions on corporate tax aggressiveness via the lens of debt covenant violations. Using three identification strategies, we find that bank interventions have a negative effect on corporate tax aggressiveness. This effect is less pronounced for more financially constrained firms, firms with higher shareholder power and firms facing less powerful banks. Covenant-violating firms compensate their reduced tax aggressiveness by reducing other expenditures, including capital expenditures and cash acquisitions. Our results suggest that creditors perceive aggressive tax activities as risky investment opportunities.

Prior studies have found that engagement partner busyness influences audit effectiveness. The more workload partners have from clients, the busier partners will be, resulting in lower audit quality. However, internal resources available to partners can attenuate the partners’ work burden, although the moderating effect of such resources has been mostly overlooked in the literature. As partners’ work burden could lessen for a partner with more internal resources, we elaborate on its effect in this study. We examine the following types of internal resources: (1) availability of higher-ranked personnel and (2) accumulated client-specific information. Our results show that engagement partners reduce audit quality for a client when partners bear higher work burden from other clients, for which limited internal resources are available. Moreover, the results indicate that this mutual impact on the audit quality of partners’ workload and internal resource availability for other clients is more pronounced for non-Big 4 clients. These results suggest that internal resource allocation is critical for quality control, especially for non-Big 4 audit firms.

This study investigates whether the retention of founders has a greater impact on deal prices and acquirer benefits compared with the retention of family successors or CEOs when private firms pursue a merger exit strategy. The results demonstrate that higher prices and returns can be achieved when founders remain postmerger. These findings hold up even when considering the acquirer's long-term operating and market performance, indicating the robustness of the results. Additionally, the study reveals that the effect of founder retention is larger than that of CEO retention, and the effect of founder-CEO retention is the largest. Furthermore, the study examines multistage investments and exits, revealing that venture capitalists can trade off the benefits of founder maturity and firm growth. This implies that founder premiums vary with the enterprise life cycle. Finally, the study investigates the mechanism behind these results, finding that venture capital backing, high-tech industry, earnouts and stock-for-stock deals as moderators can significantly enhance the founder-retention effect on acquirer benefits. This study proposes that the specific human capital and entrepreneurial spirit of founders, transcending ownership, emerge as driving forces behind this effect. Founder heterogeneity also suggests that acquirers can benefit more from founder retention when founders are innovative talents or serial entrepreneurs.