Journal of Business Finance & Accounting最新文献

A significant number of regional brokerage firms in China are owned by their respective local governments. We use this context to examine how local government affiliation affects brokerage firms’ research activities. Using a sample of analyst reports from 2013 to 2021, we find that analysts working at local government-affiliated brokerage firms are more likely to cover firms within the local government's jurisdiction than non-affiliated analysts. Local government-affiliated analysts enjoy an information advantage, as evidenced by the issuance of more accurate earnings forecasts for local firms, compared to those of non-affiliated analysts. The effect is stronger for local firms with lower information quality. Additionally, local government-affiliated analysts show more optimism in stock recommendations, but not in earnings forecasts, for local firms, compared to non-affiliated analysts. The effect is more pronounced for local firms that receive more local government subsidies, operate in regions with greater local government intervention or during the COVID-19 pandemic and the National Congress conferences, and require more capital market support. The results of this study advance our understanding of the key determinants of analyst performance and provide new evidence in the debate on the role of government intervention in financial institutions.

We examine whether and how interest rate liberalization affects corporate innovation in China. Using the removal of the interest rate ceiling and floor as exogenous shocks, and the numbers of granted patents to proxy for corporate innovation, we find that corporate innovation increases after interest rate liberalization. Our finding holds through several robustness tests. Furthermore, we show that state-owned enterprises (SOEs) and non-SOEs benefit from interest rate liberalization differently: Non-SOEs benefit more from interest rate ceiling removal, whereas SOEs benefit more from interest rate floor removal. Cross-sectional analyses also show that the effect is more pronounced when bank competition is higher and when firms rely more on external finance. Exploring potential channels through which interest rate liberalization spurs innovation, we find that although ceiling removal mitigates firms’ financial constraints, floor removal lowers corporate loan costs. Our study provides evidence of how financial reform benefits the real economy.

Inconsistent with the conventional view that initial public offering firms (IPOs) manage earnings upward to boost offering prices, we posit that IPOs, which are usually in the early stage of their life cycle, focus on sales growth. Using quarterly analyses, we find that both high-tech and non-high-tech IPOs opportunistically manage sales upward in the pre-IPO period. While high-tech IPOs manage sales upward via premature revenue recognition and activities-sales management, non-high-tech IPOs only engage in premature revenue recognition practice. Moreover, both subgroups spend aggressively on discretionary expenses during the pre-IPO period. However, the two subgroups differ in their manipulation of earnings and R&D. Intangible-intensive high-tech IPOs not only do not engage in upward accruals earnings management but also exhibit income-decreasing behavior through intensive R&D spending in the pre-IPO period. In contrast, non-high-tech IPOs incur significant abnormal accruals to opportunistically inflate earnings in the lockup period but do not engage in aggressive R&D spending. Finally, we find subsequent operating performance reversal among IPOs engaged in earnings and nonearnings manipulation except for activities-sales management.

We use machine learning methods to predict firm-specific stock price crashes and evaluate the out-of-sample prediction performance of various methods, compared to traditional regression approaches. Using financial and textual data from 10-K filings, our results show that a logistic regression with financial data inputs performs reasonably well and sometimes outperforms newer classifiers such as random forests and neural networks. However, we find that a stochastic gradient boosting model systematically outperforms the logistic regression, and forecasts using suitable combinations of financial and textual data inputs yield significantly higher prediction performance. Overall, the evidence suggests that machine learning methods can help predict stock price crashes.

Existing research based on the US setting suggests that high-quality audits impede firm innovation by inducing managerial myopia that leads managers to sacrifice innovative activities. We extend this literature by examining the impact of audit quality on firm innovation in a major emerging market, China. Given the weak institutional environments in China, we posit that increases in audit quality enhance firm innovation by facilitating firms’ external financing abilities and promoting managers’ innovation efforts. Consistent with our predictions, we find that increased audit quality due to “switching” to BigN auditors after auditor mergers significantly improves firms’ innovation quantity and quality. We further find that increases in audit quality impact firm innovation by increasing external financing and motivating both internal and external investment in innovation. Overall, our results indicate that audit quality has a positive governance effect on firms’ real decisions in a major economy with weak legal environments.

We investigate whether heterogeneity in pay-performance sensitivity (PPS) among top management team (TMT) members affects management earnings forecasts (MEFs). Extant studies find that dispersion of PPS among TMT members results in a lack of coordination among TMT members and has a significant consequence for the firm. Since the issuance of forecasts is jointly determined by TMT managers, we argue that heterogeneity in PPS among TMT members will affect forecast issuance. We find that firms are less likely to issue MEFs when PPS dispersion among TMT members is high. Moreover, the forecasts of these firms are less optimistic. Finally, our analyses reveal that the effect of dispersion of PPS among TMT members on MEFs is more pronounced when the difference in PPS between the chief executive officer and other executives is high or team tenure is short. Overall, our results suggest that heterogeneity in PPS among TMT members affects a firm's voluntary disclosures.

Investment-related social media platforms are transforming the traditional intermediary landscape by rapidly disseminating user-empowered opinions and recommendations, raising concerns about the credibility of information on such platforms. We examine the differential content verifiability of SeekingAlpha.com articles with sell recommendations (short articles) versus articles with buy recommendations (long articles). We find that short articles contain greater verifiable content than long articles, and verifiable content in short articles generates greater market reactions and better mitigates return reversals than that in long articles. This asymmetry contrasts prior research evidence that greater content verifiability accompanies traditional sell-side analyst reports with buy recommendations. Our results are robust to various confounding factors, including author effects, among others. Our results become more pronounced in the presence of greater retail ownership. Taken together, our results provide new evidence on investors’ assessment of the credibility of information on social media platforms.

We analyze a unique set of Chinese firms to isolate the impact of accounting standards on financial reporting comparability and capital markets. From 2001 to 2006, these companies simultaneously maintained two sets of financial statements because of their dual-class share structure: statements for A-shares followed Chinese Generally Accepted Accounting Principles (GAAP), whereas those for B-shares followed International Financial Reporting Standards (IFRS). We find a disparity in financial reporting comparability between these two accounting standards: IFRS produce less comparable information than Chinese GAAP. We also find that the disparity in comparability is related to fair value accounting, especially when corporate governance is weak.

Analyzing the launch of high-speed rail (HSR) services in China as a natural experiment, we identify a positive externality stemming from lower information acquisition costs: the reduction in firms’ overinvestment in tax avoidance. Specifically, we find that outsiders undertake more corporate site visits and firms engage in less tax avoidance after the opening of HSR lines in the cities where these firms are located, leading to enhanced firm value. In another result consistent with expectations, we document that the impact of the introduction of HSR lines on tax avoidance is concentrated in firms in which insiders exhibit a high propensity to extract rents through aggressive tax strategies. Our results imply that more efficient transportation facilitates site visits and the acquisition of firm-specific information, particularly soft information. This improvement strengthens external monitoring, thereby limiting the ability of insiders to accumulate private benefits under the guise of tax avoidance that benefits all shareholders as the residual claimants.

This paper examines the association between firms’ political connections and their voluntary disclosure of information related to government subsidies, using a sample of Chinese non-state-owned enterprises. We find that politically connected subsidy recipients disclose less information about their subsidies (source and policy basis) in their annual reports than do unconnected firms. This association is mainly driven by connected firms whose subsidies are difficult to justify and are stronger for firms registered in more corrupt provinces and firms with higher media attention. In addition, connected firms disclosing more subsidy information receive fewer future subsidies than do other connected firms. These findings suggest that politically connected subsidy recipients tend to withhold subsidy information to reduce the costs that accompany public scrutiny of subsidies granted through relationships.