Review of Accounting Studies最新文献

We examine the role of private equity in alleviating earnings myopia induced by public markets. We first construct a measure of earnings myopia and show that this measure varies as predicted with determinants and effects of myopia. Then we show that public firms exhibiting earnings myopia realize an increased likelihood of takeover by private equity buyers. Cross-sectional analyses indicate that this relation is strongest when costs of earnings myopia are likely higher. Following private equity takeovers, firms exhibiting greater measures of earnings myopia realize improvements to R&D investment and productivity. The results add to the understanding of the role of private equity in identifying and alleviating earnings myopia within U.S. capital markets. This is important given the increasing size of private equity assets under management. Takeover premiums paid for myopic firms suggest a cost of earnings myopia at approximately 6.9% of firm value.

ChatGPT frequently appears in the media, with many predicting significant disruptions, especially in the fields of accounting and auditing. Yet research has demonstrated relatively poor performance of ChatGPT on student assessment questions. We extend this research to examine whether more recent ChatGPT models and capabilities can pass major accounting certification exams including the Certified Public Accountant (CPA), Certified Management Accountant (CMA), Certified Internal Auditor (CIA), and Enrolled Agent (EA) certification exams. We find that the ChatGPT 3.5 model cannot pass any exam (average score across all assessments of 53.1%). However, with additional enhancements, ChatGPT can pass all sections of each tested exam: moving to the ChatGPT 4 model improved scores by an average of 16.5%, providing 10-shot training improved scores an additional 6.6%, and allowing the model to use reasoning and acting (e.g., allow ChatGPT to use a calculator and other resources) improved scores an additional 8.9%. After all these improvements, ChatGPT passed all exams with an average score of 85.1%. This high performance indicates that ChatGPT has sufficient capabilities to disrupt the accounting and auditing industries, which we discuss in detail. This research provides practical insights for accounting professionals, investors, and stakeholders on how to adapt and mitigate the potential harms of this technology in accounting and auditing firms.

Using the market values of audit partners’ houses as a measure of their personal wealth, we find that wealthier U.S. partners provide higher-quality audits, as evidenced by fewer material restatements, fewer material SEC comment letters, and higher audit fees. A battery of falsification tests shows that these findings are not driven by the matching of wealthier partners with clients with higher financial reporting quality. Our additional analyses suggest two explanations: greater personal wealth both incentivizes partners to exert more effort in delivering high-quality audits and reveals partners’ audit competence.

Standard Bayesians’ beliefs converge when they receive the same piece of new information. However, when agents initially disagree and have uncertainty about the precision of a signal, their disagreement might instead increase, despite receiving the same information. We demonstrate that this divergence of beliefs leads to a unimodal effect of the absolute surprise in the signal on trading volume. We show that this prediction is consistent with the empirical evidence using trading volume around earnings announcements of U.S. firms. We find evidence of elevated volume following moderate surprises and depressed volume following more extreme surprises, a pattern that is more pronounced when investors hold more distant prior beliefs and are more uncertain about earnings’ precision. The evidence is consistent with the model where investors disagree about stocks’ expected returns and do not know the precision of earnings as a signal about the firm’s value.

This paper studies a model in which investors’ information acquisition and the manager’s investment choice (hence the moments of the firm’s cash flow) are jointly determined. I show that a lower information acquisition cost alters the information environment in a way that motivates the manager to prioritize reducing the variance of cash flow over improving its mean. I present conditions under which a decrease in the cost of information acquisition reduces stock valuations and investors’ welfare. The analysis highlights the importance of considering the joint determination of firm risk in studying investors’ information acquisition. The model’s predictions are relevant to the growing literature that studies technological advancements and regulatory requirements that lower the cost for investors to acquire and process information.

Merkley et al. (2023) examine how cryptocurrency influencers recommend digital coins on Twitter (X) and the associated price effects. They report that influencers may exploit market investors via potential pump and dump schemes. While plausible, researchers may develop a broader understanding of influencers’ incentives and their influence by considering how investors engage these markets for social identity needs that enhance utility. Social-psychological research indicates that someone’s social identity strongly influences their behavior, even making the behavior maladaptive. This paper discusses how crypto influencers create social identity resonance. It then discusses how influencers can leverage this resonance for potentially lucrative financial opportunities, which might manifest in different expected crypto price patterns. The paper concludes by recommending more research on influencers’ experience, networks, and communication choices; the effects of video relative to text communication; and implications of social identity cohorts that influence prices and undermine regulatory trust in traditional markets.

We define accrual duration as the length of time between an accrual and its associated cash flow. Accrual duration is inextricably linked to accrual discretion and accrual quality by the fundamentals of the accrual process—the recording of longer-duration accruals involves using longer-term estimates, which makes them relatively more discretionary and less reliable, ceteris paribus. We provide the theoretical development of this broad idea and demonstrate several empirical applications linking accrual duration to earnings persistence, Accounting and Auditing Enforcement Releases, asset write-offs, and the observed kink in the earnings distribution. A major advantage of the accrual duration approach is that it is quite general, which allows us to derive a powerful new model of total accruals discretion and quality as well as a novel measure of total accruals duration. Finally, we discuss how the accrual duration approach can illuminate numerous ongoing issues in accounting research.

Using the number of Robinhood users holding a firm’s shares, I examine how novice retail investors respond to earnings announcements and the implications of their responses for the price-earnings relation. I do not find evidence of informed trading among these investors. Changes in their holdings also do not resemble random, uncorrelated noise trading. Instead I find that the number of retail investors holding a firm’s shares increases in response to both more positive and more negative earnings news, consistent with attention-driven trade. While retail trades appear to react to announced earnings, an analysis of intraday trading indicates that these traders respond most consistently to market returns following the earnings announcement, as opposed to only earnings itself. Consistent with this coordinated trading exerting pressure on prices, I find that stock returns drift upward following both the most positive and the most negative earnings surprises when increases in retail holdings are greatest and the firm is relatively small or costly to sell short.

Using the staggered establishment of environmental courts in China, we study the effect of environmental law enforcement on audit fees. We find that companies’ abnormal audit fees increase significantly after the establishment of a specialized environmental court strengthens environmental law enforcement. Our cross-sectional analyses show that the increase in abnormal audit fees is greater for companies with worse environmental performance and for those in heavily polluting industries. We then assess the channels through which environmental courts affect companies’ audit fees and find that the effect of the courts on fees is driven by both audit effort and audit risk and the establishment of a particular type of environmental court (an independent environmental adjudication division). Finally, our results reveal that public concern about environmental protection plays a substitutive role for environmental courts in affecting the increase in audit fees. Our findings suggest that environmental courts aimed at strengthening environmental laws and regulations alter firms’ and auditors’ behaviors and decisions, having unintended spillover effects on audit pricing.

The SEC limits sell-side analysts’ research activities on IPO firms both before and immediately after going public (the IPO quiet period). However, during the IPO quiet period, analysts provide regular coverage of IPO peer firms, which is potentially relevant to investors seeking to glean information about the IPO firm itself. We examine whether, despite the restrictions on analyst research of IPO firms during the quiet period, investors uncover information about the IPO firm indirectly through analyst research of peer firms. We find that, on the IPO date, institutional investors trade on the information in analysts’ recommendation revisions of peer firms that were issued earlier in the quiet period. Institutional investors also trade in the short window around analyst revisions of peer firms that are issued later in the quiet period (after the IPO date) but before analysts initiate coverage of the IPO firm. Retail investors, however, are inattentive to the information available in analyst research of peer firms. Importantly, our findings vary predictably with attributes of the issuing analyst, which helps rule out firm- and industry-level alternative explanations. Lastly, we find that recommendation revisions analysts issue for peer firms predict future IPO-firm performance, suggesting that analyst research of peer firms during the quiet period conveys meaningful information about the IPO firm that results in an information advantage for institutional investors.