Pub Date : 2023-10-16DOI: 10.1007/s11142-023-09811-7
Kristian D. Allee, Ryan Cating, Caleb Rawson
Abstract We examine the effects of local newspapers on firms’ information environments. With newspaper employment dropping precipitously in the last few decades, we posit that these changes will harm local firms’ information environments. Consistent with local news improving information environments, we find that volatility, spreads, and illiquidity increase as local newspaper intensity declines and that this is associated with firms’ importance in their local economy. We further find that for firms that are more important in their community, or have busy analysts, less local newspaper intensity is associated with significantly lower analyst accuracy and higher forecast dispersion. This is consistent with local newspapers improving information environments, even for sophisticated and likely remote information intermediaries. We also investigate how stakeholders respond to declines in local news and find that managers increase the amount of forward-looking disclosures while analysts increase coverage. These results provide insights into the methods by which stakeholders attempt to improve firms’ information environments when local news coverage fades.
{"title":"No news is bad news: local news intensity and firms’ information environments","authors":"Kristian D. Allee, Ryan Cating, Caleb Rawson","doi":"10.1007/s11142-023-09811-7","DOIUrl":"https://doi.org/10.1007/s11142-023-09811-7","url":null,"abstract":"Abstract We examine the effects of local newspapers on firms’ information environments. With newspaper employment dropping precipitously in the last few decades, we posit that these changes will harm local firms’ information environments. Consistent with local news improving information environments, we find that volatility, spreads, and illiquidity increase as local newspaper intensity declines and that this is associated with firms’ importance in their local economy. We further find that for firms that are more important in their community, or have busy analysts, less local newspaper intensity is associated with significantly lower analyst accuracy and higher forecast dispersion. This is consistent with local newspapers improving information environments, even for sophisticated and likely remote information intermediaries. We also investigate how stakeholders respond to declines in local news and find that managers increase the amount of forward-looking disclosures while analysts increase coverage. These results provide insights into the methods by which stakeholders attempt to improve firms’ information environments when local news coverage fades.","PeriodicalId":48120,"journal":{"name":"Review of Accounting Studies","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2023-10-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"136113960","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2023-10-09DOI: 10.1007/s11142-023-09805-5
Ryan J. Casey, George W. Ruch
We compare the abilities of earnings and cash flows to predict future cash flows. We take a novel approach in that we perform apples-to-apples comparisons of five earnings components measured on an accrual basis with their equivalents measured on a cash basis. On the one hand, we find that the operating profit component (sales net of cost of goods sold and SG&A expense) outperforms its cash-basis equivalent in predicting future cash flows. On the other hand, we find that the depreciation expense and non-operating income components underperform their cash-basis equivalents in predicting future cash flows. Additionally, we fail to find significant differences between the predictive abilities of the interest expense and income tax expense components and their cash-basis equivalents. The inconsistent findings across earnings components suggest that unequivocal all-or-nothing conclusions on the relative predictive abilities of earnings and cash flows are unwarranted.
{"title":"Are earnings better than cash flows at predicting future cash flows? Evidence from apples-to-apples comparisons","authors":"Ryan J. Casey, George W. Ruch","doi":"10.1007/s11142-023-09805-5","DOIUrl":"https://doi.org/10.1007/s11142-023-09805-5","url":null,"abstract":"We compare the abilities of earnings and cash flows to predict future cash flows. We take a novel approach in that we perform apples-to-apples comparisons of five earnings components measured on an accrual basis with their equivalents measured on a cash basis. On the one hand, we find that the operating profit component (sales net of cost of goods sold and SG&A expense) outperforms its cash-basis equivalent in predicting future cash flows. On the other hand, we find that the depreciation expense and non-operating income components underperform their cash-basis equivalents in predicting future cash flows. Additionally, we fail to find significant differences between the predictive abilities of the interest expense and income tax expense components and their cash-basis equivalents. The inconsistent findings across earnings components suggest that unequivocal all-or-nothing conclusions on the relative predictive abilities of earnings and cash flows are unwarranted.","PeriodicalId":48120,"journal":{"name":"Review of Accounting Studies","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2023-10-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135095026","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2023-10-07DOI: 10.1007/s11142-023-09806-4
Oktay Urcan, Hayoung Yoon
{"title":"Properties of accounting performance measures used in compensation contracts","authors":"Oktay Urcan, Hayoung Yoon","doi":"10.1007/s11142-023-09806-4","DOIUrl":"https://doi.org/10.1007/s11142-023-09806-4","url":null,"abstract":"","PeriodicalId":48120,"journal":{"name":"Review of Accounting Studies","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2023-10-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135253803","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract US state governments frequently provide firms with targeted subsidies. In exchange, recipients promise to create or retain a certain number of jobs in the subsidizing state. Using novel hand-collected data, we address three questions: (i) the extent to which firms meet job creation targets promised in their applications, (ii) the factors that determine which firms meet the targets, and (iii) the benefits to firms from meeting those targets. We find that 63% of subsidies awarded to publicly traded U.S. firms between 2004 and 2015 meet their promised job creation targets. Firms with poorer labor practices are less likely to meet their targets, as are politically connected firms that receive subsidies in election years. Conversely, promised job targets are also more likely to be met for subsidies accompanied by government press releases but less likely to be met for subsidies accompanied by firm press releases; the latter likely reflects the fact that firms put out press releases for larger subsidies with more ambitious job targets. In terms of consequences, firms that meet job targets are more successful at obtaining subsequent subsidies both in and out of subsidizing states. However, while firms’ success in meeting job targets is associated with an uptick in positive media coverage, this does not flow through to ESG ratings, even on scores specific to community impact. Our results should be of interest to both academics and policymakers interested in the design of state-level economic incentives.
{"title":"When do firms deliver on the jobs they promise in return for state aid?","authors":"Qingkai Dong, Aneesh Raghunandan, Shivaram Rajgopal","doi":"10.1007/s11142-023-09804-6","DOIUrl":"https://doi.org/10.1007/s11142-023-09804-6","url":null,"abstract":"Abstract US state governments frequently provide firms with targeted subsidies. In exchange, recipients promise to create or retain a certain number of jobs in the subsidizing state. Using novel hand-collected data, we address three questions: (i) the extent to which firms meet job creation targets promised in their applications, (ii) the factors that determine which firms meet the targets, and (iii) the benefits to firms from meeting those targets. We find that 63% of subsidies awarded to publicly traded U.S. firms between 2004 and 2015 meet their promised job creation targets. Firms with poorer labor practices are less likely to meet their targets, as are politically connected firms that receive subsidies in election years. Conversely, promised job targets are also more likely to be met for subsidies accompanied by government press releases but less likely to be met for subsidies accompanied by firm press releases; the latter likely reflects the fact that firms put out press releases for larger subsidies with more ambitious job targets. In terms of consequences, firms that meet job targets are more successful at obtaining subsequent subsidies both in and out of subsidizing states. However, while firms’ success in meeting job targets is associated with an uptick in positive media coverage, this does not flow through to ESG ratings, even on scores specific to community impact. Our results should be of interest to both academics and policymakers interested in the design of state-level economic incentives.","PeriodicalId":48120,"journal":{"name":"Review of Accounting Studies","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2023-10-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135695541","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2023-09-23DOI: 10.1007/s11142-023-09801-9
Jagan Krishnan, Jayanthi Krishnan, Steven A. Maex
{"title":"Does audit firm hiring of former PCAOB personnel improve audit quality?","authors":"Jagan Krishnan, Jayanthi Krishnan, Steven A. Maex","doi":"10.1007/s11142-023-09801-9","DOIUrl":"https://doi.org/10.1007/s11142-023-09801-9","url":null,"abstract":"","PeriodicalId":48120,"journal":{"name":"Review of Accounting Studies","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2023-09-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135957851","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2023-09-01DOI: 10.1007/s11142-023-09791-8
Peter F. Pope, Tong Wang
Abstract The range of non-EPS forecast types provided by individual analysts to I/B/E/S has increased dramatically over time but varies considerably across firms. We propose that in providing a broader range of forecast types, analysts can signal superior research ability and research effort. Consistent with this hypothesis, we document positive associations between the number of forecast types (NFT) an analyst provides and common proxies for research quality, including earnings forecast accuracy, price target accuracy, stock recommendation profitability, market reactions to stock recommendation revisions, and analyst career outcomes. The effects of NFT are incremental to other quality proxies used in the literature and are distinct from the issuance of specific non-EPS forecast types studied previously (e.g., cash flow forecasts). We demonstrate the information value of NFT to investors by examining the out-of-sample performance of portfolios formed conditional on NFT and exploiting revisions in consensus earnings forecasts and individual analysts’ stock recommendations. We conclude that the number of forecast types an analyst provides for a firm is a readily available proxy for the quality of her research.
{"title":"Analyst ability and research effort: non-EPS forecast provision as a research quality signal","authors":"Peter F. Pope, Tong Wang","doi":"10.1007/s11142-023-09791-8","DOIUrl":"https://doi.org/10.1007/s11142-023-09791-8","url":null,"abstract":"Abstract The range of non-EPS forecast types provided by individual analysts to I/B/E/S has increased dramatically over time but varies considerably across firms. We propose that in providing a broader range of forecast types, analysts can signal superior research ability and research effort. Consistent with this hypothesis, we document positive associations between the number of forecast types (NFT) an analyst provides and common proxies for research quality, including earnings forecast accuracy, price target accuracy, stock recommendation profitability, market reactions to stock recommendation revisions, and analyst career outcomes. The effects of NFT are incremental to other quality proxies used in the literature and are distinct from the issuance of specific non-EPS forecast types studied previously (e.g., cash flow forecasts). We demonstrate the information value of NFT to investors by examining the out-of-sample performance of portfolios formed conditional on NFT and exploiting revisions in consensus earnings forecasts and individual analysts’ stock recommendations. We conclude that the number of forecast types an analyst provides for a firm is a readily available proxy for the quality of her research.","PeriodicalId":48120,"journal":{"name":"Review of Accounting Studies","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2023-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135248607","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2023-08-29DOI: 10.1007/s11142-023-09803-7
Mei Cheng, Yuan Zhang
{"title":"Corporate stakeholders and CEO-worker pay gap: evidence from CEO pay ratio disclosure","authors":"Mei Cheng, Yuan Zhang","doi":"10.1007/s11142-023-09803-7","DOIUrl":"https://doi.org/10.1007/s11142-023-09803-7","url":null,"abstract":"","PeriodicalId":48120,"journal":{"name":"Review of Accounting Studies","volume":null,"pages":null},"PeriodicalIF":4.2,"publicationDate":"2023-08-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43418753","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2023-08-29DOI: 10.1007/s11142-023-09799-0
Feng Gu, Baruch Lev, Chenqi Zhu
Abstract We examine the value relevance of accounting-driven losses that result from the immediate expensing of firms’ internally generated intangible investments versus losses occurring irrespective of intangible investments. Contrary to the long-held view that losses are less relevant than profits for valuation, we find that once the accounting bias of intangibles-expensing is undone, earnings of firms reporting intangibles-driven losses are as informative as earnings of profitable firms. Furthermore, contrary to the view that persistent losses decrease earnings relevance, our evidence shows no decrease in the relevance of earnings for firms reporting persistent intangibles-driven losses. We also find that firms reporting intangibles-driven losses subsequently outperform other loss firms and even profitable firms in value creation from investments in technological innovation and human capital. Our evidence further shows that firms reporting intangibles-driven losses have stronger future performance than other firms. Taken together, the results of this study demonstrate the fundamental differences between losses driven by the immediate expensing of internally generated intangible investments and losses reflecting genuine business performance shortfalls. Standard accounting performance measures, however, do not properly reflect these operational differences and their implications.
{"title":"All losses are not alike: Real versus accounting-driven reported losses","authors":"Feng Gu, Baruch Lev, Chenqi Zhu","doi":"10.1007/s11142-023-09799-0","DOIUrl":"https://doi.org/10.1007/s11142-023-09799-0","url":null,"abstract":"Abstract We examine the value relevance of accounting-driven losses that result from the immediate expensing of firms’ internally generated intangible investments versus losses occurring irrespective of intangible investments. Contrary to the long-held view that losses are less relevant than profits for valuation, we find that once the accounting bias of intangibles-expensing is undone, earnings of firms reporting intangibles-driven losses are as informative as earnings of profitable firms. Furthermore, contrary to the view that persistent losses decrease earnings relevance, our evidence shows no decrease in the relevance of earnings for firms reporting persistent intangibles-driven losses. We also find that firms reporting intangibles-driven losses subsequently outperform other loss firms and even profitable firms in value creation from investments in technological innovation and human capital. Our evidence further shows that firms reporting intangibles-driven losses have stronger future performance than other firms. Taken together, the results of this study demonstrate the fundamental differences between losses driven by the immediate expensing of internally generated intangible investments and losses reflecting genuine business performance shortfalls. Standard accounting performance measures, however, do not properly reflect these operational differences and their implications.","PeriodicalId":48120,"journal":{"name":"Review of Accounting Studies","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2023-08-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"136242990","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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