This study examines whether the efficiency of federal district courts affects the likelihood of SEC enforcement. The results indicate that the SEC is less likely to initiate enforcement actions against firms in less efficient federal district courts. In addition, the study examines the implications of court efficiency for firms’ financial reporting quality (FRQ). The evidence suggests that firms residing in more efficient federal districts have higher FRQ and the effect is stronger in subsamples with weak private enforcement regimes. Additional analysis of the choice of venue suggests that the SEC's decision to file in the District Court for D.C. is not affected by local court efficiency. Collectively, this study highlights the importance of an efficient federal judicial system for public enforcement.
{"title":"The Effect of the Federal Judicial System on Public Enforcement: Evidence from SEC Enforcement Actions","authors":"YANRONG JIA","doi":"10.1111/1475-679X.12571","DOIUrl":"10.1111/1475-679X.12571","url":null,"abstract":"<div>\u0000 \u0000 <p>This study examines whether the efficiency of federal district courts affects the likelihood of SEC enforcement. The results indicate that the SEC is less likely to initiate enforcement actions against firms in less efficient federal district courts. In addition, the study examines the implications of court efficiency for firms’ financial reporting quality (FRQ). The evidence suggests that firms residing in more efficient federal districts have higher FRQ and the effect is stronger in subsamples with weak private enforcement regimes. Additional analysis of the choice of venue suggests that the SEC's decision to file in the District Court for D.C. is not affected by local court efficiency. Collectively, this study highlights the importance of an efficient federal judicial system for public enforcement.</p>\u0000 </div>","PeriodicalId":48414,"journal":{"name":"Journal of Accounting Research","volume":"63 1","pages":"503-541"},"PeriodicalIF":4.9,"publicationDate":"2024-08-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142045560","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
WILLIAM A. CICONTE III, JUSTIN LEIBY, MARLEEN WILLEKENS
Audit theory and regulation assumes that auditors’ commercial motivation threatens audit quality. In this registered report, we use data from two Big Four firms in the Netherlands and provide empirical evidence on the relation between auditors’ commercial motivation and (1) compensation, (2) total audit effort, and (3) audit quality. We proxy commercial motivation as the time that individual auditors report allocating to commercial activities. We hypothesize that auditors’ commercial effort is positively related to compensation and we find mixed support. Next, we hypothesize that auditors’ commercial effort is negatively related to the audit effort but we find no support. Turning to audit quality, we hypothesize a negative direct relation between auditors’ commercial effort and audit quality but we find no support. We also predict a positive indirect relation in which auditors’ commercial effort increases quality control reliance leading to higher audit quality. We find some support for this hypothesis but only when we use technical consultations to proxy for quality control. Auditors with greater commercial effort maintain quality because they rely more on technical consultations. In sum, our study challenges the assumption that auditors’ commercial effort threatens audit quality and questions the need for additional regulation to constrain commercial motivation.
{"title":"Where Does the Time Go? Auditors’ Commercial Effort, Professional Effort, and Audit Quality","authors":"WILLIAM A. CICONTE III, JUSTIN LEIBY, MARLEEN WILLEKENS","doi":"10.1111/1475-679X.12569","DOIUrl":"10.1111/1475-679X.12569","url":null,"abstract":"<p>Audit theory and regulation assumes that auditors’ commercial motivation threatens audit quality. In this registered report, we use data from two Big Four firms in the Netherlands and provide empirical evidence on the relation between auditors’ commercial motivation and (1) compensation, (2) total audit effort, and (3) audit quality. We proxy commercial motivation as the time that individual auditors report allocating to commercial activities. We hypothesize that auditors’ commercial effort is positively related to compensation and we find mixed support. Next, we hypothesize that auditors’ commercial effort is negatively related to the audit effort but we find no support. Turning to audit quality, we hypothesize a negative <i>direct</i> relation between auditors’ commercial effort and audit quality but we find no support. We also predict a positive <i>indirect</i> relation in which auditors’ commercial effort increases quality control reliance leading to higher audit quality. We find some support for this hypothesis but only when we use technical consultations to proxy for quality control. Auditors with greater commercial effort maintain quality because they rely more on technical consultations. In sum, our study challenges the assumption that auditors’ commercial effort threatens audit quality and questions the need for additional regulation to constrain commercial motivation.</p>","PeriodicalId":48414,"journal":{"name":"Journal of Accounting Research","volume":"63 1","pages":"255-317"},"PeriodicalIF":4.9,"publicationDate":"2024-08-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.1111/1475-679X.12569","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141994384","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Issue Information - Request for Papers","authors":"","doi":"10.1111/1475-679X.12566","DOIUrl":"https://doi.org/10.1111/1475-679X.12566","url":null,"abstract":"","PeriodicalId":48414,"journal":{"name":"Journal of Accounting Research","volume":"62 4","pages":"1142"},"PeriodicalIF":4.9,"publicationDate":"2024-07-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.1111/1475-679X.12566","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141730014","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Issue Information - Standing Call for Proposals for","authors":"","doi":"10.1111/1475-679X.12567","DOIUrl":"https://doi.org/10.1111/1475-679X.12567","url":null,"abstract":"","PeriodicalId":48414,"journal":{"name":"Journal of Accounting Research","volume":"62 4","pages":"1143"},"PeriodicalIF":4.9,"publicationDate":"2024-07-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.1111/1475-679X.12567","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141730015","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We study the impact of social connections between judges and executives on the outcomes of Securities Class Action Litigation (SCAL). Judges who are socially connected to a firm's executives are significantly more likely to dismiss lawsuits against the firm. There is also evidence of faster resolution and lower payout amounts in connected cases. The favorable outcomes cannot be explained by the lower severity of connected cases, or by court, judge, or firm characteristics. Our results are more pronounced when executives connected to the judge are named defendants in the lawsuits, when connected cases involve less visible lawsuits or firms, and when connections between judges and executives are likely more direct. Our evidence indicates that social connections influence judge impartiality and meaningfully alter SCAL outcomes.
{"title":"Just Friends? Managers’ Connections to Judges","authors":"STERLING HUANG, SUGATA ROYCHOWDHURY, EWA SLETTEN, YANPING XU","doi":"10.1111/1475-679X.12563","DOIUrl":"10.1111/1475-679X.12563","url":null,"abstract":"<div>\u0000 \u0000 <p>We study the impact of social connections between judges and executives on the outcomes of Securities Class Action Litigation (SCAL). Judges who are socially connected to a firm's executives are significantly more likely to dismiss lawsuits against the firm. There is also evidence of faster resolution and lower payout amounts in connected cases. The favorable outcomes cannot be explained by the lower severity of connected cases, or by court, judge, or firm characteristics. Our results are more pronounced when executives connected to the judge are named defendants in the lawsuits, when connected cases involve less visible lawsuits or firms, and when connections between judges and executives are likely more direct. Our evidence indicates that social connections influence judge impartiality and meaningfully alter SCAL outcomes.</p>\u0000 </div>","PeriodicalId":48414,"journal":{"name":"Journal of Accounting Research","volume":"63 1","pages":"461-502"},"PeriodicalIF":4.9,"publicationDate":"2024-07-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141608145","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Using a large sample of U.S. commercial banks from 1994 to 2019, we find that loan fair values are highly relevant for depositor decision making. A one-standard-deviation decrease in loan fair value performance is associated with more than 10% lower uninsured deposit flows than the sample average. Information in fair values about loan credit quality is quite limited and cannot account for the bulk of the relevance. Instead, consistent with models of bank fragility, the relevance seems to stem more from information on the decline in loan liquidation values, triggering panic-based withdrawals motivated by (self-fulfilling) expectations of withdrawals by other depositors. The findings inform the cost-benefit tradeoff of reporting loan fair values.
{"title":"The Decision Relevance of Loan Fair Values for Depositors","authors":"QI CHEN, RAHUL VASHISHTHA, SHUYAN WANG","doi":"10.1111/1475-679X.12564","DOIUrl":"10.1111/1475-679X.12564","url":null,"abstract":"<div>\u0000 \u0000 <p>Using a large sample of U.S. commercial banks from 1994 to 2019, we find that loan fair values are highly relevant for depositor decision making. A one-standard-deviation decrease in loan fair value performance is associated with more than 10% lower uninsured deposit flows than the sample average. Information in fair values about loan credit quality is quite limited and cannot account for the bulk of the relevance. Instead, consistent with models of bank fragility, the relevance seems to stem more from information on the decline in loan liquidation values, triggering panic-based withdrawals motivated by (self-fulfilling) expectations of withdrawals by other depositors. The findings inform the cost-benefit tradeoff of reporting loan fair values.</p>\u0000 </div>","PeriodicalId":48414,"journal":{"name":"Journal of Accounting Research","volume":"63 1","pages":"207-254"},"PeriodicalIF":4.9,"publicationDate":"2024-07-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141597249","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper studies how a federal procurement regulation, known as the Truth in Negotiations Act (TINA), affects the competitiveness and execution of government contracts. TINA stipulates how contracting officials (COs) can ensure reasonable prices. Following TINA, for contracts above a certain size threshold, COs can no longer rely solely on their own judgment that a price is reasonable. Instead, they must either require suppliers to provide accounting data supporting their proposed prices or expect multiple bids. Using a regression discontinuity design, I find that above-threshold contracts experience greater competition (i.e., more bids), improved performance (i.e., less frequent renegotiations and cost overruns), and reduced use of the harder-to-monitor cost-plus pricing, compared to below-threshold contracts. These findings suggest that TINA's requirements enhance competition and oversight for above-threshold contracts.
{"title":"Show Your Hand: The Impacts of Fair Pricing Requirements in Procurement Contracting","authors":"BRAD NATHAN","doi":"10.1111/1475-679X.12561","DOIUrl":"10.1111/1475-679X.12561","url":null,"abstract":"<p>This paper studies how a federal procurement regulation, known as the Truth in Negotiations Act (TINA), affects the competitiveness and execution of government contracts. TINA stipulates how contracting officials (COs) can ensure reasonable prices. Following TINA, for contracts above a certain size threshold, COs can no longer rely solely on their own judgment that a price is reasonable. Instead, they must either require suppliers to provide accounting data supporting their proposed prices or expect multiple bids. Using a regression discontinuity design, I find that above-threshold contracts experience greater competition (i.e., more bids), improved performance (i.e., less frequent renegotiations and cost overruns), and reduced use of the harder-to-monitor cost-plus pricing, compared to below-threshold contracts. These findings suggest that TINA's requirements enhance competition and oversight for above-threshold contracts.</p>","PeriodicalId":48414,"journal":{"name":"Journal of Accounting Research","volume":"62 4","pages":"1405-1448"},"PeriodicalIF":4.9,"publicationDate":"2024-07-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.1111/1475-679X.12561","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141496071","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
RICHARD FRANKEL, BRIGHT GERSHION GODIGBE, MARYJANE RABIER
Research documents price co-movements, or “spillovers,” between focal firms and their peers at focal firms’ earnings announcements. We find that both signed and absolute co-movements between focal- and peer-firm returns are significantly lower at earnings-announcement dates compared to other dates. Analytically, we demonstrate that co-movements do not necessarily indicate common information; instead, co-movements measure the relative proportion of focal firm-specific information to common information in focal-firm earnings announcements. We study three settings where information transfers might be higher: when focal firms report significant earnings surprises, are industry leaders, or share correlated earnings patterns with peer firms. We continue to find lower return correlations during focal-firm earnings announcements. We conduct two alternative tests but fail to find evidence that common information released during focal-firm earnings announcements is significantly greater than on other days. These results raise doubt about the extent of the information externality attributable to financial-report releases.
{"title":"Information Spillovers at Earnings Announcements","authors":"RICHARD FRANKEL, BRIGHT GERSHION GODIGBE, MARYJANE RABIER","doi":"10.1111/1475-679X.12562","DOIUrl":"https://doi.org/10.1111/1475-679X.12562","url":null,"abstract":"<div>\u0000 \u0000 <p>Research documents price co-movements, or “spillovers,” between focal firms and their peers at focal firms’ earnings announcements. We find that both signed and absolute co-movements between focal- and peer-firm returns are significantly lower at earnings-announcement dates compared to other dates. Analytically, we demonstrate that co-movements do not necessarily indicate common information; instead, co-movements measure the relative proportion of focal firm-specific information to common information in focal-firm earnings announcements. We study three settings where information transfers might be higher: when focal firms report significant earnings surprises, are industry leaders, or share correlated earnings patterns with peer firms. We continue to find lower return correlations during focal-firm earnings announcements. We conduct two alternative tests but fail to find evidence that common information released during focal-firm earnings announcements is significantly greater than on other days. These results raise doubt about the extent of the information externality attributable to financial-report releases.</p>\u0000 </div>","PeriodicalId":48414,"journal":{"name":"Journal of Accounting Research","volume":"63 1","pages":"319-362"},"PeriodicalIF":4.9,"publicationDate":"2024-06-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143119421","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Connected financial journalists—those with working relationships, common school ties, or social media connections to company management—introduce a marked media slant into their news coverage. Using a comprehensive set of newspaper articles covering mergers and acquisition (M&A) transactions from 1997 to 2016, I find that connected journalists use significantly fewer negative words in their coverage of connected acquirers. These journalists are also more likely to quote connected executives and include less accurate language in their reporting. Moreover, they tend to portray other firms in the same network in a less negative light. Journalists’ favoritism bias has implications for both capital market outcomes and their careers. I find that acquirers whose M&As are covered by connected journalists receive significantly higher stock returns on the news article publication date. However, these acquirers’ stock prices reverse in the long term, suggesting market overreaction to news covered by connected journalists. Around M&A transactions, connected articles are correlated with increased bid competition and deal premiums. In terms of future career development, connected journalists are more likely to leave journalism and join their associated industries in the long run. Taken together, the evidence suggests that financial journalists’ personal networks promote news bias that potentially hinders the efficient dissemination of information.
{"title":"News Bias in Financial Journalists’ Social Networks","authors":"GUOSONG XU","doi":"10.1111/1475-679X.12560","DOIUrl":"10.1111/1475-679X.12560","url":null,"abstract":"<p>Connected financial journalists—those with working relationships, common school ties, or social media connections to company management—introduce a marked media slant into their news coverage. Using a comprehensive set of newspaper articles covering mergers and acquisition (M&A) transactions from 1997 to 2016, I find that connected journalists use significantly fewer negative words in their coverage of connected acquirers. These journalists are also more likely to quote connected executives and include less accurate language in their reporting. Moreover, they tend to portray other firms in the same network in a less negative light. Journalists’ favoritism bias has implications for both capital market outcomes and their careers. I find that acquirers whose M&As are covered by connected journalists receive significantly higher stock returns on the news article publication date. However, these acquirers’ stock prices reverse in the long term, suggesting market overreaction to news covered by connected journalists. Around M&A transactions, connected articles are correlated with increased bid competition and deal premiums. In terms of future career development, connected journalists are more likely to leave journalism and join their associated industries in the long run. Taken together, the evidence suggests that financial journalists’ personal networks promote news bias that potentially hinders the efficient dissemination of information.</p>","PeriodicalId":48414,"journal":{"name":"Journal of Accounting Research","volume":"62 4","pages":"1145-1182"},"PeriodicalIF":4.9,"publicationDate":"2024-06-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.1111/1475-679X.12560","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141425203","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Fixed effects (FE) have emerged as a ubiquitous and powerful tool for eliminating unwanted variation in observational accounting studies. Unwanted variation is plentiful in accounting research because we often use rich data to test precise hypotheses derived from abstract theories. By eliminating unwanted variation, FE reduce concerns that omitted variables bias our estimates or weaken test power. FE are not costless, though, so their use should be carefully justified by theoretical and institutional considerations. FE also transform samples and variables in ways that are not immediately apparent, and in doing so affect how we should interpret regression results. This primer explains the mechanics of FE and provides practical guidance for the informed use, transparent reporting, and careful interpretation of FE models.
固定效应(FE)已成为消除观察性会计研究中不必要变异的普遍而强大的工具。会计研究中存在大量不必要的变异,因为我们经常使用丰富的数据来检验从抽象理论中得出的精确假设。通过消除不必要的变异,FE 减少了人们对遗漏变量会使我们的估计产生偏差或削弱测试能力的担忧。不过,FE 并不是无成本的,因此在使用时应仔细考虑理论和制度因素。FE 还会以一些不易察觉的方式改变样本和变量,从而影响我们对回归结果的解释。这本入门书解释了 FE 的机制,并为知情使用、透明报告和谨慎解释 FE 模型提供了实用指导。
{"title":"Using and Interpreting Fixed Effects Models","authors":"MATTHIAS BREUER, ED DEHAAN","doi":"10.1111/1475-679X.12559","DOIUrl":"10.1111/1475-679X.12559","url":null,"abstract":"<div>\u0000 \u0000 <p>Fixed effects (FE) have emerged as a ubiquitous and powerful tool for eliminating unwanted variation in observational accounting studies. Unwanted variation is plentiful in accounting research because we often use rich data to test precise hypotheses derived from abstract theories. By eliminating unwanted variation, FE reduce concerns that omitted variables bias our estimates or weaken test power. FE are not costless, though, so their use should be carefully justified by theoretical and institutional considerations. FE also transform samples and variables in ways that are not immediately apparent, and in doing so affect how we should interpret regression results. This primer explains the mechanics of FE and provides practical guidance for the informed use, transparent reporting, and careful interpretation of FE models.</p>\u0000 </div>","PeriodicalId":48414,"journal":{"name":"Journal of Accounting Research","volume":"62 4","pages":"1183-1226"},"PeriodicalIF":4.9,"publicationDate":"2024-06-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141329596","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}