Journal of Accounting & Economics最新文献

The regulation that caps executives’ variable compensation, as part of the Capital Requirements Directive IV of 2013, likely affected executive turnover, compensation design, and risk-taking in EU banking. The current study identifies significantly higher average turnover rates but also finds that they are driven by CEOs at poorly performing banks. Banks indemnified their executives by off-setting the bonus cap with higher fixed compensation. Although our evidence is only suggestive, we do not find any reduction in risk-taking at the bank level, one purported aim of the regulation.

Using comprehensive data on U.S. corporate bond trades since 2002, we find evidence that retail bond investors overrely on untimely credit ratings to their financial detriment. Specifically, they appear to select bonds by first screening on a credit rating and then sorting by yield, buying the highest-yielding bonds within each rating level. Because yields lead credit rating changes, selecting on yield-within-rating means that retail investors systematically trade in the opposite direction of changing fundamentals, buy in advance of credit downgrades and defaults, and materially underperform a diversified portfolio. Our study provides new evidence of ill-informed retail trading in a market that is thought to be relatively sophisticated, corroborates regulators’ concerns about investor overreliance on credit ratings, and contributes to the academic literature on the roles and consequences of credit ratings in debt markets.

We study financial reporting and disclosure practices in China using survey methods similar to prior studies of U.S. firms (i.e., Graham et al., 2005; Dichev et al., 2013). Comparing earnings features, motives to manage and smooth earnings, and voluntary disclosure practices between the two countries, we reveal three major differences. First, Chinese firms exhibit a stronger preference for predictive, relative to verifiable, attributes of earnings that can signal stable firm performance to their stakeholders. Second, smooth earnings are desired by various stakeholders and can be achieved through coordination among connected stakeholders, which is conceptually different from earnings management. Third, Chinese firms consider public disclosure as less relevant in the reduction of the cost of capital. In addition, Chinese firms do not have a bias towards conservative reporting. We explain and reconcile these differences as resulting from some unique institutional features of China. Our study provides novel field evidence that contributes to, expands, and directly corroborates existing empirical studies.

We provide evidence that accruals quality in the U.S. has generally improved since 2000, following a decade of decline during the 1990s. Our results indicate that both the initial decline in accruals quality and the subsequent reversal can be explained by an inverse relation with operating cash flow volatility. Moreover, even though patterns of cash flow volatility and accruals quality vary in different regions of the world and relative to the U.S., we find evidence of an inverse relation between accruals quality and cash flow volatility globally. We corroborate our main results in a battery of additional tests, which also indicate that our results are not attributable to other explanations. Overall, our evidence challenges conventional wisdom and suggests that concerns about a sustained decline in accruals quality over time are unwarranted.

The wisdom of crowds suggests that groups with more diversely informed individuals reach more informed decisions because their members are collectively more knowledgeable. I study this idea in the context of the market's response to earnings announcements by examining how information diversity across investors affects the efficiency of the price response to earnings news. I measure investors' information diversity based on their geographic dispersion, which I estimate using the locations of the requests for firms' filings to EDGAR. Greater geographic dispersion is associated with greater trading during the announcement period; this supports the use of geographic dispersion as a measure of information diversity. Consistent with my predictions, the price response to a firm's earnings news is more efficient when the firm's investors have greater information diversity. In further analysis, I find that the initial heightened trading for firms with more diversely informed investors subsides quickly after the announcement period.

This paper examines the effect of shareholder governance on firms' cost of borrowing using the voting outcomes of shareholder-sponsored anti-takeover governance proposals. Implementing a regression discontinuity design centered around the proposals' passing thresholds, we show that firms' public debt prices fall significantly upon the proposals' passage, and that banks demand higher interest rates and more general covenants on new loans issued to those firms. We find that these effects are more pronounced for riskier firms where shareholder-debtholder conflicts are more severe. Moreover, firms with passed shareholder-sponsored proposals become more volatile, reflecting an increase in their risk-shifting incentives. Collectively, our findings suggest that shareholder governance exacerbates shareholder-debtholder conflicts and raises firms’ cost of borrowing.

Accounting Standards Update No. 2016–02 (ASU 2016–02) generated considerable debate between managers and standard setters. We find evidence that after issuance of ASU 2016–02, lessee firms decreased their use of long-term operating leases, increased their use of short-term operating leases, and increased their use of capital expenditures. The shift from long-term operating leases to capital expenditures is more pronounced for firms that had greater reporting incentives to use operating leases prior to ASU 2016–02. However, we find no evidence that the change in leasing behavior leads to negative outcomes predicted by managers (i.e., no evidence of a decrease in reported firm performance, a decrease in firm value, increase in firm risk, decrease in credit ratings, increase in debt covenant violations, or decrease in employment). Our study adds to the literature on the real impacts of accounting standards on managers' investment behavior and economic consequences for lessee firms and their stakeholders.

This study investigates whether tax-based proprietary costs associated with being a public firm (i.e., costs resulting from increased visibility to the tax authority) discourage public listing. I exploit the introduction of a mandatory disclosure requirement (FIN 48) which generated a signal to the government regarding the uncertainty of public firms’ tax positions, allowing for more carefully targeted audits. I hypothesize and find evidence of an increased propensity to go private by public, tax aggressive firms following the enactment of the disclosure rule but prior to its adoption. Cross-sectionally, the effect is stronger among firms that are more sensitive to tax-based proprietary costs. Moreover, IPOs by tax aggressive firms exhibit a relative decline after FIN 48, consistent with the disclosure requirement deterring private, tax aggressive firms from going public. Overall, my findings suggest that mandatory disclosure rules imposing tax-based proprietary costs may discourage some firms from operating as public entities.