Wenhong Ding, Wei Guan, Yun Ke, Kari Joseph Olsen, Zhenyang Shi
We examine the effect of a local CEO (i.e., the CEO's state of origin is the same as his/her firm's headquarter states) on a firm's strategic capacity choices and the resulting cost asymmetry. We find that firms with local CEOs demonstrate greater cost asymmetry. Place attachment, local advantage and agency cost theory could all influence a firm's cost asymmetry. To differentiate between these explanations, we use a consequence test that examines the association between asymmetric costs and future performance. Our results indicate that the greater cost asymmetry in firms with local CEOs is associated with higher future firm value, which suggests that the greater cost asymmetry from local CEOs arises due more to a local advantage. We include several cross‐sectional tests to explore when this result is more or less pronounced. Our results suggest that geographically segmented labour markets play an important role in a firm's resource capacity decisions.
{"title":"Local CEOs and asymmetric cost behaviour","authors":"Wenhong Ding, Wei Guan, Yun Ke, Kari Joseph Olsen, Zhenyang Shi","doi":"10.1111/acfi.13337","DOIUrl":"https://doi.org/10.1111/acfi.13337","url":null,"abstract":"We examine the effect of a local CEO (i.e., the CEO's state of origin is the same as his/her firm's headquarter states) on a firm's strategic capacity choices and the resulting cost asymmetry. We find that firms with local CEOs demonstrate greater cost asymmetry. Place attachment, local advantage and agency cost theory could all influence a firm's cost asymmetry. To differentiate between these explanations, we use a consequence test that examines the association between asymmetric costs and future performance. Our results indicate that the greater cost asymmetry in firms with local CEOs is associated with higher future firm value, which suggests that the greater cost asymmetry from local CEOs arises due more to a local advantage. We include several cross‐sectional tests to explore when this result is more or less pronounced. Our results suggest that geographically segmented labour markets play an important role in a firm's resource capacity decisions.","PeriodicalId":501109,"journal":{"name":"Accounting & Finance","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2024-09-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142253429","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Using data from 2226 IPO firms over the 2007–2020 period, this study investigates whether and how the idiosyncratic risk disclosure of IPO firms impacts institutional investor behaviour. The findings suggest that institutional investors are more likely to withdraw their share subscriptions when IPO companies disclose less idiosyncratic risk information. The heterogeneous effect of idiosyncratic risk disclosure is explored, revealing that this negative effect is significantly pronounced for non‐SOEs. Additionally, the divergence in bidding among institutions is less pronounced when issuers disclose more idiosyncratic risk information. Furthermore, companies with fewer idiosyncrasies of risk information exhibit poorer long‐term post‐IPO performance.
{"title":"Idiosyncratic risk disclosure of IPO firms and institutional investors' withdrawals","authors":"Xiqiong He, Tonglin Yang, Hao Liu, Xiaowei Wu","doi":"10.1111/acfi.13333","DOIUrl":"https://doi.org/10.1111/acfi.13333","url":null,"abstract":"Using data from 2226 IPO firms over the 2007–2020 period, this study investigates whether and how the idiosyncratic risk disclosure of IPO firms impacts institutional investor behaviour. The findings suggest that institutional investors are more likely to withdraw their share subscriptions when IPO companies disclose less idiosyncratic risk information. The heterogeneous effect of idiosyncratic risk disclosure is explored, revealing that this negative effect is significantly pronounced for non‐SOEs. Additionally, the divergence in bidding among institutions is less pronounced when issuers disclose more idiosyncratic risk information. Furthermore, companies with fewer idiosyncrasies of risk information exhibit poorer long‐term post‐IPO performance.","PeriodicalId":501109,"journal":{"name":"Accounting & Finance","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2024-08-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142221097","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Xiaoqi Chen, Maoliang Li, Dorcas Nduakoh, Ling Na Belinda Yau
This paper examines client managers' earnings management choices following the adoption of mandatory reporting on key audit matters in the UK. Using a difference‐in‐differences design, we find that managers engage less in accrual‐based earnings management and more in real earnings management after the introduction of key audit matter (KAM) reporting. With textual data, we show that the disclosure characteristics (such as specificity, similarity, readability and length) and types of KAMs also affect the choice of earnings management. The decrease in accrual‐based earnings management is eclipsed by the increase in real earnings management; thus, total earnings management does not change significantly.
{"title":"Mandatory disclosure of key audit matters and the choice of earnings management","authors":"Xiaoqi Chen, Maoliang Li, Dorcas Nduakoh, Ling Na Belinda Yau","doi":"10.1111/acfi.13331","DOIUrl":"https://doi.org/10.1111/acfi.13331","url":null,"abstract":"This paper examines client managers' earnings management choices following the adoption of mandatory reporting on key audit matters in the UK. Using a difference‐in‐differences design, we find that managers engage less in accrual‐based earnings management and more in real earnings management after the introduction of key audit matter (KAM) reporting. With textual data, we show that the disclosure characteristics (such as specificity, similarity, readability and length) and types of KAMs also affect the choice of earnings management. The decrease in accrual‐based earnings management is eclipsed by the increase in real earnings management; thus, total earnings management does not change significantly.","PeriodicalId":501109,"journal":{"name":"Accounting & Finance","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2024-08-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142221164","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Leveraging deep learning to analyse COVID‐19 image sentiment, this study reveals its significant impact on stock market dynamics. It highlights how vivid imagery prompts marked emotional responses, altering market performance and how news sentiment can modulate this effect. Further, it underscores the pivotal role of forum‐based investor sentiment, particularly affecting small‐minus‐big stocks during downturns and trading week commencements. This research not only advances behavioural finance understanding but also informs management and regulatory strategies.
{"title":"Does image sentiment of major public emergency affect the stock market performance? New insight from deep learning techniques","authors":"Yun Liu, Dengshi Huang, Jianan Zhou, Sirui Wang","doi":"10.1111/acfi.13313","DOIUrl":"https://doi.org/10.1111/acfi.13313","url":null,"abstract":"Leveraging deep learning to analyse COVID‐19 image sentiment, this study reveals its significant impact on stock market dynamics. It highlights how vivid imagery prompts marked emotional responses, altering market performance and how news sentiment can modulate this effect. Further, it underscores the pivotal role of forum‐based investor sentiment, particularly affecting small‐minus‐big stocks during downturns and trading week commencements. This research not only advances behavioural finance understanding but also informs management and regulatory strategies.","PeriodicalId":501109,"journal":{"name":"Accounting & Finance","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2024-08-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142221162","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We examine how CEOs' past experiences of corporate distress affect their subsequent forecast behaviour. We find that CEOs who experienced distress in a non‐CEO position at another firm issue more pessimistic management earnings forecasts after becoming CEO at their current firm. The effect of such experiences on CEOs' forecasting behaviour is more pronounced when these have occurred more frequently or recently. The effect of distress experiences is mitigated for overconfident and experienced CEOs, but amplified in firms with poor performance and high uncertainty. Our findings suggest that CEOs who experienced corporate distress could be overly cautious when forecasting future earnings.
{"title":"The effect of CEO adverse professional experience on management forecast pessimism","authors":"Eunice S. Khoo, Louise Y. Lu, Zihang Peng","doi":"10.1111/acfi.13324","DOIUrl":"https://doi.org/10.1111/acfi.13324","url":null,"abstract":"We examine how CEOs' past experiences of corporate distress affect their subsequent forecast behaviour. We find that CEOs who experienced distress in a non‐CEO position at another firm issue more pessimistic management earnings forecasts after becoming CEO at their current firm. The effect of such experiences on CEOs' forecasting behaviour is more pronounced when these have occurred more frequently or recently. The effect of distress experiences is mitigated for overconfident and experienced CEOs, but amplified in firms with poor performance and high uncertainty. Our findings suggest that CEOs who experienced corporate distress could be overly cautious when forecasting future earnings.","PeriodicalId":501109,"journal":{"name":"Accounting & Finance","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2024-08-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142221163","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
To optimise the regulatory approach, the China Securities Regulatory Commission (CSRC) introduced the double‐random inspection policy (DRIP), which mandates that the provincial branches of the CSRC randomly select at least 5% of local listed firms each year and randomly assign inspectors to conduct on‐site inspections of their information disclosure and corporate governance practices. This paper investigates the real effect of the DRIP on corporate financial fraud. Performing a multi‐period synthetic difference‐in‐differences model (SDID), we first find that the random inspections of CSRC have a positive causal effect on the probability of exposing corporate financial fraud. Furthermore, our heterogeneity analysis reveals that this effect is more pronounced for private firms and firms with poor accounting information quality. We then delve into the mechanisms through which random inspections affect corporate financial fraud. Our findings suggest that random inspections influence corporate behaviour by increasing media and investor attention, as well as prompting the issuance of inquiry letters by stock exchanges. Finally, we examine the economic consequences of random inspections and find that random inspections by the CSRC reduce firms' stock price crash risk.
{"title":"The real effect of CSRC's random inspections on corporate financial fraud","authors":"Changchun Tan, Leixin Liu, Huaqing Wu, Peng Zhou","doi":"10.1111/acfi.13316","DOIUrl":"https://doi.org/10.1111/acfi.13316","url":null,"abstract":"To optimise the regulatory approach, the China Securities Regulatory Commission (CSRC) introduced the double‐random inspection policy (DRIP), which mandates that the provincial branches of the CSRC randomly select at least 5% of local listed firms each year and randomly assign inspectors to conduct on‐site inspections of their information disclosure and corporate governance practices. This paper investigates the real effect of the DRIP on corporate financial fraud. Performing a multi‐period synthetic difference‐in‐differences model (SDID), we first find that the random inspections of CSRC have a positive causal effect on the probability of exposing corporate financial fraud. Furthermore, our heterogeneity analysis reveals that this effect is more pronounced for private firms and firms with poor accounting information quality. We then delve into the mechanisms through which random inspections affect corporate financial fraud. Our findings suggest that random inspections influence corporate behaviour by increasing media and investor attention, as well as prompting the issuance of inquiry letters by stock exchanges. Finally, we examine the economic consequences of random inspections and find that random inspections by the CSRC reduce firms' stock price crash risk.","PeriodicalId":501109,"journal":{"name":"Accounting & Finance","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2024-08-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141933019","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Xuanyi Chen, Qiliang Liu, Li Tian, Junbo Wang, Jian Xie
Using a quasi‐natural experiment, we investigate whether the opening of high‐speed railways affects mutual fund holdings. Applying the difference‐in‐difference method, we find that mutual fund holdings in remote listed companies increase after the introduction of high‐speed railways in their cities. This effect is primarily observed within the optimal interval of the railway. Opening high‐speed railways also facilitates mutual fund visits to remote listed companies, resulting in increased holdings.
{"title":"Time distance and mutual fund holding horizon: Evidence from a quasi‐natural experiment setting of high‐speed railway opening","authors":"Xuanyi Chen, Qiliang Liu, Li Tian, Junbo Wang, Jian Xie","doi":"10.1111/acfi.13305","DOIUrl":"https://doi.org/10.1111/acfi.13305","url":null,"abstract":"Using a quasi‐natural experiment, we investigate whether the opening of high‐speed railways affects mutual fund holdings. Applying the difference‐in‐difference method, we find that mutual fund holdings in remote listed companies increase after the introduction of high‐speed railways in their cities. This effect is primarily observed within the optimal interval of the railway. Opening high‐speed railways also facilitates mutual fund visits to remote listed companies, resulting in increased holdings.","PeriodicalId":501109,"journal":{"name":"Accounting & Finance","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2024-08-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141932984","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Public oversight bodies have continued to issue a high proportion of negative inspection findings year after year despite the actions taken by audit firms to address deficiencies and empirical evidence suggesting audit quality is improving. We conducted an experiment where we manipulated the level of audit scepticism to explain the continued puzzling poor inspection results. Based on theory from psychology research on prevalence induced concept change we show that when audit quality improves our participants making inspection judgements are likely to subconsciously redefine what constitutes an acceptable audit thus leading to static judgements. Given these results, our theory suggests this is an alternative explanation for consistently high rates of negative inspection findings, and we provide suggestions for future research.
{"title":"The effects of prevalence induced concept change on audit scepticism judgements","authors":"Greg Richins, Ken T. Trotman, Di Yang","doi":"10.1111/acfi.13312","DOIUrl":"https://doi.org/10.1111/acfi.13312","url":null,"abstract":"Public oversight bodies have continued to issue a high proportion of negative inspection findings year after year despite the actions taken by audit firms to address deficiencies and empirical evidence suggesting audit quality is improving. We conducted an experiment where we manipulated the level of audit scepticism to explain the continued puzzling poor inspection results. Based on theory from psychology research on prevalence induced concept change we show that when audit quality improves our participants making inspection judgements are likely to subconsciously redefine what constitutes an acceptable audit thus leading to static judgements. Given these results, our theory suggests this is an alternative explanation for consistently high rates of negative inspection findings, and we provide suggestions for future research.","PeriodicalId":501109,"journal":{"name":"Accounting & Finance","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2024-08-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141886344","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Jagadison K. Aier, Eun Hye Jo, Jung Wha (Jenny) Lee
This paper investigates whether female board participation improves a firm's efforts to manage its cash holdings in Korea. We find that firms with female directors quickly adjust their cash holdings towards the target, particularly when they have excess cash, suggesting that female directors are more likely to respond to anticipated problems related to excess cash relative to liquidity problems that may arise on account of a cash shortage. Furthermore, the relationship between female directors and cash holding adjustment is stronger for non‐chaebol affiliates, female‐friendly companies, and non‐controversial business environments.
{"title":"Female directors and cash holdings adjustment: Evidence from South Korea","authors":"Jagadison K. Aier, Eun Hye Jo, Jung Wha (Jenny) Lee","doi":"10.1111/acfi.13303","DOIUrl":"https://doi.org/10.1111/acfi.13303","url":null,"abstract":"This paper investigates whether female board participation improves a firm's efforts to manage its cash holdings in Korea. We find that firms with female directors quickly adjust their cash holdings towards the target, particularly when they have excess cash, suggesting that female directors are more likely to respond to anticipated problems related to excess cash relative to liquidity problems that may arise on account of a cash shortage. Furthermore, the relationship between female directors and cash holding adjustment is stronger for non‐chaebol affiliates, female‐friendly companies, and non‐controversial business environments.","PeriodicalId":501109,"journal":{"name":"Accounting & Finance","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2024-07-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141770237","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study explores whether journalists report more positively or negatively on acquisitions by chief executive officers (CEOs) with greater overconfidence than those with less overconfident CEOs. The results show that journalists report acquisition events conducted by firms with overconfident CEOs more negatively than those without. Meanwhile, journalists' negativity in reporting acquisitions by overconfident CEOs is mitigated during periods of high market uncertainty. This result suggests that journalists are not biased upward because of the positive prospects presented by overconfident CEOs but instead act as information intermediaries to inform readers about the overoptimistic view of overconfident CEOs.
{"title":"Objective or biased? CEO overconfidence and journalists' coverage","authors":"Rong Gong","doi":"10.1111/acfi.13311","DOIUrl":"https://doi.org/10.1111/acfi.13311","url":null,"abstract":"This study explores whether journalists report more positively or negatively on acquisitions by chief executive officers (CEOs) with greater overconfidence than those with less overconfident CEOs. The results show that journalists report acquisition events conducted by firms with overconfident CEOs more negatively than those without. Meanwhile, journalists' negativity in reporting acquisitions by overconfident CEOs is mitigated during periods of high market uncertainty. This result suggests that journalists are not biased upward because of the positive prospects presented by overconfident CEOs but instead act as information intermediaries to inform readers about the overoptimistic view of overconfident CEOs.","PeriodicalId":501109,"journal":{"name":"Accounting & Finance","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2024-07-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141770238","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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