Pub Date : 2024-07-20DOI: 10.1142/s1094406024500173
Dongyi Wang
Synopsis The research problem This study investigates whether the debt structure of a firm — that is, how a firm organizes its debt contracts — depends on the extent to which fair value measurement is applied to the balance sheet. Motivation Most public firms have a nontrivial percentage of balance sheet items measured at fair value under the mixed attribute accounting, and there is a lack of understanding of its effect on the reporting entity’s debt structure. This study focuses on two aspects of the debt structure that have both practical and theoretical relevance, namely the priority structure and the financial flexibility. A priority structure involves the simultaneous use of different priorities of debt and is common among risky borrowers. Survey results show that financial flexibility is of first-order importance regarding the debt policy of firms. Here, financial flexibility refers to a firm’s ability to pursue new investment opportunities via debt issuance. The test hypotheses The first hypothesis states that a borrower with a higher percentage of balance sheet items measured at fair value is less likely to have a priority structure. The second hypothesis states that a borrower with a higher portion of balance sheet items measured at fair value likely has a debt structure that is more financially flexible. The third hypothesis states that the fair value of liabilities and the fair value of assets are equally relevant to debt structure decisions. Target population This study focuses on nonfinancial firms in North America that are subject to the mixed attribute accounting, which measures a certain percentage of assets and liabilities at fair value. Adopted methodology The main tests use multivariate analysis that includes both logistic regressions and OLS regressions. Additional tests include cross-sectional analyses and the Granger causality test. Analysis Using a sample constructed from Compustat North America and Capital IQ (6,220 firms and 36,487 firm-year observations), the main tests regress dependent variables, namely the priority structure measures and financial flexibility, on the exposure to fair value measurement. Findings Results show that fair value measurement reduces information asymmetry and has favorable effects on the debt structure. A high exposure to fair value measurement reduces the need for a priority structure. A high exposure to fair value measurement also enhances financial flexibility. Additional analyses reveal that the favorable effect mainly comes from assets measured at fair value. The effect becomes weaker with respect to liabilities measured at fair value.
研究问题简介 本研究探讨企业的债务结构（即企业如何组织其债务合同）是否取决于资产负债表采用公允价值计量的程度。研究动机 大多数上市公司的资产负债表项目中，按照混合属性会计法以公允价值计量的项目所占比例不小，而人们对其对报告实体债务结构的影响缺乏了解。本研究重点关注债务结构中既有现实意义又有理论意义的两个方面，即优先权结构和财务灵活性。优先权结构涉及同时使用不同优先权的债务，在高风险借款人中很常见。调查结果显示，财务灵活性是企业债务政策的第一重要因素。这里，财务灵活性指的是企业通过发债寻求新投资机会的能力。检验假设 第一个假设指出，资产负债表中按公允价值计量的项目比例越高的借款人，越不可能采用优先权结构。第二个假设指出，资产负债表中按公允价值计量的项目比例较高的借款人，其债务结构可能更具财务灵活性。第三个假设指出，负债的公允价值和资产的公允价值与债务结构决策具有同等相关性。研究对象 本研究主要针对北美的非金融企业，这些企业采用混合属性会计，即按公允价值计量一定比例的资产和负债。采用的方法 主要测试采用多元分析，包括逻辑回归和 OLS 回归。其他测试包括横截面分析和格兰杰因果检验。分析 使用从 Compustat North America 和 Capital IQ（6,220 家公司，36,487 个公司年度观察值）中构建的样本，主要测试对因变量（即优先权结构衡量标准和财务灵活性）与公允价值计量风险进行回归。结果 结果表明，公允价值计量降低了信息不对称，对债务结构产生了有利影响。高公允价值计量风险会降低对优先权结构的需求。较高的公允价值计量风险还能提高财务灵活性。其他分析表明，有利影响主要来自以公允价值计量的资产。对以公允价值计量的负债的影响则较弱。
{"title":"The Role of Fair Value Accounting in Debt Structure Decisions: Evidence from Priority Structure and Financial Flexibility","authors":"Dongyi Wang","doi":"10.1142/s1094406024500173","DOIUrl":"https://doi.org/10.1142/s1094406024500173","url":null,"abstract":"Synopsis The research problem This study investigates whether the debt structure of a firm — that is, how a firm organizes its debt contracts — depends on the extent to which fair value measurement is applied to the balance sheet. Motivation Most public firms have a nontrivial percentage of balance sheet items measured at fair value under the mixed attribute accounting, and there is a lack of understanding of its effect on the reporting entity’s debt structure. This study focuses on two aspects of the debt structure that have both practical and theoretical relevance, namely the priority structure and the financial flexibility. A priority structure involves the simultaneous use of different priorities of debt and is common among risky borrowers. Survey results show that financial flexibility is of first-order importance regarding the debt policy of firms. Here, financial flexibility refers to a firm’s ability to pursue new investment opportunities via debt issuance. The test hypotheses The first hypothesis states that a borrower with a higher percentage of balance sheet items measured at fair value is less likely to have a priority structure. The second hypothesis states that a borrower with a higher portion of balance sheet items measured at fair value likely has a debt structure that is more financially flexible. The third hypothesis states that the fair value of liabilities and the fair value of assets are equally relevant to debt structure decisions. Target population This study focuses on nonfinancial firms in North America that are subject to the mixed attribute accounting, which measures a certain percentage of assets and liabilities at fair value. Adopted methodology The main tests use multivariate analysis that includes both logistic regressions and OLS regressions. Additional tests include cross-sectional analyses and the Granger causality test. Analysis Using a sample constructed from Compustat North America and Capital IQ (6,220 firms and 36,487 firm-year observations), the main tests regress dependent variables, namely the priority structure measures and financial flexibility, on the exposure to fair value measurement. Findings Results show that fair value measurement reduces information asymmetry and has favorable effects on the debt structure. A high exposure to fair value measurement reduces the need for a priority structure. A high exposure to fair value measurement also enhances financial flexibility. Additional analyses reveal that the favorable effect mainly comes from assets measured at fair value. The effect becomes weaker with respect to liabilities measured at fair value.","PeriodicalId":506896,"journal":{"name":"The International Journal of Accounting","volume":"71 7","pages":""},"PeriodicalIF":0.0,"publicationDate":"2024-07-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141819096","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}
Pub Date : 2023-11-30DOI: 10.1142/s1094406024500057
Haoran Xu, Yongliang Wu, Min Zhang
Synopsis The research problem This study examines whether international trade friction has an impact on firm disclosure tone. Motivation The past two decades have witnessed a large amount of trade friction worldwide. Under this background, the impact of trade friction on microenterprises is of great concern to researchers. Previous studies have shown that trade friction is related to firm operating or financial activities such as performance, investment, stock prices, loan financing, and employment. However, there are no published papers about how trade friction impacts the disclosure behaviors of firms subject to the friction. This study attempts to fill this void by investigating whether firms manage disclosure tone when they are subject to trade friction. The test hypotheses We test two competing hypotheses in this study. Our first hypothesis is that firms impacted by trade friction increase the positive tone of their information disclosure. Second, firms impacted by trade friction decrease the positive tone of their information disclosure. Target population This study should be of interest to firm managers, investors, creditors, and policy makers. Adopted methodology Ordinary least squares regressions and archival data. Analyses We conducted this study by using a sample of listed firms in China. Over the past two decades, China has been the world’s largest country subject to trade frictions. In addition, China’s weak institutional environment and language habit provide an ideal setting for this study. Firm disclosure tone is measured as the frequency difference between the positive and negative words scaled by total words in an annual report. We tested whether there is a positive/negative association between trade friction and firm disclosure tone. Findings We find that firms strategically increase their positive tone in annual reports when they are subject to trade friction. Further analyses reveal that the impact of trade friction on disclosure tone is more pronounced for smaller firms, firms with more financial constraints, and firms with less analyst following. In addition, this impact is attenuated when firms have stronger corporate governance. Finally, we show that using more positive tones help firms subject to trade friction improve short-term market valuation, obtain more bank loans, and have lower cost of debt.
{"title":"International Trade Friction and Firm Disclosure Tone: Evidence from China","authors":"Haoran Xu, Yongliang Wu, Min Zhang","doi":"10.1142/s1094406024500057","DOIUrl":"https://doi.org/10.1142/s1094406024500057","url":null,"abstract":"Synopsis The research problem This study examines whether international trade friction has an impact on firm disclosure tone. Motivation The past two decades have witnessed a large amount of trade friction worldwide. Under this background, the impact of trade friction on microenterprises is of great concern to researchers. Previous studies have shown that trade friction is related to firm operating or financial activities such as performance, investment, stock prices, loan financing, and employment. However, there are no published papers about how trade friction impacts the disclosure behaviors of firms subject to the friction. This study attempts to fill this void by investigating whether firms manage disclosure tone when they are subject to trade friction. The test hypotheses We test two competing hypotheses in this study. Our first hypothesis is that firms impacted by trade friction increase the positive tone of their information disclosure. Second, firms impacted by trade friction decrease the positive tone of their information disclosure. Target population This study should be of interest to firm managers, investors, creditors, and policy makers. Adopted methodology Ordinary least squares regressions and archival data. Analyses We conducted this study by using a sample of listed firms in China. Over the past two decades, China has been the world’s largest country subject to trade frictions. In addition, China’s weak institutional environment and language habit provide an ideal setting for this study. Firm disclosure tone is measured as the frequency difference between the positive and negative words scaled by total words in an annual report. We tested whether there is a positive/negative association between trade friction and firm disclosure tone. Findings We find that firms strategically increase their positive tone in annual reports when they are subject to trade friction. Further analyses reveal that the impact of trade friction on disclosure tone is more pronounced for smaller firms, firms with more financial constraints, and firms with less analyst following. In addition, this impact is attenuated when firms have stronger corporate governance. Finally, we show that using more positive tones help firms subject to trade friction improve short-term market valuation, obtain more bank loans, and have lower cost of debt.","PeriodicalId":506896,"journal":{"name":"The International Journal of Accounting","volume":" 5","pages":""},"PeriodicalIF":0.0,"publicationDate":"2023-11-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139197556","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}
Pub Date : 2023-11-27DOI: 10.1142/s1094406024500033
Yu-Lin Hsu, Ni-Yun Chen
Synopsis The research problem This paper examined whether firms’ decision to switch from the International Financial Reporting Standards (IFRS) to the new Generally Accepted Accounting Practice in the United Kingdom (New UK GAAP) affects their audit fees. Motivation The New UK GAAP was introduced by the UK regulators to enhance the comparability of financial reports and to reduce the high financial reporting costs associated with IFRS. We aimed to provide evidence on whether the reduced frameworks of IFRS, like the New UK GAAP, are a more cost-effective option. Furthermore, only very few studies analyzed the impact of abandoning IFRS on audit fees, and these found inconsistent results using the public firm data. We aimed to extend the current literature by using the private firm data. The test hypotheses Our first set of hypotheses considered whether the switch from IFRS to the New UK GAAP is associated with audit fees. Our second hypothesis tested whether there is a difference in any such association between larger and smaller firms. Target population We focused on the UK private (i.e., nonlisted) firms that have previously voluntarily adopted the IFRS. Adopted methodology We used regression analyses, difference-in-differences (DID) analyses, various matching methods for robustness, and analyses of firms’ financial reports. Analyses Using the UK private (i.e., nonlisted) firm data for the period 2014–2019, we examined the impact of switching from IFRS to the New UK GAAP on audit fees. The data for regression and DID analyses were obtained from the FAME database. We also downloaded the financial reports of two firms from Companies House to analyze the differences in their reports before and after the switch to the New UK GAAP. Findings We found that firms’ decision to switch from IFRS to the New UK GAAP significantly reduced their audit fees, with larger firms experiencing an additional reduction in their audit fees following the switch. Through examining the real examples of firms’ financial reports, we found consistent evidence that firms turning away from IFRS did take advantage of the disclosure exemptions contained within the New UK GAAP, resulting in reduced disclosure, which may explain the reduced audit fees. Overall, our findings suggest that using full IFRS may still be burdensome for the sampled firms that previously voluntarily adopted the IFRS. The findings also imply that an accounting standard consistent with IFRS but requiring less disclosure, such as the New UK GAAP or the IFRS for Small and Medium-sized Entities, may be welcomed by practitioners and represents a useful alternative for standard setters.
{"title":"The Reconsideration of IFRS Adoption and Audit Fees: Evidence from UK Private Firms","authors":"Yu-Lin Hsu, Ni-Yun Chen","doi":"10.1142/s1094406024500033","DOIUrl":"https://doi.org/10.1142/s1094406024500033","url":null,"abstract":"Synopsis The research problem This paper examined whether firms’ decision to switch from the International Financial Reporting Standards (IFRS) to the new Generally Accepted Accounting Practice in the United Kingdom (New UK GAAP) affects their audit fees. Motivation The New UK GAAP was introduced by the UK regulators to enhance the comparability of financial reports and to reduce the high financial reporting costs associated with IFRS. We aimed to provide evidence on whether the reduced frameworks of IFRS, like the New UK GAAP, are a more cost-effective option. Furthermore, only very few studies analyzed the impact of abandoning IFRS on audit fees, and these found inconsistent results using the public firm data. We aimed to extend the current literature by using the private firm data. The test hypotheses Our first set of hypotheses considered whether the switch from IFRS to the New UK GAAP is associated with audit fees. Our second hypothesis tested whether there is a difference in any such association between larger and smaller firms. Target population We focused on the UK private (i.e., nonlisted) firms that have previously voluntarily adopted the IFRS. Adopted methodology We used regression analyses, difference-in-differences (DID) analyses, various matching methods for robustness, and analyses of firms’ financial reports. Analyses Using the UK private (i.e., nonlisted) firm data for the period 2014–2019, we examined the impact of switching from IFRS to the New UK GAAP on audit fees. The data for regression and DID analyses were obtained from the FAME database. We also downloaded the financial reports of two firms from Companies House to analyze the differences in their reports before and after the switch to the New UK GAAP. Findings We found that firms’ decision to switch from IFRS to the New UK GAAP significantly reduced their audit fees, with larger firms experiencing an additional reduction in their audit fees following the switch. Through examining the real examples of firms’ financial reports, we found consistent evidence that firms turning away from IFRS did take advantage of the disclosure exemptions contained within the New UK GAAP, resulting in reduced disclosure, which may explain the reduced audit fees. Overall, our findings suggest that using full IFRS may still be burdensome for the sampled firms that previously voluntarily adopted the IFRS. The findings also imply that an accounting standard consistent with IFRS but requiring less disclosure, such as the New UK GAAP or the IFRS for Small and Medium-sized Entities, may be welcomed by practitioners and represents a useful alternative for standard setters.","PeriodicalId":506896,"journal":{"name":"The International Journal of Accounting","volume":"56 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2023-11-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139232504","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}
Pub Date : 2023-11-21DOI: 10.1142/s1094406024500045
Jing Huang, Bo Zhu
Synopsis The Research Problem This study examined whether and how top management team (TMT) fault lines formed by diversity and division affect stock price crash risk (hereafter, crash risk). Motivation Prior studies have documented how a single characteristic or the demographic diversity of managers affects real economic activities. However, TMT fault lines, formed by the structure of executives’ demographic diversity, remain untapped in crash risk research. Given the potential monopoly of the TMT on information, it is important to determine whether TMT fault lines influence the distribution of bad news. This study therefore explored how TMT fault lines reduce crash risk through the private leakage of bad news by subgroups and the moderating role of analysts in this process. The Test Hypotheses We hypothesized that firms with a strong TMT fault line have low stock price crash risk. Moreover, subgroups divided by TMT fault lines have a greater chance of leaking bad news when firms are followed by more analysts, thereby reducing the stock price crash risk to a greater extent. Target Population We examined 19,228 annual observations of Chinese publicly listed firms from 2008 to 2021. Adopted Methodology We applied ordinary least squares (OLS) regression and moderation analysis to our study. Analyses We evaluated the microgovernance factors affecting crash risk from a novel perspective — internal TMT conflict. First, we performed regression analysis on a sample of Chinese publicly listed firms to determine whether TMT fault lines reduce crash risk and the effect of analysts on this relationship. Second, we performed cross-sectional variation tests for the main regression. Finally, we investigated the effect of a CEO-CFO coalition on crash risk, given that the unequal status of subgroups may reduce the monitoring capacity of any subgroup in a weaker position. Findings We found that TMT task-related fault lines are negatively associated with crash risk and positively moderated by analysts. Meanwhile, the TMT biodemographic fault lines do not have a significant influence on crash risk. We also demonstrated that the monitoring effect of TMT task-related fault lines is stronger when external governance is weaker. Finally, additional analysis implies that the monitoring effect of a CEO-CFO coalition fault line remains effective, but this effect is weaker.
{"title":"Top Management Team Fault Lines and Stock Price Crash Risk: Evidence from China","authors":"Jing Huang, Bo Zhu","doi":"10.1142/s1094406024500045","DOIUrl":"https://doi.org/10.1142/s1094406024500045","url":null,"abstract":"Synopsis The Research Problem This study examined whether and how top management team (TMT) fault lines formed by diversity and division affect stock price crash risk (hereafter, crash risk). Motivation Prior studies have documented how a single characteristic or the demographic diversity of managers affects real economic activities. However, TMT fault lines, formed by the structure of executives’ demographic diversity, remain untapped in crash risk research. Given the potential monopoly of the TMT on information, it is important to determine whether TMT fault lines influence the distribution of bad news. This study therefore explored how TMT fault lines reduce crash risk through the private leakage of bad news by subgroups and the moderating role of analysts in this process. The Test Hypotheses We hypothesized that firms with a strong TMT fault line have low stock price crash risk. Moreover, subgroups divided by TMT fault lines have a greater chance of leaking bad news when firms are followed by more analysts, thereby reducing the stock price crash risk to a greater extent. Target Population We examined 19,228 annual observations of Chinese publicly listed firms from 2008 to 2021. Adopted Methodology We applied ordinary least squares (OLS) regression and moderation analysis to our study. Analyses We evaluated the microgovernance factors affecting crash risk from a novel perspective — internal TMT conflict. First, we performed regression analysis on a sample of Chinese publicly listed firms to determine whether TMT fault lines reduce crash risk and the effect of analysts on this relationship. Second, we performed cross-sectional variation tests for the main regression. Finally, we investigated the effect of a CEO-CFO coalition on crash risk, given that the unequal status of subgroups may reduce the monitoring capacity of any subgroup in a weaker position. Findings We found that TMT task-related fault lines are negatively associated with crash risk and positively moderated by analysts. Meanwhile, the TMT biodemographic fault lines do not have a significant influence on crash risk. We also demonstrated that the monitoring effect of TMT task-related fault lines is stronger when external governance is weaker. Finally, additional analysis implies that the monitoring effect of a CEO-CFO coalition fault line remains effective, but this effect is weaker.","PeriodicalId":506896,"journal":{"name":"The International Journal of Accounting","volume":"5 8","pages":""},"PeriodicalIF":0.0,"publicationDate":"2023-11-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139252309","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}
Pub Date : 2023-11-21DOI: 10.1142/s1094406024500021
Hsueh-Tien Lu, Hua Christine Xin
Synopsis The research problem Taiwanese stock markets practice a unique form of reporting frequency, combining quarterly interim financial reports with mandatory monthly sales announcements. This unique setting allows us to compare the information content of quarterly earnings that are announced before, bundled with, or announced after the monthly sales disclosures. Motivation Monthly sales disclosures likely contribute to the pricing of earnings announcements (EAs) by providing investors with valuable information that helps them revise their expectations when forecasting earnings and cash flows. We examine whether monthly sales disclosures help investors to process earnings information. The test hypotheses Our first hypothesis is that the immediate market response to earnings news is lower if the previous quarter’s EAs are disclosed after the reporting of monthly sales for the first month of the next quarter. Our second hypothesis is that the subsequent market response to earnings news is lower if the previous quarter’s EAs are disclosed after the reporting of monthly sales for the first month of the next quarter. Target population We studied a sample of Taiwanese listed firms from 2014 through 2018. Adopted methodology We used multivariate regressions to test the hypotheses. Analyses We examined the monthly sales disclosures for the first month of quarter [Formula: see text], which are released within the first 10 days of the second month of quarter [Formula: see text]. We analyze the pricing of the content of the earnings of quarter q, conditional on whether the earnings are released before, simultaneously with, or released after the monthly sales disclosures. Findings We found that earnings disclosed after the monthly sales news are associated with weaker EA returns and post-EA drift, relative to earnings disclosed before or bundled with the monthly sales news. These results suggest that monthly sales disclosures preempt the information content of late EAs. More importantly, we found that late EAs are associated with less positive correlation between EA returns and post-EA returns than early and bundled EAs. Overall, these results suggest that by providing timely sales information, monthly sales disclosures improve the information environment.
简介 研究问题 台湾股票市场采用一种独特的报告频率形式，将季度中期财务报告与强制性月度销售公告相结合。在这种独特的背景下，我们可以比较在月度销售信息披露之前、与之捆绑在一起或之后公布的季度收益的信息含量。动机 每月销售信息披露可能会为投资者提供有价值的信息，帮助他们在预测盈利和现金流时修正预期，从而有助于盈利公告（EA）的定价。我们将研究月度销售披露是否有助于投资者处理盈利信息。检验假设 我们的第一个假设是，如果在报告下一季度第一个月的月度销售额之后披露上一季度的 EA，则市场对盈利消息的即时反应会更低。我们的第二个假设是，如果在下一季度第一个月的月度销售额报告之后披露上一季度的企业经营活动，则市场对财报新闻的后续反应会更低。目标人群 我们研究了 2014 年至 2018 年的台湾上市公司样本。采用的方法 我们使用多元回归来检验假设。分析 我们研究了季度第一个月的月度销售信息披露[公式：见正文]，这些信息在季度第二个月的前 10 天内发布[公式：见正文]。我们分析了 q 季度收益内容的定价，条件是收益在月度销售披露之前、同时或之后发布。结果 我们发现，相对于在月度销售新闻之前或与月度销售新闻捆绑在一起披露的盈利，在月度销售新闻之后披露的盈利与较弱的 EA 回报和 EA 后漂移相关。这些结果表明，月度销售披露抢占了后期 EA 的信息内容。更重要的是，我们发现，与提前披露和捆绑披露的 EA 相比，晚披露的 EA 回报与 EA 后回报之间的正相关性较低。总体而言，这些结果表明，通过提供及时的销售信息，每月销售披露改善了信息环境。
{"title":"Mandatory Monthly Sales Disclosure and the Information Content of Earnings","authors":"Hsueh-Tien Lu, Hua Christine Xin","doi":"10.1142/s1094406024500021","DOIUrl":"https://doi.org/10.1142/s1094406024500021","url":null,"abstract":"Synopsis The research problem Taiwanese stock markets practice a unique form of reporting frequency, combining quarterly interim financial reports with mandatory monthly sales announcements. This unique setting allows us to compare the information content of quarterly earnings that are announced before, bundled with, or announced after the monthly sales disclosures. Motivation Monthly sales disclosures likely contribute to the pricing of earnings announcements (EAs) by providing investors with valuable information that helps them revise their expectations when forecasting earnings and cash flows. We examine whether monthly sales disclosures help investors to process earnings information. The test hypotheses Our first hypothesis is that the immediate market response to earnings news is lower if the previous quarter’s EAs are disclosed after the reporting of monthly sales for the first month of the next quarter. Our second hypothesis is that the subsequent market response to earnings news is lower if the previous quarter’s EAs are disclosed after the reporting of monthly sales for the first month of the next quarter. Target population We studied a sample of Taiwanese listed firms from 2014 through 2018. Adopted methodology We used multivariate regressions to test the hypotheses. Analyses We examined the monthly sales disclosures for the first month of quarter [Formula: see text], which are released within the first 10 days of the second month of quarter [Formula: see text]. We analyze the pricing of the content of the earnings of quarter q, conditional on whether the earnings are released before, simultaneously with, or released after the monthly sales disclosures. Findings We found that earnings disclosed after the monthly sales news are associated with weaker EA returns and post-EA drift, relative to earnings disclosed before or bundled with the monthly sales news. These results suggest that monthly sales disclosures preempt the information content of late EAs. More importantly, we found that late EAs are associated with less positive correlation between EA returns and post-EA returns than early and bundled EAs. Overall, these results suggest that by providing timely sales information, monthly sales disclosures improve the information environment.","PeriodicalId":506896,"journal":{"name":"The International Journal of Accounting","volume":"1 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2023-11-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139253357","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}
Pub Date : 2023-11-17DOI: 10.1142/s1094406024500069
Jianqun Xi, He Xiao
Synopsis The research problem This study examines the impact of chief executive officers (CEOs)’ early-life disaster experiences on corporate tax-avoidance behaviors and explores the mechanisms through which these experiences influence these behaviors. We use the Great Chinese Famine of 1959–1961 (hereafter the Great Famine) as an indicator of early-life disaster experience. Motivation or theoretical reasoning Our study is motivated by the following reasons. First, like many major economies worldwide, corporate income tax is an important source of tax revenue in China. The financial impact of corporate income tax on a country’s economy is enormous. Second, the Great Famine was one of the most destructive natural disasters in human history, which is likely to have a lifelong influence on CEOs who lived through the disaster as children and teenagers. Third, corporate tax strategy is a significant accounting, financing, and managerial behavior of firms that is influenced by multiple internal and external factors. However, there are limited findings on the impact of CEOs’ early-life disaster experience on corporate tax decisions. The consequences of this impact remain unclear. The test hypotheses We hypothesize that CEOs’ early-life famine experience mitigates corporate tax aggressiveness. We also consider the alternative hypothesis that CEOs’ early-life famine experience increases corporate tax aggressiveness. Target population Our sample includes Chinese listed firms from 2013 to 2020 led by CEOs who have or who do not have early-life disaster experiences. Adopted methodology We employed ordinary least square regressions in our analyses. Analyses Since the Great Famine occurred between 1959 and 1961, we considered CEOs to have experienced famine if they were born prior to or in the year 1961, in a province affected by the Great Famine (e.g., Hu et al. , 2020 ; Zhang , 2017 ). We identified a province as significantly affected by famine if its abnormal death rate was greater than the median abnormal death ratio of all Chinese provinces during the period of famine. Following Dyreng et al. ( 2010 ), Hoi et al. ( 2013 ), Koester et al. ( 2017 ), and Rego & Wilson ( 2012 ), we used effective tax rate as the first proxy of tax avoidance for a firm. Additionally, in line with Desai & Dharmapala ( 2006 ) and Hoi et al. ( 2013 ), we used the discretionary book-tax differences of firms as an alternative proxy to measure corporate tax avoidance. Findings The findings indicate that CEOs who experienced the Great Famine at a young age significantly reduced their firms’ tax-avoidance efforts. Furthermore, the negative association between CEOs’ early-life famine experiences and corporate tax-avoidance behaviors is more pronounced for companies with higher independent director ratios. These negative associations appear more obvious for firms with CEOs who experienced famine early in life and for females. The economic mechanism of the findings demonstrate that CEO
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