Bernard Black, Charles K. Whitehead, Jennifer Mitchell Coupland
{"title":"The Nonprime Mortgage Crisis and\u0000 Positive Feedback Lending","authors":"Bernard Black, Charles K. Whitehead, Jennifer Mitchell Coupland","doi":"10.1561/108.00000019","DOIUrl":"https://doi.org/10.1561/108.00000019","url":null,"abstract":"","PeriodicalId":51955,"journal":{"name":"Journal of Law Finance and Accounting","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2018-05-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1561/108.00000019","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49001196","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}
Post-merger appraisal rights have been the focus of heated controversy within mergers and acquisitions circles in recent years. Traditionally perceived as an arcane and cabalistic proceeding, the appraisal action has recently come to occupy center stage through the ascendancy of appraisal arbitrage-whereby investors purchase target-company shares shortly after an announcement principally to pursue appraisal. Such strategies became more feasible and profitable a decade ago, on the heels of two seemingly technocratic reforms in Delaware: (i) the statutory codification of prejudgment interest, pegging a presumptive rate at five percent above the federal discount rate; and (ii) the Transkaryotic opinion, which effectively sanctified appraisal claims trading. Several commentators have decried appraisal arbitrage as visiting unnecessary risks and costs on deal certainty and pricing, advancing the position that it reduces / destroys target shareholder value. This paper interrogates such claims both theoretically and empirically, testing the predictions of an auction-design model that assesses appraisal's price and welfare effects. We find-consistent with comparative statics of our model-that the appraisal-liberalizing events of 2007 were associated with a significant increase in deal premia, as the enhanced credibility of appraisal had the effect of raising the de facto "reserve price" associated with M&A auctions. We further find little evidence that liberalized appraisal rights stifled the incidence of appraisal eligible deals. When interpreted through the lens of our auction-design model, our findings suggest that target-company shareholders likely benefited ex ante from liberalized appraisal, regardless of whether they subsequently sought appraisal or not.
{"title":"Appraisal Arbitrage and\u0000 Shareholder Value","authors":"Scott Callahan, Darius N Palia, Eric L. Talley","doi":"10.2139/SSRN.3067491","DOIUrl":"https://doi.org/10.2139/SSRN.3067491","url":null,"abstract":"Post-merger appraisal rights have been the focus of heated controversy within mergers and acquisitions circles in recent years. Traditionally perceived as an arcane and cabalistic proceeding, the appraisal action has recently come to occupy center stage through the ascendancy of appraisal arbitrage-whereby investors purchase target-company shares shortly after an announcement principally to pursue appraisal. Such strategies became more feasible and profitable a decade ago, on the heels of two seemingly technocratic reforms in Delaware: (i) the statutory codification of prejudgment interest, pegging a presumptive rate at five percent above the federal discount rate; and (ii) the Transkaryotic opinion, which effectively sanctified appraisal claims trading. Several commentators have decried appraisal arbitrage as visiting unnecessary risks and costs on deal certainty and pricing, advancing the position that it reduces / destroys target shareholder value. This paper interrogates such claims both theoretically and empirically, testing the predictions of an auction-design model that assesses appraisal's price and welfare effects. We find-consistent with comparative statics of our model-that the appraisal-liberalizing events of 2007 were associated with a significant increase in deal premia, as the enhanced credibility of appraisal had the effect of raising the de facto \"reserve price\" associated with M&A auctions. We further find little evidence that liberalized appraisal rights stifled the incidence of appraisal eligible deals. When interpreted through the lens of our auction-design model, our findings suggest that target-company shareholders likely benefited ex ante from liberalized appraisal, regardless of whether they subsequently sought appraisal or not.","PeriodicalId":51955,"journal":{"name":"Journal of Law Finance and Accounting","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2018-03-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44020455","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 find that senior loan lender control is positively associated with the corporate bond yield spread at issuance. A one standard deviation change in covenant intensity on a firm’s strictest loan is associated with a 20 basis points (bps) increase in its bond yield spread. The effect is more pronounced for issuers whose bondholders are dispersed or have weak shareholder presence. Our identification primarily relies on using lender-specific shocks as an instrument. Our results suggest that bondholders negatively price senior loan lender control rights outside of financial distress, despite the monitoring benefits they may provide.
{"title":"Senior Lender Control: Monitoring\u0000 Spillover or Creditor Conflict?","authors":"Bo Li, Lynnette D. Purda, Wei Wang","doi":"10.1561/108.00000031","DOIUrl":"https://doi.org/10.1561/108.00000031","url":null,"abstract":"We find that senior loan lender control is positively associated with the corporate bond yield spread at issuance. A one standard deviation change in covenant intensity on a firm’s strictest loan is associated with a 20 basis points (bps) increase in its bond yield spread. The effect is more pronounced for issuers whose bondholders are dispersed or have weak shareholder presence. Our identification primarily relies on using lender-specific shocks as an instrument. Our results suggest that bondholders negatively price senior loan lender control rights outside of financial distress, despite the monitoring benefits they may provide.","PeriodicalId":51955,"journal":{"name":"Journal of Law Finance and Accounting","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2018-01-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1561/108.00000031","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49330239","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 investigate the effectiveness of regulatory oversight exercised by the SEC against auditors over the years 1996-2009. The evidence suggests that the SEC is significantly less likely to name a Big N auditor as a defendant, after controlling for both the severity of the violation and for the characteristics of companies more likely to be audited by Big N auditors. Further, when the SEC does charge Big N auditors, the SEC (i) is less likely to impose harsher penalties on the Big N; and (ii) is less likely to name a Big N audit firm relative to individual Big N partners. Moreover, the SEC relies overwhelmingly on administrative proceedings, instead of the tougher civil proceedings, against auditors. One interpretation of these patterns is that the SEC’s enforcement against auditors is relatively mild. Other interpretations of these results are also discussed. Though private litigation against auditors is associated with a loss of market share for the auditor, there is no evidence of such product market penalty subsequent to SEC action. We thank our respective schools and the Goizueta Business School for financial support. We are thankful to Chang Wook Lee and Haitao Tu for excellent research assistance. We would like to thank Jonathan Karpoff, Scott Lee and Gerald Martin for graciously sharing their SEC enforcement data. Cornerstone Research and Stanford Law School provided the data on securities class actions. We acknowledge helpful comments from participants at the 2014 CELS conference, the 2014 University of Illinois audit symposium, Zoe-vanna Palmrose and Jill Fisch (discussants), Jieying Zhang, Monika Causholli, Kathryn Kadous, Stephen Penman and workshop participants at the University of Mississippi, University of Texas at Dallas and Columbia Business School Brown Bag. The views expressed in this paper are ours and do not represent in any way the views of Cornerstone Research or Stanford Law School. Also, all errors are ours.
{"title":"The SEC’s Enforcement Record against\u0000 Auditors","authors":"Simi Kedia, U. Khan, Shivaram Rajgopal","doi":"10.1561/108.00000029","DOIUrl":"https://doi.org/10.1561/108.00000029","url":null,"abstract":"We investigate the effectiveness of regulatory oversight exercised by the SEC against auditors over the years 1996-2009. The evidence suggests that the SEC is significantly less likely to name a Big N auditor as a defendant, after controlling for both the severity of the violation and for the characteristics of companies more likely to be audited by Big N auditors. Further, when the SEC does charge Big N auditors, the SEC (i) is less likely to impose harsher penalties on the Big N; and (ii) is less likely to name a Big N audit firm relative to individual Big N partners. Moreover, the SEC relies overwhelmingly on administrative proceedings, instead of the tougher civil proceedings, against auditors. One interpretation of these patterns is that the SEC’s enforcement against auditors is relatively mild. Other interpretations of these results are also discussed. Though private litigation against auditors is associated with a loss of market share for the auditor, there is no evidence of such product market penalty subsequent to SEC action. We thank our respective schools and the Goizueta Business School for financial support. We are thankful to Chang Wook Lee and Haitao Tu for excellent research assistance. We would like to thank Jonathan Karpoff, Scott Lee and Gerald Martin for graciously sharing their SEC enforcement data. Cornerstone Research and Stanford Law School provided the data on securities class actions. We acknowledge helpful comments from participants at the 2014 CELS conference, the 2014 University of Illinois audit symposium, Zoe-vanna Palmrose and Jill Fisch (discussants), Jieying Zhang, Monika Causholli, Kathryn Kadous, Stephen Penman and workshop participants at the University of Mississippi, University of Texas at Dallas and Columbia Business School Brown Bag. The views expressed in this paper are ours and do not represent in any way the views of Cornerstone Research or Stanford Law School. Also, all errors are ours.","PeriodicalId":51955,"journal":{"name":"Journal of Law Finance and Accounting","volume":"1 1","pages":""},"PeriodicalIF":0.9,"publicationDate":"2018-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1561/108.00000029","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"67077661","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}
Hsihui Chang, Xin Chen, Agnes C. S. Cheng, Nan Zhou
The China Securities Regulatory Commission (CSRC) launched the Campaign for Strengthening Corporate Governance of Public Companies in 2007. As part of this pilot program, public firms were required to report to CSRC whether their boards had established audit committees and whether these audit committees operated effectively. Using this unique one-time regulatory event in China, we examine whether it is informative for firms to certify the effectiveness of their audit committees. Through analyzing hand-collected data from the campaign reports filed with CSRC, we find that firms with certified audit committee effectiveness are associated with less earnings management and are less likely to have modified audit opinions and delayed filings. Thus, our findings suggest that certification of audit committee effectiveness provides a firm an opportunity to credibly signal that its audit committee functions in substance rather than in appearance.
{"title":"Certification of Audit Committee Effectiveness: Evidence from a One-Time Regulatory Event in China","authors":"Hsihui Chang, Xin Chen, Agnes C. S. Cheng, Nan Zhou","doi":"10.2139/ssrn.2917356","DOIUrl":"https://doi.org/10.2139/ssrn.2917356","url":null,"abstract":"The China Securities Regulatory Commission (CSRC) launched the Campaign for Strengthening Corporate Governance of Public Companies in 2007. As part of this pilot program, public firms were required to report to CSRC whether their boards had established audit committees and whether these audit committees operated effectively. Using this unique one-time regulatory event in China, we examine whether it is informative for firms to certify the effectiveness of their audit committees. Through analyzing hand-collected data from the campaign reports filed with CSRC, we find that firms with certified audit committee effectiveness are associated with less earnings management and are less likely to have modified audit opinions and delayed filings. Thus, our findings suggest that certification of audit committee effectiveness provides a firm an opportunity to credibly signal that its audit committee functions in substance rather than in appearance.","PeriodicalId":51955,"journal":{"name":"Journal of Law Finance and Accounting","volume":"20 1","pages":""},"PeriodicalIF":0.9,"publicationDate":"2017-02-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"78724498","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}
In order to determine the market reaction to an announcement of a change in the audit firm, we carry on an event study between 2004 and 2013 that includes 130 publicly traded Chilean Companies. We find that the market reacted positively when a company announced that it will keep its audit firm that year. We rule out possible biases in the informational content of the event. This suggests that overall, the costs associated to a change of an audit firm (start-up cost and know how loss) would dominate the benefits of the same change (reduction in the probability of a value destroying event such as a fraud or an error). We discuss the implications of this result for the potential implementation of a rule of mandatory rotation in a developing country such as Chile. We also discuss the possibility of identifying the specific costs and benefits behind the audit firm change.
{"title":"The Effects of Audit Firms Rotation: An Event Study in Chile","authors":"A. Aninat, Álvaro E. Bustos, Julio Riutort","doi":"10.2139/ssrn.2548040","DOIUrl":"https://doi.org/10.2139/ssrn.2548040","url":null,"abstract":"In order to determine the market reaction to an announcement of a change in the audit firm, we carry on an event study between 2004 and 2013 that includes 130 publicly traded Chilean Companies. We find that the market reacted positively when a company announced that it will keep its audit firm that year. We rule out possible biases in the informational content of the event. This suggests that overall, the costs associated to a change of an audit firm (start-up cost and know how loss) would dominate the benefits of the same change (reduction in the probability of a value destroying event such as a fraud or an error). We discuss the implications of this result for the potential implementation of a rule of mandatory rotation in a developing country such as Chile. We also discuss the possibility of identifying the specific costs and benefits behind the audit firm change.","PeriodicalId":51955,"journal":{"name":"Journal of Law Finance and Accounting","volume":"30 1","pages":""},"PeriodicalIF":0.9,"publicationDate":"2016-07-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"74806880","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 paper considers the legal liability regime for financial advisors, namely certified public accountants and auditors, in Singapore and Australia. Examination of the comparative aspects in which lawsuits against financial advisors are commenced provided an analysis of the legal and commercial environment and the regulatory regimes of the two jurisdictions considered. Information was collected from a wide range of sources including articles, texts, government reports and professional body publications. The main basis of the paper however, was a detailed analysis of a number of court cases in Singapore and Australia. A qualitative, legal case-study method was used to meet the following objectives: (i) description of background information for the lawsuit, (ii) explanation of information collected, and (iii) analysis of the information in the context of the research topic. After a wide search on a number of different legal databases in Australia and Singapore, eleven and eight relevant cases were chosen from each jurisdiction respectively. The case analysis was conducted to develop an understanding of the complex reasons that initiated the litigation process against the professional accountant or auditor where many variables are not quantifiable and actual causes for legal action significantly vary from one case to the other. These cases were evaluated to consider a range of issues including the court jurisdiction, main issues contributing to the litigation, types of alleged errors and findings of liability. Consequently it appeared that even though the two countries have similar regulatory regimes for financial advisors, there were a surprising range of differences in the legal and commercial environment in which claims were brought by parties. These differences highlighted the positive and negative aspects of the varying approaches and allowed the paper to make a range of recommendations for Australia, Singapore and the accounting profession at large. These recommendations include a strict approach to legal liability for advisors, enacting measures to limit the liability of advisors and the requirement and importance of good corporate governance approaches.
{"title":"Financial Statement and Auditing Errors Associated with the Lawsuits Against Public Accountants in Australia and Singapore","authors":"P. Rajapakse, J. Gardner","doi":"10.2139/ssrn.2426453","DOIUrl":"https://doi.org/10.2139/ssrn.2426453","url":null,"abstract":"This paper considers the legal liability regime for financial advisors, namely certified public accountants and auditors, in Singapore and Australia. Examination of the comparative aspects in which lawsuits against financial advisors are commenced provided an analysis of the legal and commercial environment and the regulatory regimes of the two jurisdictions considered. Information was collected from a wide range of sources including articles, texts, government reports and professional body publications. The main basis of the paper however, was a detailed analysis of a number of court cases in Singapore and Australia. A qualitative, legal case-study method was used to meet the following objectives: (i) description of background information for the lawsuit, (ii) explanation of information collected, and (iii) analysis of the information in the context of the research topic. After a wide search on a number of different legal databases in Australia and Singapore, eleven and eight relevant cases were chosen from each jurisdiction respectively. The case analysis was conducted to develop an understanding of the complex reasons that initiated the litigation process against the professional accountant or auditor where many variables are not quantifiable and actual causes for legal action significantly vary from one case to the other. These cases were evaluated to consider a range of issues including the court jurisdiction, main issues contributing to the litigation, types of alleged errors and findings of liability. Consequently it appeared that even though the two countries have similar regulatory regimes for financial advisors, there were a surprising range of differences in the legal and commercial environment in which claims were brought by parties. These differences highlighted the positive and negative aspects of the varying approaches and allowed the paper to make a range of recommendations for Australia, Singapore and the accounting profession at large. These recommendations include a strict approach to legal liability for advisors, enacting measures to limit the liability of advisors and the requirement and importance of good corporate governance approaches.","PeriodicalId":51955,"journal":{"name":"Journal of Law Finance and Accounting","volume":"96 1","pages":""},"PeriodicalIF":0.9,"publicationDate":"2013-12-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85300483","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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