Abstract This paper studies the communication of “voice” in shareholder activism. Using hand-collected data, I investigate how the use of investor presentations, among other communication strategies, affects the outcomes of proxy contests. Being the first to make presentations to investors increases the dissident's chance of winning by 60%. To understand this first-mover advantage, I examine the allocation of investor attention and variation in investor sophistication. The evidence is consistent with an explanation of limited investor attention. The findings highlight the role of communication in corporate governance.
{"title":"Communications in Proxy Contests","authors":"Yazhou He","doi":"10.2139/ssrn.3284782","DOIUrl":"https://doi.org/10.2139/ssrn.3284782","url":null,"abstract":"Abstract This paper studies the communication of “voice” in shareholder activism. Using hand-collected data, I investigate how the use of investor presentations, among other communication strategies, affects the outcomes of proxy contests. Being the first to make presentations to investors increases the dissident's chance of winning by 60%. To understand this first-mover advantage, I examine the allocation of investor attention and variation in investor sophistication. The evidence is consistent with an explanation of limited investor attention. The findings highlight the role of communication in corporate governance.","PeriodicalId":7317,"journal":{"name":"Accounting","volume":" ","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-06-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46612972","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}
Analyzing the language styles of top executives using conference call transcripts, we find that the language style matching between the CEO and the CFO can predict CFO turnover. Using the CEO-CFO pair fixed effects, we find that the mimicry component of language style matching is negatively associated with CFO turnover. We also find that the effect is mitigated by better corporate governance mechanisms, suggesting that corporate decisions driven by social interactions could be a source of agency costs. The effect is also weaker for CFOs appointed by the current CEO.
{"title":"Language Style Matching and CFO Turnover","authors":"Yongqiang Chu, A. Liu","doi":"10.2139/ssrn.3859439","DOIUrl":"https://doi.org/10.2139/ssrn.3859439","url":null,"abstract":"Analyzing the language styles of top executives using conference call transcripts, we find that the language style matching between the CEO and the CFO can predict CFO turnover. Using the CEO-CFO pair fixed effects, we find that the mimicry component of language style matching is negatively associated with CFO turnover. We also find that the effect is mitigated by better corporate governance mechanisms, suggesting that corporate decisions driven by social interactions could be a source of agency costs. The effect is also weaker for CFOs appointed by the current CEO.","PeriodicalId":7317,"journal":{"name":"Accounting","volume":" 11","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-06-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41251951","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 investigates whether corporate culture of a firm impacts its tax shelter behavior. We use novel machine learning methodology to measure corporate culture of a firm. The analyses show that firms with stronger corporate culture are more likely to engage in tax shelter behavior and extent of such behavior is greater in these firms. The findings also suggest that firms with stronger corporate culture engage in greater tax avoidance, which is a less controversial corporate behavior compared to tax shelter activities. The results continue to hold when we implement battery of tests to address endogeneity issues (e.g., two-stage least squares methodology and difference-in-difference analysis). Finally, we determine that engaging in tax shelter behavior as a result of stronger corporate culture increases a firm’s after-tax earnings in future periods.
{"title":"Does Corporate Culture Impact Tax Behavior: Machine Learning Approach","authors":"S. Bonsall, Babak Mammadov, H. Vakilzadeh","doi":"10.2139/ssrn.3850478","DOIUrl":"https://doi.org/10.2139/ssrn.3850478","url":null,"abstract":"This study investigates whether corporate culture of a firm impacts its tax shelter behavior. We use novel machine learning methodology to measure corporate culture of a firm. The analyses show that firms with stronger corporate culture are more likely to engage in tax shelter behavior and extent of such behavior is greater in these firms. The findings also suggest that firms with stronger corporate culture engage in greater tax avoidance, which is a less controversial corporate behavior compared to tax shelter activities. The results continue to hold when we implement battery of tests to address endogeneity issues (e.g., two-stage least squares methodology and difference-in-difference analysis). Finally, we determine that engaging in tax shelter behavior as a result of stronger corporate culture increases a firm’s after-tax earnings in future periods.","PeriodicalId":7317,"journal":{"name":"Accounting","volume":" ","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-05-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44630472","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}
Abstract This study investigates whether a private firm’s decision to go public affects the IPO decisions of its competitors. Using detailed data from the drug development industry, we identify a private firm’s direct competitors at a precise level through a novel approach using similarity in drug development projects based on disease targets. The analysis shows that a private firm is significantly more likely to go public after observing the recent IPO of a direct competitor, and this effect is distinct from “hot” market effects or other common shocks. Furthermore, our effects are centered on firms that operate in more competitive areas. We additionally explore peer effects in private firm funding propensities more broadly, such as through venture capital or being acquired, and find results consistent with a competitive channel.
{"title":"IPO Peer Effects","authors":"Cyrus Aghamolla, Richard T. Thakor","doi":"10.2139/ssrn.3836954","DOIUrl":"https://doi.org/10.2139/ssrn.3836954","url":null,"abstract":"Abstract This study investigates whether a private firm’s decision to go public affects the IPO decisions of its competitors. Using detailed data from the drug development industry, we identify a private firm’s direct competitors at a precise level through a novel approach using similarity in drug development projects based on disease targets. The analysis shows that a private firm is significantly more likely to go public after observing the recent IPO of a direct competitor, and this effect is distinct from “hot” market effects or other common shocks. Furthermore, our effects are centered on firms that operate in more competitive areas. We additionally explore peer effects in private firm funding propensities more broadly, such as through venture capital or being acquired, and find results consistent with a competitive channel.","PeriodicalId":7317,"journal":{"name":"Accounting","volume":" ","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-04-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45489772","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}
There is no dearth of literature inquiring into the reasons for failure of strategic projects—major organization change efforts involving significant, irreversible commitment of resources. However, researchers have failed to go beyond blaming company managers, for example by observing that managers function in silos, protect own turf to the detriment of the project and escalate commitment to failing courses. Yet, in other situations, the same managers obtain excellent organizational outcomes. Thus, there is a need for inquiring into more distal causes of failure embedded in micro-level organizational arrangements. We study the failure of a strategic project by Burawoy’s extended case method. This approach applies reflexive science to ethnography to extract the general from the particular, facilitating a move from the micro to the macro level. We find that administrative tenets drawing from dominant management orthodoxies—setting direction and settling issues by fiat, rigorously metering accomplishment of organizational members to goals committed to ahead of time, and swift punishment upon deviation from commitments—give rise to dysfunctions that lead to failure of a strategic project. We offer practical advice to managers to help lower the risk of failure of a strategic project. We suggest that, in order to foster the level of coordination necessary in an organization-wide change project, it is necessary that internal and external stakeholders provide reassurance there shall be no sanctions when project goals morph over time as the organization progresses on the execution path through trial-and-error learning. Specifically, relaxation of near-term performance expectations is necessary.
{"title":"Why Do Strategic Projects Fail?","authors":"S. S. Chanda, Sougata Ray","doi":"10.2139/ssrn.3836325","DOIUrl":"https://doi.org/10.2139/ssrn.3836325","url":null,"abstract":"There is no dearth of literature inquiring into the reasons for failure of strategic projects—major organization change efforts involving significant, irreversible commitment of resources. However, researchers have failed to go beyond blaming company managers, for example by observing that managers function in silos, protect own turf to the detriment of the project and escalate commitment to failing courses. Yet, in other situations, the same managers obtain excellent organizational outcomes. Thus, there is a need for inquiring into more distal causes of failure embedded in micro-level organizational arrangements. We study the failure of a strategic project by Burawoy’s extended case method. This approach applies reflexive science to ethnography to extract the general from the particular, facilitating a move from the micro to the macro level. We find that administrative tenets drawing from dominant management orthodoxies—setting direction and settling issues by fiat, rigorously metering accomplishment of organizational members to goals committed to ahead of time, and swift punishment upon deviation from commitments—give rise to dysfunctions that lead to failure of a strategic project. We offer practical advice to managers to help lower the risk of failure of a strategic project. We suggest that, in order to foster the level of coordination necessary in an organization-wide change project, it is necessary that internal and external stakeholders provide reassurance there shall be no sanctions when project goals morph over time as the organization progresses on the execution path through trial-and-error learning. Specifically, relaxation of near-term performance expectations is necessary.","PeriodicalId":7317,"journal":{"name":"Accounting","volume":" ","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-04-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46130265","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}
B. Gardi, Pshdar Abdalla Hamza, Bawan Yassin Sabir, Hassan Mahmood Aziz, Sarhang Sorguli, Nabaz Nawzad Abdullah, F. Al-kake
Financial accounting reports plays a major role in keeping track of all financial transactions. The management decision-making relies on accounting information, including the income statement, and cash flow statement reports recorded in corporate financial statements. Each financial statement for publicly traded companies shall be created and reported to the Securities and Exchange Commission following the financial accounting standards established by the Financial Accounting Standard Board. This current study examines the impacts of financial accounting reporting on management decision-making in small and medium-sized companies in Iraq. The study also investigates the management's attitude towards capital allocation to identify whether it maximizes the effectiveness of the decision. For this purpose, cross-sectional data analysis was used, and the data was collected from 250 respondents from managers and employees working in SMEs through a structured questionnaire. The study indicates the effectiveness of managerial decisions is substantially influenced by the financial statement report. The other operational considerations such as company records, understandability of reports, and quality of the data have a major impact on the managerial decision of the SME firms. The study identified understandability, relevance, and quality of the financial reports mediates a positive correlation between financial accounting reports and managerial decisions.
{"title":"Investigating the Effects of Financial Accounting Reports on Managerial Decision Making in Small and Medium-sized Enterprises","authors":"B. Gardi, Pshdar Abdalla Hamza, Bawan Yassin Sabir, Hassan Mahmood Aziz, Sarhang Sorguli, Nabaz Nawzad Abdullah, F. Al-kake","doi":"10.2139/ssrn.3838226","DOIUrl":"https://doi.org/10.2139/ssrn.3838226","url":null,"abstract":"Financial accounting reports plays a major role in keeping track of all financial transactions. The management decision-making relies on accounting information, including the income statement, and cash flow statement reports recorded in corporate financial statements. Each financial statement for publicly traded companies shall be created and reported to the Securities and Exchange Commission following the financial accounting standards established by the Financial Accounting Standard Board. This current study examines the impacts of financial accounting reporting on management decision-making in small and medium-sized companies in Iraq. The study also investigates the management's attitude towards capital allocation to identify whether it maximizes the effectiveness of the decision. For this purpose, cross-sectional data analysis was used, and the data was collected from 250 respondents from managers and employees working in SMEs through a structured questionnaire. The study indicates the effectiveness of managerial decisions is substantially influenced by the financial statement report. The other operational considerations such as company records, understandability of reports, and quality of the data have a major impact on the managerial decision of the SME firms. The study identified understandability, relevance, and quality of the financial reports mediates a positive correlation between financial accounting reports and managerial decisions.","PeriodicalId":7317,"journal":{"name":"Accounting","volume":" ","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-04-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43662490","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 establish the presence of sizeable information externalities across firms listed on U.S. stock exchanges. To identify externalities, we use staggered non-marginal increases in disclosure at peer firms that are unaccompanied by changes in mandatory disclosure at focal firms. We find that a peer firm's mandatory disclosure improves the focal firm's trading liquidity directly by reducing information asymmetry and indirectly by crowding in both voluntary disclosure and analyst information production at the focal firm. Positive information externalities, and the complementarities they operate through, support regulators’ use of mandatory disclosure to improve the market-wide information environment.
{"title":"Information Externalities Among Listed Firms","authors":"Jae H. Kim, Alexander Ljungqvist","doi":"10.2139/ssrn.3804235","DOIUrl":"https://doi.org/10.2139/ssrn.3804235","url":null,"abstract":"We establish the presence of sizeable information externalities across firms listed on U.S. stock exchanges. To identify externalities, we use staggered non-marginal increases in disclosure at peer firms that are unaccompanied by changes in mandatory disclosure at focal firms. We find that a peer firm's mandatory disclosure improves the focal firm's trading liquidity directly by reducing information asymmetry and indirectly by crowding in both voluntary disclosure and analyst information production at the focal firm. Positive information externalities, and the complementarities they operate through, support regulators’ use of mandatory disclosure to improve the market-wide information environment.","PeriodicalId":7317,"journal":{"name":"Accounting","volume":" ","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-04-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43774227","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}
During the pandemic, companies have received various degrees of impact. Therefore, it has a social significance to discuss the influence factors of working capital management, allowing companies to better recover from the financial crisis. This paper compares the sector performances in terms of the working capital during the pandemic crisis first. Then, it analyzes the relationship between the working capital and the leverage ratio, the firm size, the revenue, and the capital expenditure during the whole dataset period and discusses the difference between the effects during the normal period and the pandemic period as well. It also finds the impacts of the same dependent variables on the payables turnover, receivables turnover, and inventory turnover to check the influences on the operation efficiency.
{"title":"Empirical Study on Influence Factors of Working Capital and Turnover Ratios","authors":"Ruoqing Han","doi":"10.2139/ssrn.3833039","DOIUrl":"https://doi.org/10.2139/ssrn.3833039","url":null,"abstract":"During the pandemic, companies have received various degrees of impact. Therefore, it has a social significance to discuss the influence factors of working capital management, allowing companies to better recover from the financial crisis. This paper compares the sector performances in terms of the working capital during the pandemic crisis first. Then, it analyzes the relationship between the working capital and the leverage ratio, the firm size, the revenue, and the capital expenditure during the whole dataset period and discusses the difference between the effects during the normal period and the pandemic period as well. It also finds the impacts of the same dependent variables on the payables turnover, receivables turnover, and inventory turnover to check the influences on the operation efficiency.","PeriodicalId":7317,"journal":{"name":"Accounting","volume":" ","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-04-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43382630","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 examines the effects of financial reporting quality on international trade. First, I conduct country-sector-level analyses and find that a one standard deviation increase in financial reporting quality in a country is associated with increases in manufacturing exports and imports of 4.2 and 3.5 percent, respectively. Second, I exploit a reporting regulation change in China and use administrative firm-level international trade data to conduct differences-in-differences analyses. The results show that treated firms export 15.1 percent more after the financial reporting reform. They also export to more countries and export more types of goods after the change. I provide evidence for two potential mechanisms for these effects: (i) that improved financial reporting decreases information asymmetry between trade partners and (ii) that it facilitates firms raising external capital. This paper extends understanding of the real economic effects of financial disclosure and provides a potential link between information transparency and global economic growth.
{"title":"Financial Reporting Quality and International Trade","authors":"Yuqing Zhou","doi":"10.2139/ssrn.3832915","DOIUrl":"https://doi.org/10.2139/ssrn.3832915","url":null,"abstract":"This paper examines the effects of financial reporting quality on international trade. First, I conduct country-sector-level analyses and find that a one standard deviation increase in financial reporting quality in a country is associated with increases in manufacturing exports and imports of 4.2 and 3.5 percent, respectively. Second, I exploit a reporting regulation change in China and use administrative firm-level international trade data to conduct differences-in-differences analyses. The results show that treated firms export 15.1 percent more after the financial reporting reform. They also export to more countries and export more types of goods after the change. I provide evidence for two potential mechanisms for these effects: (i) that improved financial reporting decreases information asymmetry between trade partners and (ii) that it facilitates firms raising external capital. This paper extends understanding of the real economic effects of financial disclosure and provides a potential link between information transparency and global economic growth.","PeriodicalId":7317,"journal":{"name":"Accounting","volume":" ","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-04-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42238295","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 examines the association between changes of the audit committee (AC) chair on audit quality and audit fees. We find that changes of the AC chair are negatively associated with audit quality. This finding indicates that firm-specific knowledge and task-related experience have an impact on audit quality. Furthermore, AC chair changes are positively associated with audit fees. Specifically, audit fees are approximately 7.14 percent higher following a change of the AC chair. However, our analyses show that our findings depend on the accounting experience of the former AC chair. Thus, if the former AC chair has no accounting experience, the negative effect of AC chair changes on audit quality turns insignificant, which indicates that former AC chair’s firm-specific knowledge and task-related experience only improve the effectiveness of the AC when the former AC chair has simultaneously accounting expertise. This result highlights the importance of accounting expertise for AC chair´s monitoring effectiveness. Similarly, if the former AC chair has accounting experience, the effect on audit fees turns insignificant. We, therefore, conclude that new AC chairs are aware of the supervisory shortcomings of former AC chairs without accounting expertise, and, thus, demand a greater degree of audit procedures from the external auditor resulting in higher audit fees. However, it appears that the extension of audit procedures cannot compensate for the monitoring shortcomings associated with the change of the AC chair and, thus, for the decrease of audit quality.
{"title":"Changing the Audit Committee Chair: An Analysis of Potential Effects on Audit Quality and Audit Fees","authors":"Svenja Hillebrandt, Nicole V. S. Ratzinger‐Sakel","doi":"10.2139/ssrn.3832072","DOIUrl":"https://doi.org/10.2139/ssrn.3832072","url":null,"abstract":"This paper examines the association between changes of the audit committee (AC) chair on audit quality and audit fees. We find that changes of the AC chair are negatively associated with audit quality. This finding indicates that firm-specific knowledge and task-related experience have an impact on audit quality. Furthermore, AC chair changes are positively associated with audit fees. Specifically, audit fees are approximately 7.14 percent higher following a change of the AC chair. However, our analyses show that our findings depend on the accounting experience of the former AC chair. Thus, if the former AC chair has no accounting experience, the negative effect of AC chair changes on audit quality turns insignificant, which indicates that former AC chair’s firm-specific knowledge and task-related experience only improve the effectiveness of the AC when the former AC chair has simultaneously accounting expertise. This result highlights the importance of accounting expertise for AC chair´s monitoring effectiveness. Similarly, if the former AC chair has accounting experience, the effect on audit fees turns insignificant. We, therefore, conclude that new AC chairs are aware of the supervisory shortcomings of former AC chairs without accounting expertise, and, thus, demand a greater degree of audit procedures from the external auditor resulting in higher audit fees. However, it appears that the extension of audit procedures cannot compensate for the monitoring shortcomings associated with the change of the AC chair and, thus, for the decrease of audit quality.","PeriodicalId":7317,"journal":{"name":"Accounting","volume":" ","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-04-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47302077","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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