In 1995 Congress passed the Private Securities Litigation Reform Act (PSLRA), which grants public companies a safe harbor from liability for forward-looking statements (FLS). Because investors cannot reasonably assess the legitimacy of forward-looking information for initial public offerings (IPOs), these companies are excluded from the act’s provision. However, companies that go public through a special acquisition company (SPAC) are defined as merger targets of an already-public firm, and as such, their FLS are protected under the PSLRA safe harbor. In this paper, we offer the first large-scale study on revenue forecasts disclosed in investor presentations given by SPAC targets. We document a positive association between the compound annual growth rate (CAGR) in projected revenue and both market returns and abnormal retail trading during the five-day event window around the investor presentation. We also show that higher revenue growth projections are more likely to be optimistically biased and that firms with higher projections tend to underperform comparable firms during the two-year span following the SPAC merger. Overall, our results attest to the recent concerns expressed by both the SEC and the financial press, that SPAC firms’ aggressive revenue projections compel retail investors, who end up faring worse on their investment.
{"title":"Should SPAC Forecasts be Sacked?","authors":"Michael Dambra, Omri Even-Tov, Kimberlyn George","doi":"10.2139/ssrn.3933037","DOIUrl":"https://doi.org/10.2139/ssrn.3933037","url":null,"abstract":"In 1995 Congress passed the Private Securities Litigation Reform Act (PSLRA), which grants public companies a safe harbor from liability for forward-looking statements (FLS). Because investors cannot reasonably assess the legitimacy of forward-looking information for initial public offerings (IPOs), these companies are excluded from the act’s provision. However, companies that go public through a special acquisition company (SPAC) are defined as merger targets of an already-public firm, and as such, their FLS are protected under the PSLRA safe harbor. In this paper, we offer the first large-scale study on revenue forecasts disclosed in investor presentations given by SPAC targets. We document a positive association between the compound annual growth rate (CAGR) in projected revenue and both market returns and abnormal retail trading during the five-day event window around the investor presentation. We also show that higher revenue growth projections are more likely to be optimistically biased and that firms with higher projections tend to underperform comparable firms during the two-year span following the SPAC merger. Overall, our results attest to the recent concerns expressed by both the SEC and the financial press, that SPAC firms’ aggressive revenue projections compel retail investors, who end up faring worse on their investment.","PeriodicalId":7317,"journal":{"name":"Accounting","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-09-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49289826","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}
Shareholder activism is now an important global phenomenon. We use a sample of nearly 7,000 activist shareholder campaigns across 56 countries to address two principal research questions related to the rise of activism. First, we develop a measure of corporate governance regulation that captures the extent to which a country’s laws facilitate minority-shareholder engagement, a necessary condition for successful intervention, and show that our measure explains cross-country variation in the emergence of activism. Second, we exploit changes in these regulations to examine how an increase in the threat of activism affects corporate outcomes, both for targeted firms and for firms not explicitly targeted by activists. Our evidence suggests that regulatory changes that facilitate investor activism result in increased profitability, higher payouts, and reduced investments. These effects are concentrated in countries where the preexisting governance regulations are weaker and the pre-law-change level of activism was relatively low.
{"title":"Importing Activists: Determinants and Consequences of Increased Cross-border Shareholder Activism","authors":"Mark Maffett, Anya Nakhmurina, Douglas J. Skinner","doi":"10.2139/ssrn.3721680","DOIUrl":"https://doi.org/10.2139/ssrn.3721680","url":null,"abstract":"Shareholder activism is now an important global phenomenon. We use a sample of nearly 7,000 activist shareholder campaigns across 56 countries to address two principal research questions related to the rise of activism. First, we develop a measure of corporate governance regulation that captures the extent to which a country’s laws facilitate minority-shareholder engagement, a necessary condition for successful intervention, and show that our measure explains cross-country variation in the emergence of activism. Second, we exploit changes in these regulations to examine how an increase in the threat of activism affects corporate outcomes, both for targeted firms and for firms not explicitly targeted by activists. Our evidence suggests that regulatory changes that facilitate investor activism result in increased profitability, higher payouts, and reduced investments. These effects are concentrated in countries where the preexisting governance regulations are weaker and the pre-law-change level of activism was relatively low.","PeriodicalId":7317,"journal":{"name":"Accounting","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-09-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48821700","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}
Judson Caskey, Kanyuan (Kevin) Huang, Daniel Saavedra
We study the voting rules to modify, amend, and renegotiate syndicated loan contracts. We base our hypotheses on a model that shows how amendment thresholds can mitigate agency conflicts within the lending syndicate. Consistent with our model predictions, we find that voting rules are more lenient when the lead lender has prior syndicate relationships with non-lead lenders and when the borrower has high default risk. We also find that voting rules are more stringent when the lead lender has a prior underwriting relationship with the borrower, which may indicate potential conflicts of interest between the lead and non-lead lenders. Lastly, we show that loan amendment thresholds are negatively associated with future loan amendments, and positively associated with capital covenants.
{"title":"Amendment thresholds and voting rules in debt contracts","authors":"Judson Caskey, Kanyuan (Kevin) Huang, Daniel Saavedra","doi":"10.2139/ssrn.3922893","DOIUrl":"https://doi.org/10.2139/ssrn.3922893","url":null,"abstract":"We study the voting rules to modify, amend, and renegotiate syndicated loan contracts. We base our hypotheses on a model that shows how amendment thresholds can mitigate agency conflicts within the lending syndicate. Consistent with our model predictions, we find that voting rules are more lenient when the lead lender has prior syndicate relationships with non-lead lenders and when the borrower has high default risk. We also find that voting rules are more stringent when the lead lender has a prior underwriting relationship with the borrower, which may indicate potential conflicts of interest between the lead and non-lead lenders. Lastly, we show that loan amendment thresholds are negatively associated with future loan amendments, and positively associated with capital covenants.","PeriodicalId":7317,"journal":{"name":"Accounting","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-09-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46641749","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}
Article about the concept of materiality and its interpretation when determining the company's tax (reporting) strategy in the context of its ESG policy. The concrete interpretation of the concept of materiality is currently an important point of discussion in the development of European Sustainability Reporting Standards (ESRS) by the European Commission and the development of Sustainability Standards by the IFRS Foundation. It also discusses general developments in the international ESG landscape and the various initiatives regarding ESG reporting standards. These will be placed in the context of the (possible) consequences for corporate tax policy and reporting strategies.
{"title":"The Fiscal Materiality Principle","authors":"Bronte Klein, Eelco van der Enden","doi":"10.2139/ssrn.3946441","DOIUrl":"https://doi.org/10.2139/ssrn.3946441","url":null,"abstract":"Article about the concept of materiality and its interpretation when determining the company's tax (reporting) strategy in the context of its ESG policy. The concrete interpretation of the concept of materiality is currently an important point of discussion in the development of European Sustainability Reporting Standards (ESRS) by the European Commission and the development of Sustainability Standards by the IFRS Foundation. It also discusses general developments in the international ESG landscape and the various initiatives regarding ESG reporting standards. These will be placed in the context of the (possible) consequences for corporate tax policy and reporting strategies.","PeriodicalId":7317,"journal":{"name":"Accounting","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46776493","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 this paper, we demonstrate that the mandatory disclosure of data breaches may have an unintended consequence: the distortion of firms’ real business activities. We employ the staggered adoption of data breach disclosure laws across various U.S. states to show that such mandatory disclosure exacerbates firms’ real earnings manipulation multidimensional through twisting production costs, discretionary expenses, and cash flow from operations. The main effect is more pronounced for firms of which the outbreak of data breaches is more of a concern and under stronger short-term market pressures. Furthermore, the adoption of such laws is associated with higher stock price crash risk and fewer patenting activities. Overall, our findings reveal possible unintended real effects of certain laws oriented at protecting customers through mitigating information opacity.
{"title":"Ordeal by Innocence in the Big-data Era: Intended Data Breach Disclosure, Unintended Real Activities Manipulation","authors":"Jinyu Liu, Xiaoran Ni","doi":"10.2139/ssrn.3716048","DOIUrl":"https://doi.org/10.2139/ssrn.3716048","url":null,"abstract":"In this paper, we demonstrate that the mandatory disclosure of data breaches may have an unintended consequence: the distortion of firms’ real business activities. We employ the staggered adoption of data breach disclosure laws across various U.S. states to show that such mandatory disclosure exacerbates firms’ real earnings manipulation multidimensional through twisting production costs, discretionary expenses, and cash flow from operations. The main effect is more pronounced for firms of which the outbreak of data breaches is more of a concern and under stronger short-term market pressures. Furthermore, the adoption of such laws is associated with higher stock price crash risk and fewer patenting activities. Overall, our findings reveal possible unintended real effects of certain laws oriented at protecting customers through mitigating information opacity.","PeriodicalId":7317,"journal":{"name":"Accounting","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-08-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"68628328","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 study how common ownership among potential acquirers influences the firm selling process. We find that, when potential acquirers share a common owner, the target firm is more likely to be sold through auction rather than negotiation with a single acquirer. The presence of common owner does not affect the firm’s selling price. The results are robust to alternative model specifications and are causal according to the instrumental variable analysis based on mergers between financial institutions. Our findings are consistent with the governance-enhancing role of common owners but inconsistent with the information-sharing and anti-competitive roles.
{"title":"How Are Firms Sold? The Role of Common Ownership","authors":"M. Irani, Wenhao Yang, Feng Zhang","doi":"10.2139/ssrn.3461284","DOIUrl":"https://doi.org/10.2139/ssrn.3461284","url":null,"abstract":"We study how common ownership among potential acquirers influences the firm selling process. We find that, when potential acquirers share a common owner, the target firm is more likely to be sold through auction rather than negotiation with a single acquirer. The presence of common owner does not affect the firm’s selling price. The results are robust to alternative model specifications and are causal according to the instrumental variable analysis based on mergers between financial institutions. Our findings are consistent with the governance-enhancing role of common owners but inconsistent with the information-sharing and anti-competitive roles.","PeriodicalId":7317,"journal":{"name":"Accounting","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-08-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"68595571","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}
William J. Bazley, Emily Kim, Felix Meschke, Kevin Pisciotta
Prior research documents that analyst revisions are important information events and that some investors trade ahead of them. However, prior studies have been unable to show which investors trade ahead of analyst revisions, the aggregate benefits to trading ahead, and the costs borne by various investors from trading against investors that anticipate revisions. To address these questions, we exploit high-frequency trading information from the Korea Exchange (KRX) that characterizes all purchase and sale transactions of twenty different investor groups. We first validate that analyst revisions contain valuable private information: upgrades increase prices by 2.5% and downgrades decrease prices by 2.9%. We next document that asset managers who are geographically and socially close to analysts anticipate recommendations up to two days before they are released, while other institutions do not. Lastly, we show that this ability to anticipate analyst revisions enables these investors to trade profitably against domestic retail investors and foreign professional investors. Local hedge funds earn $2.5 million more than normal when trading against foreign professionals ahead of analyst revisions, which is more than all other investor groups combined. Notably, local asset managers typically lose money when trading against foreign professionals, who seem to earn profits by engaging in high-frequency market making. In sum, asset managers in Korea appear to receive tips from brokerages about upcoming revisions, which shifts the competitive balance between domestic institutions and skilled foreign market makers, and aggregate profits around revisions depend on investor sophistication, geographic proximity, and cultural affinity.
{"title":"Tipping in Korea","authors":"William J. Bazley, Emily Kim, Felix Meschke, Kevin Pisciotta","doi":"10.2139/ssrn.3907182","DOIUrl":"https://doi.org/10.2139/ssrn.3907182","url":null,"abstract":"Prior research documents that analyst revisions are important information events and that some investors trade ahead of them. However, prior studies have been unable to show which investors trade ahead of analyst revisions, the aggregate benefits to trading ahead, and the costs borne by various investors from trading against investors that anticipate revisions. To address these questions, we exploit high-frequency trading information from the Korea Exchange (KRX) that characterizes all purchase and sale transactions of twenty different investor groups. We first validate that analyst revisions contain valuable private information: upgrades increase prices by 2.5% and downgrades decrease prices by 2.9%. We next document that asset managers who are geographically and socially close to analysts anticipate recommendations up to two days before they are released, while other institutions do not. Lastly, we show that this ability to anticipate analyst revisions enables these investors to trade profitably against domestic retail investors and foreign professional investors. Local hedge funds earn $2.5 million more than normal when trading against foreign professionals ahead of analyst revisions, which is more than all other investor groups combined. Notably, local asset managers typically lose money when trading against foreign professionals, who seem to earn profits by engaging in high-frequency market making. In sum, asset managers in Korea appear to receive tips from brokerages about upcoming revisions, which shifts the competitive balance between domestic institutions and skilled foreign market makers, and aggregate profits around revisions depend on investor sophistication, geographic proximity, and cultural affinity.","PeriodicalId":7317,"journal":{"name":"Accounting","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-08-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43396569","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}
How does previous military experience affect corporate managers’ behavior in earnings management? Using a sample of listed Chinese firms, we find that managers with military experience are associated with higher levels of earnings management, through both accrual-based and real-activities manipulations. Firms run by military managers are more susceptible to financial restatements, qualified audit opinions, and penalties for violation. To alleviate endogeneity problems, we use both the instrumental variable regression and a propensity score matching approach, and our results are robust. In addition, the effect of military managers is more pronounced in state-owned firms and firms with weak internal control systems. These findings improve our understanding of the link between managerial traits and corporate financial reporting decisions.
{"title":"Military Managers and Earnings Management","authors":"Liona Lai, Hanyi Tian, Zhi Wang, Frank Yu","doi":"10.2139/ssrn.3725580","DOIUrl":"https://doi.org/10.2139/ssrn.3725580","url":null,"abstract":"How does previous military experience affect corporate managers’ behavior in earnings management? Using a sample of listed Chinese firms, we find that managers with military experience are associated with higher levels of earnings management, through both accrual-based and real-activities manipulations. Firms run by military managers are more susceptible to financial restatements, qualified audit opinions, and penalties for violation. To alleviate endogeneity problems, we use both the instrumental variable regression and a propensity score matching approach, and our results are robust. In addition, the effect of military managers is more pronounced in state-owned firms and firms with weak internal control systems. These findings improve our understanding of the link between managerial traits and corporate financial reporting decisions.","PeriodicalId":7317,"journal":{"name":"Accounting","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-08-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47921872","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 : 2021-08-12DOI: 10.5267/J.AC.2020.12.009
Patria Nagara, Yolanda
The indicators of success in macro development can be measured from the economic growth, which is reflected in changes in the Gross Regional Domestic Product (GRDP). The factors which affect the economic growth are very complex. This study analyzes the economic growth and the factors that affect Sumatra island. The data used is panel data with descriptive analysis techniques and multiple linear regression. Based on the research results: Education, economic openness, road infrastructure, and investment have a positive and significant effect on economic growth and poverty and unemployment have a negative and significant effect on economic growth. Besides, the results of panel data explained that the openness of the economy to economic growth is very low, while the highest is education.
{"title":"The economic growth and affecting factors in Sumatera island","authors":"Patria Nagara, Yolanda","doi":"10.5267/J.AC.2020.12.009","DOIUrl":"https://doi.org/10.5267/J.AC.2020.12.009","url":null,"abstract":"The indicators of success in macro development can be measured from the economic growth, which is reflected in changes in the Gross Regional Domestic Product (GRDP). The factors which affect the economic growth are very complex. This study analyzes the economic growth and the factors that affect Sumatra island. The data used is panel data with descriptive analysis techniques and multiple linear regression. Based on the research results: Education, economic openness, road infrastructure, and investment have a positive and significant effect on economic growth and poverty and unemployment have a negative and significant effect on economic growth. Besides, the results of panel data explained that the openness of the economy to economic growth is very low, while the highest is education.","PeriodicalId":7317,"journal":{"name":"Accounting","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-08-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42417156","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 study the effects of SEC oversight, proxied by a firm’s geographic proximity to the nearest SEC regional office, on the firm’s management earnings forecasts. Using exogenous changes in proximity caused by SEC district office elevations to regional status, we find that firms located in closer proximity to SEC regional offices issue management earnings forecasts more frequently. We also show that this relationship strengthens when peer firms experience SEC investigations and are more strictly obligated to clarify previous misleading information. Our results suggest that firms use voluntary disclosures to mitigate SEC oversight. We show further that firms are likely to gain credibility by disclosing more pessimistic forecasts and releasing bad news more frequently and in a timelier way. Investors (analysts) are more likely to adjust their investments (forecasts) according to management earnings forecasts issued by firms that are located near SEC offices. As a result, the SEC is less likely to issue comment letters to nearby firms that issue management earnings forecasts more often.
{"title":"Being “Invisible” by Being Transparent","authors":"Xinlu Wang, Liang Xu, Xinyan Yan, Haoyi Yang","doi":"10.2139/ssrn.3904070","DOIUrl":"https://doi.org/10.2139/ssrn.3904070","url":null,"abstract":"We study the effects of SEC oversight, proxied by a firm’s geographic proximity to the nearest SEC regional office, on the firm’s management earnings forecasts. Using exogenous changes in proximity caused by SEC district office elevations to regional status, we find that firms located in closer proximity to SEC regional offices issue management earnings forecasts more frequently. We also show that this relationship strengthens when peer firms experience SEC investigations and are more strictly obligated to clarify previous misleading information. Our results suggest that firms use voluntary disclosures to mitigate SEC oversight. We show further that firms are likely to gain credibility by disclosing more pessimistic forecasts and releasing bad news more frequently and in a timelier way. Investors (analysts) are more likely to adjust their investments (forecasts) according to management earnings forecasts issued by firms that are located near SEC offices. As a result, the SEC is less likely to issue comment letters to nearby firms that issue management earnings forecasts more often.","PeriodicalId":7317,"journal":{"name":"Accounting","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-08-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43964593","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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