Internal auditing is a core function in detecting and preventing fraudulent activities. However, the orientation and role of internal auditing in dealing with fraud varies considerably in different companies. Against this background, this study examines the connection between internal au-diting and fraud and provides new insights into the as-is practice of internal auditing. Using 311 observations from Chief Audit Executives, we find that the corporate governance environ-ment significantly affects the level to which internal auditing strives for detecting and prevent-ing fraud. We also emphasize the overall ethical impact regarding fraud in organizational struc-tures. Shedding light on the positioning of internal auditing between management and the audit committee with respect to fraud, our results show that additional meetings with management have a positive effect on the level of activities to prevent and detect fraud, while additional meetings with the audit committee have the opposite effect. Our results not only underscore the significance of technologically advanced working methods but also holistically address the am-biguity regarding the responsibility for detecting and preventing fraud. Our results have impli-cations for building an appropriate protection against the steadily increasing risk of fraud within organizations.
{"title":"Internal Auditing’s Role in Preventing and Detecting Fraud: An Empirical Analysis","authors":"Annika Bonrath, Marc Eulerich","doi":"10.2139/ssrn.3899753","DOIUrl":"https://doi.org/10.2139/ssrn.3899753","url":null,"abstract":"Internal auditing is a core function in detecting and preventing fraudulent activities. However, the orientation and role of internal auditing in dealing with fraud varies considerably in different companies. Against this background, this study examines the connection between internal au-diting and fraud and provides new insights into the as-is practice of internal auditing. Using 311 observations from Chief Audit Executives, we find that the corporate governance environ-ment significantly affects the level to which internal auditing strives for detecting and prevent-ing fraud. We also emphasize the overall ethical impact regarding fraud in organizational struc-tures. Shedding light on the positioning of internal auditing between management and the audit committee with respect to fraud, our results show that additional meetings with management have a positive effect on the level of activities to prevent and detect fraud, while additional meetings with the audit committee have the opposite effect. Our results not only underscore the significance of technologically advanced working methods but also holistically address the am-biguity regarding the responsibility for detecting and preventing fraud. Our results have impli-cations for building an appropriate protection against the steadily increasing risk of fraud within organizations.","PeriodicalId":7317,"journal":{"name":"Accounting","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-08-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43644996","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 proposes and provides evidence on a green bonding hypothesis, where green bonds act as a commitment device that subjects firms to institutions holding them accountable to their environmental promises. I find that green-bond issuers face higher climate change risks and opportunities but fewer financial constraints than do traditional-bond issuers. Moreover, consistent with green bonds acting as a commitment device, green-bond issuers increase emissions-target achievements and face more media scrutiny when their target progress decreases after issuing green bonds. In additional analyses, I find that when a municipality issues green bonds, the issuer experiences a reduction in financing costs for both traditional and green bonds issued on the same day, consistent with green bonds being an environmental commitment for an entity, rather than a security-level commitment.
{"title":"The Green Bonding Hypothesis: How do Green Bonds Enhance the Credibility of Environmental Commitments?","authors":"Shirley Lu","doi":"10.2139/ssrn.3898909","DOIUrl":"https://doi.org/10.2139/ssrn.3898909","url":null,"abstract":"This paper proposes and provides evidence on a green bonding hypothesis, where green bonds act as a commitment device that subjects firms to institutions holding them accountable to their environmental promises. I find that green-bond issuers face higher climate change risks and opportunities but fewer financial constraints than do traditional-bond issuers. Moreover, consistent with green bonds acting as a commitment device, green-bond issuers increase emissions-target achievements and face more media scrutiny when their target progress decreases after issuing green bonds. In additional analyses, I find that when a municipality issues green bonds, the issuer experiences a reduction in financing costs for both traditional and green bonds issued on the same day, consistent with green bonds being an environmental commitment for an entity, rather than a security-level commitment.","PeriodicalId":7317,"journal":{"name":"Accounting","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-08-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47702142","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 responds to a recent call for research on the indirect effects of regulatory changes and examines the audit office effects of changes in client time pressure, using the first acceleration of the 10-K filing deadline as the primary research setting. The extant literature provides evidence that increased client time pressure adversely affects the timing and quality of individual engagements. We argue that because audit offices possess finite resources and production capacity, client-level pressure can have office-level effects. We document within-office differences related to changes in audit timeliness. In the same audit office, clients with no pressure (with pressure) experience an increase (a decrease) in audit report lag post-acceleration. This evidence suggests that auditors alter the timing of concurrent engagements in response to client pressure, and clients of the same office are affected differently by changes in time pressure. We also document across-office differences in audit/filing timeliness and audit quality. Clients of audit offices with more time pressure across the entire client portfolio have a greater increase in audit delay, are more likely to file late, and experience lower audit quality. Taken as a whole, our results are consistent with client pressure producing office effects as a result of the auditors’ response to increased resource constraints. These results should be informative to regulators and practitioners, because they suggest there are indirect costs associated with regulation and such effects are not limited to directly affected clients. Further, the results indicate that auditors do not always respond to changes in resource requirements in a manner that prevents undue strain.
{"title":"Indirect Effects of Regulatory Changes: Evidence From the Acceleration of the 10-K Filing Deadline","authors":"Bei Dong, J. Nash, L. Xu","doi":"10.2139/ssrn.3911590","DOIUrl":"https://doi.org/10.2139/ssrn.3911590","url":null,"abstract":"This study responds to a recent call for research on the indirect effects of regulatory changes and examines the audit office effects of changes in client time pressure, using the first acceleration of the 10-K filing deadline as the primary research setting. The extant literature provides evidence that increased client time pressure adversely affects the timing and quality of individual engagements. We argue that because audit offices possess finite resources and production capacity, client-level pressure can have office-level effects. We document within-office differences related to changes in audit timeliness. In the same audit office, clients with no pressure (with pressure) experience an increase (a decrease) in audit report lag post-acceleration. This evidence suggests that auditors alter the timing of concurrent engagements in response to client pressure, and clients of the same office are affected differently by changes in time pressure. We also document across-office differences in audit/filing timeliness and audit quality. Clients of audit offices with more time pressure across the entire client portfolio have a greater increase in audit delay, are more likely to file late, and experience lower audit quality. Taken as a whole, our results are consistent with client pressure producing office effects as a result of the auditors’ response to increased resource constraints. These results should be informative to regulators and practitioners, because they suggest there are indirect costs associated with regulation and such effects are not limited to directly affected clients. Further, the results indicate that auditors do not always respond to changes in resource requirements in a manner that prevents undue strain.","PeriodicalId":7317,"journal":{"name":"Accounting","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-08-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44261321","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}
Existing theories of debt consider a single contractible performance measure ("output"). In reality, many other performance signals are also available. It may seem that debt is no longer optimal; for example, if the signals are sufficiently positive, the agent should receive a payment even if output is low. This paper shows that debt remains the optimal contract under additional signals -- they only affect the face value of debt, but not the form of the contract. We show how the face value should depend on other signals, providing a theory of performance-sensitive debt.
{"title":"When Is (Performance-Sensitive) Debt Optimal?","authors":"Pierre Chaigneau, Alex Edmans, D. Gottlieb","doi":"10.2139/ssrn.3895702","DOIUrl":"https://doi.org/10.2139/ssrn.3895702","url":null,"abstract":"Existing theories of debt consider a single contractible performance measure (\"output\"). In reality, many other performance signals are also available. It may seem that debt is no longer optimal; for example, if the signals are sufficiently positive, the agent should receive a payment even if output is low. This paper shows that debt remains the optimal contract under additional signals -- they only affect the face value of debt, but not the form of the contract. We show how the face value should depend on other signals, providing a theory of performance-sensitive debt.","PeriodicalId":7317,"journal":{"name":"Accounting","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-08-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42575067","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}
Investors, advocacy groups, academics, and the 200 CEOs of the US Business Roundtable have asked corporations to take on an added purpose beyond a narrow pursuit of shareholder value. In response, many companies now issue ESG (Environmental, Societal, and Governance) reports. These reports, however, are so broad in scope that they fail to address the unique measurement challenges within each of ESG’s constituent components. Moreover, the breadth of ESG reporting allows corporations to gloss‐over (implicit) moral tradeoffs when their actions improve one of the reported ESG metrics (such as GHG emissions from its truck fleet) but worsen performance for an unreported metric (indentured labor used to mine minerals for electric vehicles’ batteries). Many ESG reports selectively present only those non‐financial metrics favorable to them. We propose improvements in ESG reporting by focusing on dimensions where broad societal agreement already exists about the preferred outcomes from corporate actions, such as reducing greenhouse gas (GHG) emissions and avoiding use of indentured labor in supply chains. In particular, we introduce a new and comprehensive system, based on well‐established accounting practices, for reporting and transferring GHG emissions across corporate supply and distribution chains. This system eliminates the measurement problems in the current, widely used GHG‐reporting standard, especially the feature that requires multiple counting of the same corporate emission. The new approach generates ESG data that are relevant and reliable, enabling better disclosure, governance, and auditing of corporate ESG performance.
投资者、倡导团体、学者和美国商业圆桌会议(US Business Roundtable)的200位首席执行官要求企业在狭隘地追求股东价值之外，承担更多的目标。作为回应，许多公司现在发布了ESG(环境、社会和治理)报告。然而，这些报告的范围太广，以至于它们无法解决ESG每个组成部分中独特的测量挑战。此外，ESG报告的广度允许公司掩盖(隐含的)道德权衡，当他们的行为改善了报告的ESG指标之一(如卡车车队的温室气体排放)，但恶化了未报告的指标(用于开采电动汽车电池矿物的契约劳工)的表现。许多ESG报告选择性地只呈现那些对他们有利的非财务指标。我们建议改进ESG报告，将重点放在社会对企业行动的首选结果已经达成广泛共识的维度上，例如减少温室气体(GHG)排放和避免在供应链中使用契约劳工。特别是，我们在完善的会计实践的基础上引入了一个新的综合系统，用于在企业供应链和分销链中报告和转移温室气体排放。该系统消除了目前广泛使用的温室气体报告标准中的测量问题，特别是需要对同一公司的排放量进行多次计数的功能。新方法生成的ESG数据具有相关性和可靠性，有助于更好地披露、治理和审计企业ESG绩效。
{"title":"How to Fix ESG Reporting","authors":"R. Kaplan, K. Ramanna","doi":"10.2139/ssrn.3900146","DOIUrl":"https://doi.org/10.2139/ssrn.3900146","url":null,"abstract":"Investors, advocacy groups, academics, and the 200 CEOs of the US Business Roundtable have asked corporations to take on an added purpose beyond a narrow pursuit of shareholder value. In response, many companies now issue ESG (Environmental, Societal, and Governance) reports. These reports, however, are so broad in scope that they fail to address the unique measurement challenges within each of ESG’s constituent components. Moreover, the breadth of ESG reporting allows corporations to gloss‐over (implicit) moral tradeoffs when their actions improve one of the reported ESG metrics (such as GHG emissions from its truck fleet) but worsen performance for an unreported metric (indentured labor used to mine minerals for electric vehicles’ batteries). Many ESG reports selectively present only those non‐financial metrics favorable to them. We propose improvements in ESG reporting by focusing on dimensions where broad societal agreement already exists about the preferred outcomes from corporate actions, such as reducing greenhouse gas (GHG) emissions and avoiding use of indentured labor in supply chains. In particular, we introduce a new and comprehensive system, based on well‐established accounting practices, for reporting and transferring GHG emissions across corporate supply and distribution chains. This system eliminates the measurement problems in the current, widely used GHG‐reporting standard, especially the feature that requires multiple counting of the same corporate emission. The new approach generates ESG data that are relevant and reliable, enabling better disclosure, governance, and auditing of corporate ESG performance.","PeriodicalId":7317,"journal":{"name":"Accounting","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-07-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47404798","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 We examine the relationship between economic policy uncertainty, information disclosure and stock liquidity using a large sample of Chinese firms. We first establish that economic policy uncertainty leads to declining stock liquidity. Next, we provide evidence that managers respond to uncertainty shocks to their firm’s information environment by producing more information. Cross-sectional tests indicate that voluntary information disclosure increases more for firms with higher external information demand and with no implicit guarantees. Furthermore, we find that high information disclosure quality mitigates the negative impact of heightened economic policy uncertainty on stock liquidity. This impact is more pronounced for firms with poor information environments and private firms. Additionally, we provide further evidence using cumulative abnormal returns that in periods of high economic policy uncertainty, investors react more to management earnings announcements for firms with high information disclosure quality. Finally, we uncover that increased information disclosure quality improves financial analysts forecast precision more when policy uncertainty is high.
{"title":"Economic Policy Uncertainty and Stock Liquidity: The Mitigating Effect of Information Disclosure.","authors":"Fengrong Wang, William Mbanyele, Linda T Muchenje","doi":"10.2139/ssrn.3939622","DOIUrl":"https://doi.org/10.2139/ssrn.3939622","url":null,"abstract":"Abstract We examine the relationship between economic policy uncertainty, information disclosure and stock liquidity using a large sample of Chinese firms. We first establish that economic policy uncertainty leads to declining stock liquidity. Next, we provide evidence that managers respond to uncertainty shocks to their firm’s information environment by producing more information. Cross-sectional tests indicate that voluntary information disclosure increases more for firms with higher external information demand and with no implicit guarantees. Furthermore, we find that high information disclosure quality mitigates the negative impact of heightened economic policy uncertainty on stock liquidity. This impact is more pronounced for firms with poor information environments and private firms. Additionally, we provide further evidence using cumulative abnormal returns that in periods of high economic policy uncertainty, investors react more to management earnings announcements for firms with high information disclosure quality. Finally, we uncover that increased information disclosure quality improves financial analysts forecast precision more when policy uncertainty is high.","PeriodicalId":7317,"journal":{"name":"Accounting","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-07-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42655649","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}
Our study examines the determinants and consequences of reverse factoring. Despite the increasing popularity of reverse factoring, neither US GAAP nor IFRS offers any guidance for the financial reporting of obligations owed under reverse factoring. Using a sample of UK firms from 2018 to 2020, we find that a buyer is more likely to adopt reverse factoring if it is larger, uses more trade credit, depends more on external financing, and has lower return volatility. In our tests of consequences, we find that, compared to firms that do not use reverse factoring, the average firm that adopts reverse factoring takes 10.5 days longer to pay its invoices, pays 12.2% fewer invoices within 30 days, and pays 13.6% more of its invoices later than 60 days. We also document several favorable accounting outcomes for firms that have adopted reverse factoring, such as reporting a higher ROA, higher profit margins, lower ROA volatility, and lower return volatility than firms that have not adopted reverse factoring. Our study contributes to the nascent literature on reverse factoring by empirically building a profile of the type of firm that adopts reverse factoring.
{"title":"The determinants and consequences of reverse factoring: Early evidence from the UK","authors":"E. Chuk, Ben Lourie, Il-Sun Yoo","doi":"10.2139/ssrn.3890547","DOIUrl":"https://doi.org/10.2139/ssrn.3890547","url":null,"abstract":"Our study examines the determinants and consequences of reverse factoring. Despite the increasing popularity of reverse factoring, neither US GAAP nor IFRS offers any guidance for the financial reporting of obligations owed under reverse factoring. Using a sample of UK firms from 2018 to 2020, we find that a buyer is more likely to adopt reverse factoring if it is larger, uses more trade credit, depends more on external financing, and has lower return volatility. In our tests of consequences, we find that, compared to firms that do not use reverse factoring, the average firm that adopts reverse factoring takes 10.5 days longer to pay its invoices, pays 12.2% fewer invoices within 30 days, and pays 13.6% more of its invoices later than 60 days. We also document several favorable accounting outcomes for firms that have adopted reverse factoring, such as reporting a higher ROA, higher profit margins, lower ROA volatility, and lower return volatility than firms that have not adopted reverse factoring. Our study contributes to the nascent literature on reverse factoring by empirically building a profile of the type of firm that adopts reverse factoring.","PeriodicalId":7317,"journal":{"name":"Accounting","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-07-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43940804","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}
For decades, private companies planning to enter public markets have used bankers operating as intermediaries, helping them decide on issue timing and pricing, and in meeting disclosure requirements. That banker-led process has always had inefficiencies, but without clear alternatives, companies had to accept the high costs and the money left on the table on the offering date, as bankers set offering prices well below market prices, and rewarded preferred clients. The IPO process is being disrupted by three major changes. First, companies are waiting longer to go public, and are focusing more on scaling up revenues than on building business models that deliver profits, while private. Second, the investor base for IPOs is shifting, from primarily institutional, to include more retail investors, many of whom are young, and get their investing cues more from social media than from roadshows. Third, there are alternatives emerging to the banker-led process, with a few turning to direct listings and many more, especially in the last two years, using special purpose acquisition companies (SPACs). These alternatives clearly are works in progress, and need improvement, but change is coming. In the final part of the paper, we look at disclosures that companies are required to make when they go public, and argue that they not only suffer from bloat, but are not in sync with changes that have occurred in both the companies going public, and those who trade their shares in the immediate aftermath of going public. We argue for reducing disclosure bulk and an easing of restrictions on companies making projections about the future, since these restrictions actually make it easier for companies to sell pie-in-the-sky stories.
{"title":"Disrupting the Disruptors? The 'Going Public Process' in Transition","authors":"A. Damodaran","doi":"10.2139/ssrn.3892419","DOIUrl":"https://doi.org/10.2139/ssrn.3892419","url":null,"abstract":"For decades, private companies planning to enter public markets have used bankers operating as intermediaries, helping them decide on issue timing and pricing, and in meeting disclosure requirements. That banker-led process has always had inefficiencies, but without clear alternatives, companies had to accept the high costs and the money left on the table on the offering date, as bankers set offering prices well below market prices, and rewarded preferred clients. The IPO process is being disrupted by three major changes. First, companies are waiting longer to go public, and are focusing more on scaling up revenues than on building business models that deliver profits, while private. Second, the investor base for IPOs is shifting, from primarily institutional, to include more retail investors, many of whom are young, and get their investing cues more from social media than from roadshows. Third, there are alternatives emerging to the banker-led process, with a few turning to direct listings and many more, especially in the last two years, using special purpose acquisition companies (SPACs). These alternatives clearly are works in progress, and need improvement, but change is coming. In the final part of the paper, we look at disclosures that companies are required to make when they go public, and argue that they not only suffer from bloat, but are not in sync with changes that have occurred in both the companies going public, and those who trade their shares in the immediate aftermath of going public. We argue for reducing disclosure bulk and an easing of restrictions on companies making projections about the future, since these restrictions actually make it easier for companies to sell pie-in-the-sky stories.","PeriodicalId":7317,"journal":{"name":"Accounting","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-07-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49119091","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}
Larry Fauver, Mingyi Hung, Xi Li, Alvaro G. Taboada
Using board reforms in 41 countries and staggered difference-in-differences (DiD) estimates, Fauver, Hung, Li, and Taboada (2017, FHLT) find that firm value increases following the reforms. In a study that reviews the recent econometric theory on staggered DiD estimations, Baker, Larcker, and Wang (2021, BLW) contest the robustness of FHLT’s results. They conclude that FHLT’s results become mostly insignificant using alternative approaches that address the biases suggested by this recent theory. However, we find that the insignificant findings in BLW’s analysis are largely due to selective modifications that BLW made to FHLT’s data and model specifications, which resulted in low power tests. Importantly, these changes, which were not transparently disclosed in BLW, largely explain the insignificant results reported in BLW, even before implementing the new econometric approaches. Thus, in this study, we perform a battery of tests that apply alternative approaches that address the biases suggested in this recent literature. In contrast to the conclusions in BLW, we find that FHLT’s results remain significant. Our findings reinforce the conclusion of FHLT that board reforms increase firm value and highlight the importance of fair data representation when applying modified staggered DiD methods.
{"title":"Re-Examining Board Reforms and Firm Value: Response to “How Much Should We Trust Staggered Differences-in-Differences Estimates?” by Baker, Larcker, and Wang (2021)","authors":"Larry Fauver, Mingyi Hung, Xi Li, Alvaro G. Taboada","doi":"10.2139/ssrn.3885472","DOIUrl":"https://doi.org/10.2139/ssrn.3885472","url":null,"abstract":"Using board reforms in 41 countries and staggered difference-in-differences (DiD) estimates, Fauver, Hung, Li, and Taboada (2017, FHLT) find that firm value increases following the reforms. In a study that reviews the recent econometric theory on staggered DiD estimations, Baker, Larcker, and Wang (2021, BLW) contest the robustness of FHLT’s results. They conclude that FHLT’s results become mostly insignificant using alternative approaches that address the biases suggested by this recent theory. However, we find that the insignificant findings in BLW’s analysis are largely due to selective modifications that BLW made to FHLT’s data and model specifications, which resulted in low power tests. Importantly, these changes, which were not transparently disclosed in BLW, largely explain the insignificant results reported in BLW, even before implementing the new econometric approaches. Thus, in this study, we perform a battery of tests that apply alternative approaches that address the biases suggested in this recent literature. In contrast to the conclusions in BLW, we find that FHLT’s results remain significant. Our findings reinforce the conclusion of FHLT that board reforms increase firm value and highlight the importance of fair data representation when applying modified staggered DiD methods.","PeriodicalId":7317,"journal":{"name":"Accounting","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-07-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49382690","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 how policy uncertainty affects the acquisition process during the post-announcement period. Utilizing a sample of Australian mining sector acquisitions over 1998-2017, we find that rising policy uncertainty after initial acquisition announcements is associated with delays in deal completion. In addition, prolonged high policy uncertainty plays a critical role in triggering acquisition abandonment. Further, the stock market reacts less negatively to deal abandonment decisions made amid protracted policy uncertainty. The muted market reactions are also associated with managers’ explanations for deal abandonment. Overall, our findings highlight that policy uncertainty is an important “deal-breaker” in acquisitions.
{"title":"Enough is Enough: Policy Uncertainty and Acquisition Abandonment","authors":"Andrew Ferguson, Wei-Yin Hu, P. Lam","doi":"10.2139/ssrn.3883981","DOIUrl":"https://doi.org/10.2139/ssrn.3883981","url":null,"abstract":"This study investigates how policy uncertainty affects the acquisition process during the post-announcement period. Utilizing a sample of Australian mining sector acquisitions over 1998-2017, we find that rising policy uncertainty after initial acquisition announcements is associated with delays in deal completion. In addition, prolonged high policy uncertainty plays a critical role in triggering acquisition abandonment. Further, the stock market reacts less negatively to deal abandonment decisions made amid protracted policy uncertainty. The muted market reactions are also associated with managers’ explanations for deal abandonment. Overall, our findings highlight that policy uncertainty is an important “deal-breaker” in acquisitions.","PeriodicalId":7317,"journal":{"name":"Accounting","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-07-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46949969","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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