Natalia Jimenez Jimenez, E. Molis, Ángel Solano-García
According to the World Inequality Database 2020, income inequality has increased in almost all countries in recent decades. Nevertheless, top tax rates on upper-income earners have declined during the same period. This empirical evidence seems not to support models based on the median voter theorem as the one proposed by Meltzer and Richard (1981). To shed some light on this contradictory evidence, this paper reports results from a laboratory experiment that investigates the Meltzer–Richard model of equilibrium tax rates in which individuals face a real-effort task that includes leisure at the work place. We classify participants into high-skilled and low-skilled workers, according to their performance in a tournament at the beginning of the experiment. They vote over two (high and low) exogenous tax rates and their pre-tax income is determined according to their performance in a real-effort task and also to the skill premium. We find that a large proportion of low-skilled workers vote for the lowest tax rate (the one that gives them the lowest payoff), especially when the alternative tax rate is very high. However, this proportion is significantly reduced in treatments in which the subjects are given extra information about how the tax operates in redistributing income. This result suggests that the lack of information about the role of taxes in income redistribution may be an important factor in explaining the counter-intuitive voting behavior of low-income voters over income redistribution. We also find some support that the prospect of upward mobility and the belief in the negative effect of taxes on productivity make low-income voters support low tax rates, especially when the alternative tax rate is very high.
{"title":"Don’t shoot yourself in the foot! A (real-effort task) experiment on income redistribution and voting.","authors":"Natalia Jimenez Jimenez, E. Molis, Ángel Solano-García","doi":"10.2139/ssrn.3485548","DOIUrl":"https://doi.org/10.2139/ssrn.3485548","url":null,"abstract":"According to the World Inequality Database 2020, income inequality has increased in almost all countries in recent decades. Nevertheless, top tax rates on upper-income earners have declined during the same period. This empirical evidence seems not to support models based on the median voter theorem as the one proposed by Meltzer and Richard (1981). To shed some light on this contradictory evidence, this paper reports results from a laboratory experiment that investigates the Meltzer–Richard model of equilibrium tax rates in which individuals face a real-effort task that includes leisure at the work place. We classify participants into high-skilled and low-skilled workers, according to their performance in a tournament at the beginning of the experiment. They vote over two (high and low) exogenous tax rates and their pre-tax income is determined according to their performance in a real-effort task and also to the skill premium. We find that a large proportion of low-skilled workers vote for the lowest tax rate (the one that gives them the lowest payoff), especially when the alternative tax rate is very high. However, this proportion is significantly reduced in treatments in which the subjects are given extra information about how the tax operates in redistributing income. This result suggests that the lack of information about the role of taxes in income redistribution may be an important factor in explaining the counter-intuitive voting behavior of low-income voters over income redistribution. We also find some support that the prospect of upward mobility and the belief in the negative effect of taxes on productivity make low-income voters support low tax rates, especially when the alternative tax rate is very high.","PeriodicalId":8737,"journal":{"name":"Behavioral & Experimental Accounting eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2022-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"78282578","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 conduct two experiments to examine the joint effect of two justification factors of earnings management, namely attribution for the firm’s underperformance and benefits accruing to other employees from inflating reported earnings. In the main experiment, we predict and find that managers are more likely to manage earnings when the firm’s underperformance is caused by an external event and misreported earnings benefit other employees besides the reporting manager. Further, we show that the extent to which participants use moral justifications mediates the effect of benefits sharing on earnings management, but only when causal attribution is external, and that it mediates the effect of causal attribution on earnings management, but only when benefits are shared. In the second experiment, we use a neutral control condition that makes no mention of causal attribution or benefits sharing to demonstrate that both justification factors jointly increase earnings management relative to what managers normally do in a situation without an explicit mention of either factor. We contribute to the accounting and psychology literature by proposing and testing a theory that explains how multiple justification factors interact to cause opportunistic behavior. Our results have important implications for practice.
{"title":"Causal Attribution, Benefits Sharing, and Earnings Management","authors":"Lukas J. Helikum, H. Tan, Tu Xu","doi":"10.2139/ssrn.3951261","DOIUrl":"https://doi.org/10.2139/ssrn.3951261","url":null,"abstract":"We conduct two experiments to examine the joint effect of two justification factors of earnings management, namely attribution for the firm’s underperformance and benefits accruing to other employees from inflating reported earnings. In the main experiment, we predict and find that managers are more likely to manage earnings when the firm’s underperformance is caused by an external event and misreported earnings benefit other employees besides the reporting manager. Further, we show that the extent to which participants use moral justifications mediates the effect of benefits sharing on earnings management, but only when causal attribution is external, and that it mediates the effect of causal attribution on earnings management, but only when benefits are shared. In the second experiment, we use a neutral control condition that makes no mention of causal attribution or benefits sharing to demonstrate that both justification factors jointly increase earnings management relative to what managers normally do in a situation without an explicit mention of either factor. We contribute to the accounting and psychology literature by proposing and testing a theory that explains how multiple justification factors interact to cause opportunistic behavior. Our results have important implications for practice.","PeriodicalId":8737,"journal":{"name":"Behavioral & Experimental Accounting eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-10-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85387794","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, Carina Cuculiza, Kevin Pisciotta
Despite growing evidence of the importance of sleep for performance, prior research generally finds limited effects of sleep disruptions in financial markets. Using forecasts of corporate earnings, we are able to reconcile this dissonance. We find that non-professional forecasters exhibit a significant decline in their forecast accuracy and optimism following Spring Daylight Saving Time changes relative to professional forecasters. Placebo tests provide support for sleep disruptions as the main driver of these effects. Additionally, we provide corresponding evidence using survey data that sleep disruptions relate to more pessimistic economic forecasts by U.S. households. Collectively, our evidence that information processing by less skilled market participants is particularly susceptible to negative sleep loss effects helps reconcile why financial markets are generally believed to be immune to sleep effects even though individual participants are not, and suggests that sleep debt could widen the wealth transfers from U.S. households.
{"title":"Sleep Debt and Information Processing in Financial Markets","authors":"William J. Bazley, Carina Cuculiza, Kevin Pisciotta","doi":"10.2139/ssrn.3934115","DOIUrl":"https://doi.org/10.2139/ssrn.3934115","url":null,"abstract":"Despite growing evidence of the importance of sleep for performance, prior research generally finds limited effects of sleep disruptions in financial markets. Using forecasts of corporate earnings, we are able to reconcile this dissonance. We find that non-professional forecasters exhibit a significant decline in their forecast accuracy and optimism following Spring Daylight Saving Time changes relative to professional forecasters. Placebo tests provide support for sleep disruptions as the main driver of these effects. Additionally, we provide corresponding evidence using survey data that sleep disruptions relate to more pessimistic economic forecasts by U.S. households. Collectively, our evidence that information processing by less skilled market participants is particularly susceptible to negative sleep loss effects helps reconcile why financial markets are generally believed to be immune to sleep effects even though individual participants are not, and suggests that sleep debt could widen the wealth transfers from U.S. households.","PeriodicalId":8737,"journal":{"name":"Behavioral & Experimental Accounting eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-10-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"87086238","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}
Regulators express concern over auditors’ failure to respond to fraud risks. Audit firms communicate the importance of remaining skeptical and alert for fraud, but busy auditors give these messages insufficient attention. Building on psychology theory, we develop an innovative intervention designed to improve audit firm communication by incorporating game-like elements. We expect game-like elements to pique auditors’ interest, deepen their cognitive processing, enhance their awareness of important fraud concepts, and make them more alert for fraud. We experimentally demonstrate that the intervention improves auditors’ awareness of important fraud concepts, and these benefits persist to improve auditors’ fraud detection actions. Importantly, auditors receiving communication that simulates current practice fail to respond to heightened fraud risk, confirming regulators’ concerns. In additional analyses, a model supports our intervention promoting deeper processing of the communication, enabling auditors’ subsequent recognition of heightened fraud risk and effective actions. Thus, our results contribute to theory and practice.
{"title":"Game Changer: Can Modifications to Audit Firm Communication Improve Auditors’ Actions in Response to Heightened Fraud Risk?","authors":"Ashley A. Austin, Tina D Carpenter","doi":"10.2139/ssrn.2951396","DOIUrl":"https://doi.org/10.2139/ssrn.2951396","url":null,"abstract":"Regulators express concern over auditors’ failure to respond to fraud risks. Audit firms communicate the importance of remaining skeptical and alert for fraud, but busy auditors give these messages insufficient attention. Building on psychology theory, we develop an innovative intervention designed to improve audit firm communication by incorporating game-like elements. We expect game-like elements to pique auditors’ interest, deepen their cognitive processing, enhance their awareness of important fraud concepts, and make them more alert for fraud. We experimentally demonstrate that the intervention improves auditors’ awareness of important fraud concepts, and these benefits persist to improve auditors’ fraud detection actions. Importantly, auditors receiving communication that simulates current practice fail to respond to heightened fraud risk, confirming regulators’ concerns. In additional analyses, a model supports our intervention promoting deeper processing of the communication, enabling auditors’ subsequent recognition of heightened fraud risk and effective actions. Thus, our results contribute to theory and practice.","PeriodicalId":8737,"journal":{"name":"Behavioral & Experimental Accounting eJournal","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":"78143288","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}
Using comprehensive data on U.S. corporate bond trades since 2002, we find that retail bond investors over-rely on untimely credit ratings, neglect firm fundamentals, and appear to misunderstand the trade-off between bond risk and yields. Specifically, retail investors appear to select bonds by first screening on a credit rating level and then sorting by yield, buying the highest-yielding bonds within each rating level. Because yields lead credit ratings, selecting on yield-within-rating means that retail investors systematically trade in the opposite direction of accounting fundamentals, buy in advance of credit downgrades and defaults, and generate negative average future returns. Overall, our findings indicate that retail bond investors systematically mislearn from prices, which is hard to reconcile with standard notions of rationality. Our study provides new evidence of ill-informed trading in a market that is thought to be relatively sophisticated, and contributes to our understanding of the roles and consequences of credit ratings in debt markets.
{"title":"Retail Bond Investors and Credit Ratings","authors":"E. dehaan, Jiacui Li, Edward M. Watts","doi":"10.2139/ssrn.3872111","DOIUrl":"https://doi.org/10.2139/ssrn.3872111","url":null,"abstract":"Using comprehensive data on U.S. corporate bond trades since 2002, we find that retail bond investors over-rely on untimely credit ratings, neglect firm fundamentals, and appear to misunderstand the trade-off between bond risk and yields. Specifically, retail investors appear to select bonds by first screening on a credit rating level and then sorting by yield, buying the highest-yielding bonds within each rating level. Because yields lead credit ratings, selecting on yield-within-rating means that retail investors systematically trade in the opposite direction of accounting fundamentals, buy in advance of credit downgrades and defaults, and generate negative average future returns. Overall, our findings indicate that retail bond investors systematically mislearn from prices, which is hard to reconcile with standard notions of rationality. Our study provides new evidence of ill-informed trading in a market that is thought to be relatively sophisticated, and contributes to our understanding of the roles and consequences of credit ratings in debt markets.","PeriodicalId":8737,"journal":{"name":"Behavioral & Experimental Accounting eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-06-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"88921239","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}
Clara Xiaoling Chen, Ryan Hudgins, William F. Wright
We use an experiment to examine how advice valence (i.e. whether the advice suggests good news or bad news) affects the perceived source credibility of data analytics compared to human experts as a result of motivated reasoning. We predict that individuals will perceive data analytics as less credible than human experts, but only when the advice suggests bad news. Using a forecasting task in which individuals are seeking advice from either a human expert or data analytics, we find evidence consistent with our prediction. Furthermore, we find that this effect is mediated by the perceived competence of the advice source. We contribute to the nascent accounting literature on data analytics by providing evidence on a potential impediment to successfully transitioning to the use of analytics for decision-making in organizations.
{"title":"The Effect of Advice Valence on the Perceived Credibility of Data Analytics","authors":"Clara Xiaoling Chen, Ryan Hudgins, William F. Wright","doi":"10.2308/jmar-2020-015","DOIUrl":"https://doi.org/10.2308/jmar-2020-015","url":null,"abstract":"We use an experiment to examine how advice valence (i.e. whether the advice suggests good news or bad news) affects the perceived source credibility of data analytics compared to human experts as a result of motivated reasoning. We predict that individuals will perceive data analytics as less credible than human experts, but only when the advice suggests bad news. Using a forecasting task in which individuals are seeking advice from either a human expert or data analytics, we find evidence consistent with our prediction. Furthermore, we find that this effect is mediated by the perceived competence of the advice source. We contribute to the nascent accounting literature on data analytics by providing evidence on a potential impediment to successfully transitioning to the use of analytics for decision-making in organizations.","PeriodicalId":8737,"journal":{"name":"Behavioral & Experimental Accounting eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-06-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"86017009","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 the effect of internal reporting environment openness and organizational identification on managers’ budgetary misreporting. Using an experiment, we find that organizational identification moderates the effect of internal reporting environments on misreporting. That is, with weak organizational identification, there is significantly higher misreporting under an open reporting environment compared to a closed reporting environment. However, with strong organizational identification, there is no difference in misreporting between open and closed reporting environments. Our findings provide insight into how the internal reporting environment and the level of organizational identification jointly affect managerial reporting behavior. Our study has important implications for practice given many organizations are moving towards more open, transparent environments and increasing investment in building organizational identification. Our results suggest that organizations need investment in enhancing organizational identification first before considering having an open environment.
{"title":"Exploring Contagion in Budgetary Misreporting","authors":"Jeremy B. Lill, Michael Majerczyk, Ke Xu","doi":"10.2139/ssrn.3788643","DOIUrl":"https://doi.org/10.2139/ssrn.3788643","url":null,"abstract":"This study investigates the effect of internal reporting environment openness and organizational identification on managers’ budgetary misreporting. Using an experiment, we find that organizational identification moderates the effect of internal reporting environments on misreporting. That is, with weak organizational identification, there is significantly higher misreporting under an open reporting environment compared to a closed reporting environment. However, with strong organizational identification, there is no difference in misreporting between open and closed reporting environments. Our findings provide insight into how the internal reporting environment and the level of organizational identification jointly affect managerial reporting behavior. Our study has important implications for practice given many organizations are moving towards more open, transparent environments and increasing investment in building organizational identification. Our results suggest that organizations need investment in enhancing organizational identification first before considering having an open environment.","PeriodicalId":8737,"journal":{"name":"Behavioral & Experimental Accounting eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-04-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"76962230","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}
With respect to the views of dead thinkers, answers to many particular questions are often interpretive in Ronald Dworkin's sense. Such answers must attempt (1) to fit the materials to be interpreted and (2) to justify them, that is, to put them in the best constructive light. What looks like (1), or what purports to be (1), is often (2). That is, when a follower of Kant urges that ‘Kant would say x’, or that ‘Kantianism entails y’, the goal is to make the best constructive sense of Kant and Kantianism, not merely to adhere to something that Kant actually said. An approach to behavioral economics cannot claim to be Hayekian if it is rooted in enthusiasm for the abilities of planners to set prices and quantities, or if it sees the price system as a jumble of mistakes and errors. But within a not-so-narrow range, a variety of freedom-preserving approaches, alert to the epistemic limits of planners, can fairly claim to be Hayekian. Hayekian behavioral economics, I suggest, is an approach that (1) recognizes the importance and pervasiveness of individual errors, (2) emphasizes the epistemic limits of planners, (3) builds on individual choices rather than planner preferences, and (4) gives authority to choices made under epistemically favorable conditions, in which informational deficits and behavioral biases are least likely to be at work. The key step, of course, is (4). If it is properly elaborated, the resulting approach deserves respect. It is worthy of serious consideration, even if some of us, including the present author, would not entirely embrace it. In defending that proposition, the present essay responds to some critical remarks on behaviorally informed policy, including the resort to ‘explainawaytions’ (Matthew Rabin's term) for behavioral findings.
{"title":"'Come On, Man!' On Errors, Choice, and Hayekian Behavioral Economics","authors":"C. Sunstein","doi":"10.2139/SSRN.3807371","DOIUrl":"https://doi.org/10.2139/SSRN.3807371","url":null,"abstract":"\u0000 With respect to the views of dead thinkers, answers to many particular questions are often interpretive in Ronald Dworkin's sense. Such answers must attempt (1) to fit the materials to be interpreted and (2) to justify them, that is, to put them in the best constructive light. What looks like (1), or what purports to be (1), is often (2). That is, when a follower of Kant urges that ‘Kant would say x’, or that ‘Kantianism entails y’, the goal is to make the best constructive sense of Kant and Kantianism, not merely to adhere to something that Kant actually said. An approach to behavioral economics cannot claim to be Hayekian if it is rooted in enthusiasm for the abilities of planners to set prices and quantities, or if it sees the price system as a jumble of mistakes and errors. But within a not-so-narrow range, a variety of freedom-preserving approaches, alert to the epistemic limits of planners, can fairly claim to be Hayekian. Hayekian behavioral economics, I suggest, is an approach that (1) recognizes the importance and pervasiveness of individual errors, (2) emphasizes the epistemic limits of planners, (3) builds on individual choices rather than planner preferences, and (4) gives authority to choices made under epistemically favorable conditions, in which informational deficits and behavioral biases are least likely to be at work. The key step, of course, is (4). If it is properly elaborated, the resulting approach deserves respect. It is worthy of serious consideration, even if some of us, including the present author, would not entirely embrace it. In defending that proposition, the present essay responds to some critical remarks on behaviorally informed policy, including the resort to ‘explainawaytions’ (Matthew Rabin's term) for behavioral findings.","PeriodicalId":8737,"journal":{"name":"Behavioral & Experimental Accounting eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-03-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"91350037","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 Global capital markets rely heavily on independent and skeptical auditors as gatekeepers to provide assurance that corporate financial reports are free of material fraud. The rise of narcissism among the ranks of both client and audit professionals challenge this gatekeeper function. In addition, auditor moral disengagement may undermine auditor skepticism, further eroding public confidence in the integrity of financial reporting and the audit process. We conduct a quasi-experiment with 118 auditors from three international audit firms. In a simulated interview with a client CFO, we examine whether auditors underestimate risks of fraudulent financial statements due to the interactive effects of (1) client narcissism (manipulated verbally and nonverbally) and (2) auditor narcissism. We also examine the influence of auditor moral disengagement on client risk assessments. Results indicate that CFO verbal and nonverbal narcissism significantly influenced auditors’ assessment of management-related client risk. Moreover, auditor narcissism was found to interactively influence client risk inferences such that auditors higher in narcissism exhibited narcissistic tolerance (lower risk assessments) when the hypothetical CFO displayed high verbal narcissism. Auditor moral disengagement was negatively associated with client risk assessments. We discuss the implication of these findings on future audit judgment research, audit firm policy and training on maintaining auditor skepticism, and the audit oversight role of standard-setters.
{"title":"The Influence of Auditor Narcissism and Moral Disengagement on Risk Assessments of a Narcissistic Client CFO","authors":"Eric N. Johnson, D. Lowe, Philip M. J. Reckers","doi":"10.2139/ssrn.3743018","DOIUrl":"https://doi.org/10.2139/ssrn.3743018","url":null,"abstract":"Abstract Global capital markets rely heavily on independent and skeptical auditors as gatekeepers to provide assurance that corporate financial reports are free of material fraud. The rise of narcissism among the ranks of both client and audit professionals challenge this gatekeeper function. In addition, auditor moral disengagement may undermine auditor skepticism, further eroding public confidence in the integrity of financial reporting and the audit process. We conduct a quasi-experiment with 118 auditors from three international audit firms. In a simulated interview with a client CFO, we examine whether auditors underestimate risks of fraudulent financial statements due to the interactive effects of (1) client narcissism (manipulated verbally and nonverbally) and (2) auditor narcissism. We also examine the influence of auditor moral disengagement on client risk assessments. Results indicate that CFO verbal and nonverbal narcissism significantly influenced auditors’ assessment of management-related client risk. Moreover, auditor narcissism was found to interactively influence client risk inferences such that auditors higher in narcissism exhibited narcissistic tolerance (lower risk assessments) when the hypothetical CFO displayed high verbal narcissism. Auditor moral disengagement was negatively associated with client risk assessments. We discuss the implication of these findings on future audit judgment research, audit firm policy and training on maintaining auditor skepticism, and the audit oversight role of standard-setters.","PeriodicalId":8737,"journal":{"name":"Behavioral & Experimental Accounting eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-02-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"73101527","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 use laboratory experiments to analyze how the existence of trading frictions (a transaction fee and a ban on short selling and margin buying) affects occurrence and strength of the post-earnings-announcement drift. We find lower trading activity and higher asset prices in the presence of frictions. While the initial price reaction to earnings announcements is weaker, the strength of the PEAD is not materially affected. Trading strategies aimed at exploiting the PEAD are less profitable in the presence of frictions.
{"title":"Trading Frictions and the Post-Earnings-Announcement Drift","authors":"Josef Fink, Stefan Palan, Erik Theissen","doi":"10.2139/ssrn.3788093","DOIUrl":"https://doi.org/10.2139/ssrn.3788093","url":null,"abstract":"We use laboratory experiments to analyze how the existence of trading frictions (a transaction fee and a ban on short selling and margin buying) affects occurrence and strength of the post-earnings-announcement drift. We find lower trading activity and higher asset prices in the presence of frictions. While the initial price reaction to earnings announcements is weaker, the strength of the PEAD is not materially affected. Trading strategies aimed at exploiting the PEAD are less profitable in the presence of frictions.","PeriodicalId":8737,"journal":{"name":"Behavioral & Experimental Accounting eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-02-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"77176172","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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