{"title":"The Number of Estimates in Footnotes and Accruals","authors":"Huafeng (Jason) Chen, J. V. Chen, Feng Li","doi":"10.2139/ssrn.2738842","DOIUrl":"https://doi.org/10.2139/ssrn.2738842","url":null,"abstract":"This study quantifies the number of estimates involved in firms’ accruals and examines whether it is informative about the relation between accruals and future earnings. We measure the number of estimates using the frequency of the use of the word estimate in the qualitative portions of a firm’s Notes to the Financial Statements (footnotes). Motivated by arguments regarding the impact of estimation errors in accruals, we hypothesize and find that the accruals of firms that have more estimates have a lower relation with future earnings (i.e., lower persistence) and a lower association with their past, current, and future cash flows. This paper was accepted by Suraj Srinivasan, accounting. Funding: This work was supported by Zijiang Endowment. H. Chen acknowledges the financial support from the National Natural Science Foundation of China [Grants 72150710550, 71790591, and 72121002]. J. V. Chen acknowledges the financial support from the University of Michigan, University of Illinois at Chicago, Paton Accounting Fellowship, and Harry Jones Endowment. F. Li acknowledges the financial support from SJTU SAIF Zijiang Discipline Development Fund, sponsored by the Zijiang Foundation. Supplemental Material: The internet appendix and data are available at https://doi.org/10.1287/mnsc.2022.4659 .","PeriodicalId":12319,"journal":{"name":"Financial Accounting eJournal","volume":"15 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85415283","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}
{"title":"A Theory of Proxy Advice when Investors Have Social Goals","authors":"J. Matsusaka, Chong Shu","doi":"10.2139/ssrn.3547880","DOIUrl":"https://doi.org/10.2139/ssrn.3547880","url":null,"abstract":"This paper develops a theory of the proxy advice market when some investors have nonpecuniary goals such as environmental sustainability and protection of human rights. We assume advisory firms choose their scale of production, price, and “slant” of advice to attract investors with heterogenous preferences over returns and social goals. When the market for advice is small, the industry equilibrium consists of small “boutique” firms that provide a wide array of types of advice, and voting outcomes reflect the distribution of investor preferences. When the market is large, the industry reduces to a single advisory firm using a platform technology, the firm’s advice is slanted toward the preferences of funds with non-value-maximizing goals, and voting outcomes overrepresent the preferences of activist funds. We discuss normative principles for assessing proxy advice when value maximization is not the sole objective of investors.","PeriodicalId":12319,"journal":{"name":"Financial Accounting eJournal","volume":"94 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83688403","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}
{"title":"Does the Readability of Target Firm’ Annual Reports Matter to Bidders?","authors":"B. Balachandran, H. N. Duong, R. Faff, Syed Shams","doi":"10.2139/ssrn.3730737","DOIUrl":"https://doi.org/10.2139/ssrn.3730737","url":null,"abstract":"This study investigates value-relevant implications of target-firm annual report readability for acquiring firms. We document robust evidence that readability has a positive association with bidder market reaction. This finding is more pronounced among firms with higher levels of opacity, lower analyst following; bidders with lower managerial ability; and less reputed M&A advisors. Further, in terms of other M&A outcomes, readability has a positive association with the bid premium and long-term bidder performance, and a negative association with the time to complete the M&A. Overall, these findings indicate that markets do value the readability of target 10-K filings – readability does matter to bidding firms.","PeriodicalId":12319,"journal":{"name":"Financial Accounting eJournal","volume":"6 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-09-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"81169046","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}
{"title":"Obfuscation in Mutual Funds","authors":"E. dehaan, Yang Song, Chloe Xie, C. Zhu","doi":"10.2139/ssrn.3540215","DOIUrl":"https://doi.org/10.2139/ssrn.3540215","url":null,"abstract":"Mutual funds hold 32% of the U.S. equity market and comprise 58% of retirement savings, yet retail investors consistently make poor choices when selecting funds. Theory suggests that poor choices are partially due to mutual fund managers creating unnecessarily complex disclosures and fee structures to keep investors uninformed and obfuscate poor performance. An empirical challenge in investigating this “strategic obfuscation” theory is isolating manipulated complexity from complexity arising from inherent differences across funds. We examine obfuscation among S&P 500 index funds, which have largely the same regulations, risks, and gross returns but can charge widely different fees. Using bespoke measures of complexity designed for mutual funds, we find evidence consistent with funds attempting to obfuscate high fees. Our study improves our understanding of why investors make poor mutual fund choices, and of how price dispersion persists among homogeneous index funds. We also discuss insights for mutual fund regulation and the academic literature on corporate disclosures.","PeriodicalId":12319,"journal":{"name":"Financial Accounting eJournal","volume":"49 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-09-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"77955181","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}
{"title":"Pre-IPO Hype by Affiliated Analysts: Motives and Consequences","authors":"Yiming Qian, Xinjian Shao, Jingchi Liao","doi":"10.2139/ssrn.3476735","DOIUrl":"https://doi.org/10.2139/ssrn.3476735","url":null,"abstract":"We provide the first study of underwriter-affiliated analysts’ pre-IPO research coverage and its impact on stock prices. Using proprietary data on a sample of Chinese IPOs, we document that affiliated analysts make highly overoptimistic forecasts about IPO clients. Analyst hype inflates both the offer price and the postmarket price. Consistent with the sentiment theory, IPO investors are insensitive to analyst hype because the offer price is set sufficiently lower than the postmarket price. We utilize a regulatory change as a quasi-experiment to establish that pre-IPO analyst bias is due to intentional hype. Our analysis contributes to the debate about recent US regulatory changes on pre-IPO analyst coverage.","PeriodicalId":12319,"journal":{"name":"Financial Accounting eJournal","volume":"35 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-09-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85705080","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}
{"title":"The Market Premium for Audit Partners with Big 4 Experience","authors":"A. Zimmerman, Kenneth L. Bills, Monika Causholli","doi":"10.2139/ssrn.3084770","DOIUrl":"https://doi.org/10.2139/ssrn.3084770","url":null,"abstract":"\u0000 This study investigates how non-Big 4 firm audit partners' Big 4 experience is valued by the audit market. The Big 4 audit firms have differentiated themselves as nationally recognized firms for whose services companies are willing to pay a premium. It is unclear, however, whether this reputation follows individual auditors when they move to a non-Big 4 audit firm. We find that audit fees are higher for non-Big 4 audit partners with Big 4 experience with the fee premium ranging from 17 to 26 percent depending on the extent of experience when they are employed by small audit firms but find no evidence of a fee premium for Big 4 experience at the second-tier audit firms. Furthermore, in additional analyses, we do not find strong, consistent evidence that audit quality is higher for clients of non-Big 4 audit partners with Big 4 experience than their counterparts without Big 4 experience.\u0000 Data Availability: Data were obtained from publicly available sources identified in the paper.\u0000 JEL Classifications: M42.","PeriodicalId":12319,"journal":{"name":"Financial Accounting eJournal","volume":"261 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-09-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"86720401","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}
{"title":"Disclosure Processing Costs, Investors’ Information Choice, and Equity Market Outcomes: A Review","authors":"Elizabeth Blankespoor, E. dehaan, I. Marinovic","doi":"10.2139/ssrn.3449751","DOIUrl":"https://doi.org/10.2139/ssrn.3449751","url":null,"abstract":"Abstract This paper reviews the literature examining how costs of monitoring for, acquiring, and analyzing firm disclosures – collectively, “disclosure processing costs” – affect investor information choices, trades, and market outcomes. The existence of disclosure processing costs means that disclosures are not “public” information as traditionally defined, but instead can be a form of costly private information. Conceptualizing disclosures as private information makes it clear that learning from disclosures is an active economic choice and that disclosure pricing cannot be perfectly efficient. We review the analytical and empirical literature on sources of processing costs and how these costs affect equity market outcomes, primarily within rational equilibria. We also discuss studies of the feedback effects of investors’ processing costs on managers’ choices about disclosure and corporate actions. We conclude that disclosure processing costs have implications for a wide array of accounting research and phenomena, but we are only just beginning to understand their effects.","PeriodicalId":12319,"journal":{"name":"Financial Accounting eJournal","volume":"216 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-09-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83153238","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}
{"title":"CEOs’ Prosocial Behavior, Their Careers and Corporate Policies","authors":"Mei Feng, Weili Ge, Zhejia Ling, Wei Ting Loh","doi":"10.2139/ssrn.3685522","DOIUrl":"https://doi.org/10.2139/ssrn.3685522","url":null,"abstract":"This paper examines the associations of Chief Executive Officers’ (CEOs’) prosocial behavior with their career paths and corporate policies. Using individuals’ involvement with charitable organizations as a proxy for prosocial behavior, we find that prosocial individuals are promoted to CEOs faster than non-prosocial individuals. In addition, compared with firms with non-prosocial CEOs, firms with prosocial CEOs tend to have lower executive subordinate turnover, implement more employee-friendly policies, experience higher customer satisfaction, and engage in more socially responsible activities. We also find that firms with prosocial CEOs have higher firm value. These results are corroborated when we compare changes in corporate policies and firm value around different types of CEO turnovers: a prosocial CEO replacing a non-prosocial CEO versus other types of CEO turnovers. Our results thus suggest that prosocial CEOs are more likely to make corporate decisions that benefit a wide range of firm stakeholders.","PeriodicalId":12319,"journal":{"name":"Financial Accounting eJournal","volume":"81 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"76709740","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}
{"title":"Loan-level Disclosure and the Convenience Yield of Asset-Backed Securities","authors":"Brent A. Schmidt, H. Zhang","doi":"10.2139/ssrn.3316344","DOIUrl":"https://doi.org/10.2139/ssrn.3316344","url":null,"abstract":"This paper examines the impact of mandatory loan-level disclosure on the convenience yield of AAA-rated asset-backed securities. Relying on the put-call parity relationship to estimate the daily risk-free interest rate unaffected by the convenience features of safe assets, we first show that the average bond yield for AAA-rated ABS is consistently below the risk-free rate, suggesting a convenience yield exists for these assets. We then find that, using non-AAA rated ABS issued by the same trusts, backed by the same underlying loan portfolios, and traded in the same month as a control group, the average difference between the risk-free rate and yield of AAA-rated ABS (Box spread) decreases by approximately 50% after the mandatory loan-level disclosures. This result is stronger when the quality of loan-level disclosure is high, when the price of bonds subject to loan-level disclosure is volatile, and when the ABS market is tight. Corroborating our main results, we also find AAA-rate ABS subject to loan-level disclosure requirement is less likely to serve as collateral in the tri-party repo market. Overall, our paper provides novel evidence supporting recent theoretical developments that increased transparency reduces pledgeability, and thus the convenience yield of safe assets.","PeriodicalId":12319,"journal":{"name":"Financial Accounting eJournal","volume":"12 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"81780930","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}
{"title":"Employing Alternative Accounting Methods in Oil and Gas Company","authors":"Tim Sovaniski","doi":"10.2139/ssrn.3679321","DOIUrl":"https://doi.org/10.2139/ssrn.3679321","url":null,"abstract":"The research problem stems from the fact that accounting organizations do not agree on a specific method for the purpose of organizing financial reports in the oil sector, so FASB requires oil and gas companies to use the Successful efforts method, while the SEC allows companies to use the Full Cost method.<br><br>So, this research aims to study the difference between the accounting methods used in the oil field, namely full cost method (FC) and successful efforts method (SE) in the context of financial reports in an oil company for the purpose of reviewing the pros and cons of the methods used on reported profits and their impact on users interested in financial data.<br><br>The main conclusion of this research can be the Successful Efforts method discloses the internal flaws and supports the investor in reaching reasonable investment decision, and the full cost method highlighted by proponents as the Full Cost methodology in the long run reveals more positive bottom-line results for the firm.<br>","PeriodicalId":12319,"journal":{"name":"Financial Accounting eJournal","volume":"7 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-08-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"89789622","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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