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Anticipatory effects around proposed regulation: Evidence from Basel III The Accounting Review (IF 4.4) Pub Date : 2022-04-28 Bradley Hendricks,Jed Neilson,Catherine Shakespeare,Christopher D. Williams
Regulation is often proposed, developed, and finalized over a lengthy rule-making period prior to its adoption. We examine the period over which banking authorities discussed, adopted, and implemented Basel III to understand how firms respond to proposed regulation. We find evidence to suggest that affected banks not only lobbied rule makers against it, but that they also made strategic financial reporting
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Evolution in Value Relevance of Accounting Information The Accounting Review (IF 4.4) Pub Date : 2022-04-21 Mary E. Barth,Ken Li,Charles McClure
We address how value relevance of accounting information evolved as the new economy developed. Prior research concludes accounting information—primarily earnings—has lost relevance. We consider more accounting items and find no decline in combined value relevance from 1962 to 2018. We assess evolution in each item’s value relevance and find increases, most notably for items related to intangible assets
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The Effect of Industrial Diversification on Firm Taxes The Accounting Review (IF 4.4) Pub Date : 2022-04-19 Kelly Wentland
This study investigates whether industrial diversification generally provides a tax advantage and how the convexity of the tax system contributes to this benefit. The main findings show multi-industry operations do lower a firm’s taxes and income volatility relative to single industry operations on average, but the benefit is not universal. Namely, there is no significant tax advantage when multi-industry
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AMBIGUOUS STICKS AND CARROTS: THE EFFECT OF CONTRACT FRAMING AND PAYOFF AMBIGUITY ON EMPLOYEE EFFORT The Accounting Review (IF 4.4) Pub Date : 2022-04-14 Joe Burke,Kristy Towry,Donald Young,Jacob Zureich
Research suggests that employees work harder under penalty contracts than under economically equivalent bonus contracts. We build on this literature by examining how the motivational advantage of penalty contracts depends on a common aspect of real-world contracts: payoff ambiguity. With payoff ambiguity, employees provide effort without knowing how much pay they will receive for a given level of performance
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The effect of supervisors’ prior task performance on employees’ targets The Accounting Review (IF 4.4) Pub Date : 2022-04-14 Christoph Feichter
In three experiments, I investigate how supervisors’ task performance in lower-level jobs prior to being promoted to the supervisory level influences the targets they set for employees. I propose that supervisors show an “experience bias” by which they overemphasize their own experiences when setting targets for employees. As such, supervisors who achieved high performance before being promoted set
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Consequences of Prescribed Disclosure Timeliness: Evidence from Acceleration of the Form 8-K Filing Deadline The Accounting Review (IF 4.4) Pub Date : 2022-04-12 Jessica Watkins
I investigate capital market consequences of an increase in prescribed timeliness of firms’ mandatory disclosure of material events. Specifically, I examine an SEC regulatory change that accelerates the Form 8-K filing deadline and classify 8-Ks as likely to be constrained or unconstrained by the increase in prescribed timeliness. After the regulatory change, firms filing constrained 8-Ks exhibit increases
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Fair Value Measurement Discretion and Opportunistic Avoidance of Impairment Loss Recognition The Accounting Review (IF 4.4) Pub Date : 2022-03-31 Leslie D. Hodder,Amy Sheneman
Studies find evidence that opportunistic reporting often accompanies fair value measurement. However, research cannot determine whether the source of this opportunism is the estimate of fair value itself. Using detailed information on insurers’ investment holdings, we separate the use of fair value measurement discretion from the application of nonmeasurement-related discretion in accounting for incurred
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Incorporating Financial Statement Information to Improve Forecasts of Corporate Taxable Income The Accounting Review (IF 4.4) Pub Date : 2022-03-31 Danielle H. Green,Erin Henry,Sarah M. Parsons,George A. Plesko
We examine whether public financial statement information is incrementally useful in forecasting confidential taxable income. More precise firm-level taxable income forecasts can improve policymakers’ modeling of the tax system and the analysis of proposed changes in corporate tax law, while more accurate macro-level forecasts of corporate taxable income can improve estimates of corporate tax revenues
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Corporate Governance and Tax Avoidance: Evidence from U.S. Cross-listing The Accounting Review (IF 4.4) Pub Date : 2022-03-31 Ruiyuan Chen,Sadok El Ghoul,Omrane Guedhami,He Wang,Yang Yang
Using a sample of cross-listed firms from 51 countries and a difference-in-differences approach that exploits corporate governance shocks induced by cross-listing in the U.S., we find that firms tend to engage in less tax avoidance after cross-listing. This effect is more pronounced for firms that experience significant improvements in corporate governance, and for firms from countries with weaker
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Client Consulting Opportunities and the Reemergence of Big 4 Consulting Practices: Implications for the Audit Market The Accounting Review (IF 4.4) Pub Date : 2022-03-24 Elizabeth Cowle,Tyler Kleppe,James R. Moon,Jonathan E. Shipman
Consulting service revenues recently surpassed audit revenues as the primary income source for the largest accounting firms. Since SOX limits the provision of consulting services to audit clients, this shift in revenues implies that firms and many clients likely choose between audit and consulting relationships. We explore the implications of this by developing and validating a measure of client-level
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The role of gender in the aggressive questioning of CEOs during earnings conference calls The Accounting Review (IF 4.4) Pub Date : 2022-03-17 Joseph Comprix,Kerstin Lopatta,Sebastian A. Tideman
We investigate the role of gender on the aggressiveness of sell-side analysts’ questions during earnings conference calls. Our tests reveal that the verbal aggressiveness of analysts’ questions is significantly associated with both the gender of the analyst asking the question and the gender of the CEO fielding the question. First, we find that male analysts are more verbally aggressive than female
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Non-Price and Price Performance Vesting Provisions and CEO Incentives The Accounting Review (IF 4.4) Pub Date : 2022-03-15 John E. Core,Heidi A. Packard
A large body of empirical work provides mixed support for the central prediction from agency theory that noisier performance measures receive less weight in incentive contracts. We develop a method to calculate price-based and non-price-based performance measure weights using CEO pay and holdings of stock, options, and performance-vested awards. Consistent with theory, we find that noisier performance
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The Effect of Past Performance and Task Type on Managers’ Target Setting Decisions: An Experimental Investigation The Accounting Review (IF 4.4) Pub Date : 2022-03-15 Markus Arnold,Martin Artz,Ivo D. Tafkov
We investigate how performance-to-target (exceeding vs. missing prior target) and task type (ability-driven vs. effort-driven) affect managers’ target setting decisions in a setting where a manager sets targets for multiple employees. To do so, we use an experiment involving executives averaging more than 16 years of work experience. We predict and find stronger target adjustments when prior targets
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Improving Performance on Low-Level Audit Tasks: The Interactive Effect of Regulatory Fit and Professional Identity The Accounting Review (IF 4.4) Pub Date : 2022-03-10 Kim I. Mendoza,Amanda Winn
Auditing standards vary in their degree of prescriptive language—for example, stating that auditors “could” vs. “should” do certain procedures. We posit that more prescriptive language primes an implemental mindset, thereby creating a feeling of regulatory fit with objective verification tasks and improving auditors’ performance on these tasks. In an experiment with audit students, we find that participants
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INTERACTIVE AUDITOR-CLIENT NEGOTIATIONS: THE EFFECTS OF THE ACCUMULATING NATURE AND DIRECTION OF AUDIT DIFFERENCES The Accounting Review (IF 4.4) Pub Date : 2022-03-03 Richard C. Hatfield,Curtis E. Mullis,Ken T. Trotman
In this study we consider how the accumulating nature and income direction of audit differences influence negotiated adjustments to the financial statements. We test our expectations by constructing dyads consisting of experienced auditors and financial officers, allowing them to interact via a web-based instrument. As predicted, based on expectancy violation theory and consideration of negotiation
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Expected Loan Loss Provisioning: An Empirical Model The Accounting Review (IF 4.4) Pub Date : 2022-03-01 Yao Lu,Valeri V. Nikolaev
The new accounting standard requires that financial institutions estimate expected credit losses on their loan portfolios. The predictability of long-term losses, however, remains an open question. We develop a model that predicts long-term loan losses and incorporates adjustments for macroeconomic forecasts. The model combines cross-sectional predictions with a high-dimensional dynamic factor model
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Does Seeking Audit Evidence Impede the Willingness to Impose Audit Adjustments? The Accounting Review (IF 4.4) Pub Date : 2022-03-01 Steven J. Kachelmeier,Dan Rimkus
In two incentivized auditing experiments, participants who choose to acquire evidence adjust for the risk revealed by that evidence to a lesser extent than those who obtain the same evidence without investigative action, controlling for the diagnostic value of evidence. This finding follows from mental accounting and information choice theories, which in combination predict that choosing to undertake
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Do Shared Auditors Improve Audit Quality? Evidence from Banking Relationships The Accounting Review (IF 4.4) Pub Date : 2022-03-01 Karen Ton
Auditor knowledge is a key element in explaining the supply of audit quality, yet understanding of the drivers of this knowledge in the archival literature is limited. This study uses an archival approach to examine whether the sharing of auditors among firms in banking relationships results in information transfers that improve audit quality. I find that audit quality improves for both borrowers and
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Auditor Specialization and Information Spillovers The Accounting Review (IF 4.4) Pub Date : 2022-02-21 Evgeny Petrov,Phillip C Stocken
We study the determinants of auditor industry specialization, the impact of specialization on fees and audit quality, and a regulator's optimal choice of audit standards in the presence of specialization. In industries with correlated firm values, a specialist auditor enjoys synergies from information spillovers between clients. These spillovers, however, only induce a specialist to decrease audit
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Forecast Withdrawals and Reporting Reputation The Accounting Review (IF 4.4) Pub Date : 2022-02-15 Nathan T Marshall, A. Nicole Skinner
While accounting research has extensively examined initial guidance disclosures, the disclosures managers make when initial forecasts become materially inaccurate have received much less attention. These updates are unique because managers are communicating that their initial forecasts are no longer correct. In this context, we examine how earnings forecast withdrawals affect managers’ reporting reputation
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Are Tax Havens and Offshore Financial Centers Cracked Down On? A Study on the International Standard of Exchange of Information on Request The Accounting Review (IF 4.4) Pub Date : 2022-02-15 Yijun Li, Mark (Shuai) Ma
To “crack down” on tax havens and offshore financial centers, the Organisation for Economic Co-operation and Development (OECD) has promoted an internationally agreed tax standard of exchange of information on request since 2009. Using a difference-in-differences analysis, we find that the implementation of the standard significantly reduces aggressive tax avoidance by affected U.S. multinational firms
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Measuring the information content of disclosures: The role of return noise The Accounting Review (IF 4.4) Pub Date : 2022-02-14 Jacob K. Thomas, Frank Zhang, Wei Zhu
Disclosure is of fundamental interest to accounting research. When the sign/magnitude of disclosed news is unclear, the information in disclosure events is inferred using the ratio of return volatilities during event and non-event windows (Beaver, 1968). We show that return noise due to microstructure frictions and mispricing affects this ratio and that effect is comparable to or exceeds that of information
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Why Do Large Positive Non-GAAP Earnings Adjustments Predict Abnormally High CEO Pay? The Accounting Review (IF 4.4) Pub Date : 2022-02-14 Nicholas Guest, S.P. Kothari, Robert Pozen
CEOs of S&P 500 firms that report high non-GAAP earnings relative to GAAP earnings receive substantial unexplained pay. Crucially, this result remains even after controlling for the level of non-GAAP and GAAP earnings. These firms are relatively poor performers (i.e., low GAAP earnings and stock returns) and have less powerful CEOs, consistent with non-GAAP earnings being used as justification when
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Initial Task Engagement: Unlocking the Value of Fit and Non-Fit to Improve Audit Judgments The Accounting Review (IF 4.4) Pub Date : 2022-02-14 Yue (Bright) Hong
Deficiencies identified in complex audit tasks suggest room for improvement in audit judgments. I propose that aligning an auditor’s focus (prevention/promotion) and mindset (concrete/abstract) in a compatible way can induce an experience of “regulatory fit” that improves judgments compared to “regulatory non-fit”. Results are more complex than previously thought. I find that fit versus non-fit improves
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CFO Gaps: Determinants and Impact on the Corporate Information Environment The Accounting Review (IF 4.4) Pub Date : 2022-02-03 Xia Chen, Na Li, An-Ping Lin
A CFO gap arises when the CFO position is left vacant for a period between the departure of the old CFO and the appointment of a new CFO. We find that CFO gaps are fairly common; over the sample period 2004–2016, approximately one-third of CFO turnovers are associated with a CFO gap, lasting on average two quarters and two months. CFO gaps are more likely for firms that face more labor market search
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Does Board Demographic Diversity Enhance Cognitive Diversity and Monitoring? The Accounting Review (IF 4.4) Pub Date : 2022-02-02 Jun-Koo Kang, Seil Kim, Seungjoon Oh
We examine whether board demographic diversity enhances cognitive diversity (measured as director dissent in the boardroom) and monitoring. At the director level, we find that individual directors who are dissimilar relative to other board members in terms of tenure and experience are more likely to dissent. At the board level, boards composed of directors with heterogenous tenure, experience, and
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Beyond Borders: Uncertainty in Supragovernmental Tax Enforcement and Corporate Investment The Accounting Review (IF 4.4) Pub Date : 2022-02-02 Zackery Fox, Martin Jacob, Jaron Wilde, Ryan J. Wilson
Amid growing globalization, many countries have offered tax incentives to attract corporate investment. Prior research studies the role such incentives play in firms’ location and investment choices. However, we have limited evidence on the role that uncertainty about the intensity of future tax enforcement plays in those decisions. In 2013, the European Commission (“E.C.”) abruptly began investigating
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Political Connections and Accounting Conservatism The Accounting Review (IF 4.4) Pub Date : 2022-01-24 Vishal P Baloria
Firms supply accounting conservatism in response to debt/equity contracting, litigation, political costs, and taxation demand from stakeholders. I examine whether political connections between U.S. firms and politicians moderate and/or intensify the impact of these demands on the supply of conditional and unconditional conservatism. I measure political connections based on the association between firms’
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Proprietary costs: Why do R&D-active firms choose single-lender financing? The Accounting Review (IF 4.4) Pub Date : 2022-01-13 Paul A. Griffin, Hyun A Hong, Ji Woo Ryou
We examine whether proprietary costs drive R&D-active firms’ choice of private loan structure. We find that R&D-active firms are more likely to choose single-lender over multi-lender private loan financing. This is consistent with the theory that high-ability entrepreneurs protect their proprietary knowledge by communicating it to a single lender while disclosing generic and less sensitive information
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Losers of CEO Tournaments: Incentives, Turnover, and Career Outcomes The Accounting Review (IF 4.4) Pub Date : 2022-01-13 Eric W. Chan, John Harry Evans III, Duanping Hong
We investigate the consequences for non-promoted executives (NPEs) in CEO tournaments. We find that NPEs’ total incentives decrease following the end of a tournament based on evidence of their reduced future promotion prospects and limited adjustments to their compensation. Consistent with the theory that NPEs leave in response to this loss in incentives, results indicate that turnover is higher for
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Accounting Restatements and Bank Liquidity Creation The Accounting Review (IF 4.4) Pub Date : 2022-01-13 Wei Wang
Banks play a central role in creating liquidity for the economy by financing illiquid assets with liquid liabilities. This paper examines the effect of accounting restatements on bank liquidity creation. Using a difference-in-differences research design, I show that restatements trigger a significant reduction in liquidity creation. This effect derives mainly from banks shifting away from illiquid
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News at the Bell and a Level Playing Field The Accounting Review (IF 4.4) Pub Date : 2022-01-11 Danqi Hu, Andrew Stephan
We provide initial evidence that stock exchange procedures around closing auctions advantage speed traders at the expense of auction participants. We show that, on Nasdaq and NYSE Arca, 4:00 pm earnings releases result in informed trading in the continuous regular-hour session in the short window between 4:00 pm and the closing auction; this trading subsequently moves closing prices in the direction
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Human Versus Machine: A Comparison of Robo-Analyst and Traditional Research Analyst Investment Recommendations The Accounting Review (IF 4.4) Pub Date : 2022-01-07 Braiden Coleman, Kenneth J. Merkley, Joseph Pacelli
We provide the first comprehensive analysis of the properties of investment recommendations generated by “Robo-Analysts,” which are human-analyst-assisted computer programs conducting automated research analysis. Our results indicate that Robo-Analyst recommendations differ from those produced by traditional “human” research analysts across several important dimensions. First, Robo-Analysts produce
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ABC Cost Driver Framing and Altering the Balance of Power in Customer-Supplier Negotiations The Accounting Review (IF 4.4) Pub Date : 2022-01-07 Linda J Chang
This study examines how activity-based costing (ABC) cost driver framing affects suppliers’ ability to increase their bargaining power when facing powerful customers. Results of an experiment show that suppliers with high potential to contribute to increasing joint profits are able to increase their power and earn a higher share of joint profits than suppliers with low contribution potential. However
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Contemporary Conflicts in Perspectives on Work Hours across Hierarchical Levels in Public Accounting The Accounting Review (IF 4.4) Pub Date : 2021-12-21 Lisa Baudot,Khim Kelly,Aaron McCullough
Socializing personnel into accepting work hour norms has been fundamental to how accounting firms function, but is now challenged by contemporary work perspectives. Using 40 semi-structured interviews of personnel across hierarchical levels at a national firm and an international firm, we show how strangeness and contradiction expressed in work hour perspectives across different levels within both
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Influence of Control Precision and Prior Collaboration Experience on Trust and Cooperation in Inter-organizational Relationships The Accounting Review (IF 4.4) Pub Date : 2021-12-21 Shannon W. Anderson,Mandy M. Cheng,Yee Shih Phua
We investigate whether prior collaboration experience affects a focal partner’s response to the precision of monitoring controls adopted by a new partner, with consequences for their goodwill trust in, and subsequent cooperation with, the new partner. We expect the partner to interpret their new partner’s adoption of precise monitoring controls as either an effort to limit their autonomy or to reduce
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Real Effects of Private Country-by-Country Disclosure The Accounting Review (IF 4.4) Pub Date : 2021-12-20 Marcel Olbert,Lisa De Simone
We investigate the effects of mandatory private Country-by-Country Reporting (CbCR) to European tax authorities on multinational firms’ capital and labor investments as well as their organizational structures. We exploit the threshold-based application of this 2016 disclosure rule to conduct difference-in-differences and regression discontinuity tests. We document increases in capital and labor expenditures
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The Cost of Fraud Prediction Errors The Accounting Review (IF 4.4) Pub Date : 2021-12-16 Messod Daniel Beneish,Patrick Vorst
We compare seven fraud prediction models with a cost-based measure that nets the benefits of correctly anticipating instances of fraud, against the costs borne by incorrectly flagging non-fraud firms. We find that even the best models trade off false to true positives at rates exceeding 100:1. Indeed, the high number of false positives makes all seven models considered too costly for auditors to implement
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Theory Testing and Process Evidence in Accounting Experiments The Accounting Review (IF 4.4) Pub Date : 2021-12-16 H. Scott Asay,Ryan Guggenmos,Kathryn Kadous,Lisa Koonce,Robert Libby
This paper discusses the role of process evidence in accounting research. We define process evidence broadly as data providing insight into how and why cause-effect relationships occur, and we provide a framework to guide the provision and evaluation of process evidence in accounting studies. Our definition allows for an expanded understanding of techniques for gathering process evidence. The framework
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The Value of Auditor Industry Specialization: Evidence from a Structural Model The Accounting Review (IF 4.4) Pub Date : 2021-12-14 Qiang Guo,Christopher Koch,Aiyong Zhu
This study investigates the value of auditor industry specialization. In the first step, we use a discrete choice model to derive the first-order demand for auditor industry specialization. Our results reveal that clients have a general preference for auditor industry specialization, relating to both audit firm and audit office specialization. Further, we observe that specializations at the audit firm
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Who Pays Attention to SEC Form 8-K? The Accounting Review (IF 4.4) Pub Date : 2021-12-14 Peter Easton,Azi Ben-Repahael,Zhi Da,Ryan Israelsen
The SEC requires public companies to disclose material information on Form 8-K within four days of a triggering event. We show that, on 8-K event and filing dates, there is significant abnormal attention on Bloomberg terminals, which are a source of information for institutional investors, while traditional media attention tends to be higher on filing days. Significant price discovery occurs on the
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Policeman for the World: The Impact of Extraterritorial FCPA Enforcement on Foreign Investment and Internal Controls The Accounting Review (IF 4.4) Pub Date : 2021-12-10 Hans B Christensen,Mark G Maffett,Thomas Rauter
We show that a mid-2000s increase in extraterritorial enforcement of the US Foreign Corrupt Practices Act (FCPA), characterized by greater international regulatory cooperation and more frequent use of the FCPA’s accounting provisions, has a significant deterrent effect on foreign direct investment in high-corruption-risk countries. The decrease in investment is at least as large for non-US as for US
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Are Level 3 Fair Value Remeasurements Useful? Evidence from ASC 820 Rollforward Disclosures The Accounting Review (IF 4.4) Pub Date : 2021-12-03 Peter Fiechter,Zoltán Novotny-Farkas,Annelies Renders
Exploiting detailed disclosures mandated by Accounting Standard Codification (ASC) 820, we provide evidence for the return relevance of Level 3 fair value remeasurements for a comprehensive sample of U.S. listed banks. We find that Level 3 remeasurements recognized in earnings are more return relevant than those recognized in other comprehensive income (OCI). Our results suggest that Level 3 remeasurements
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Dark Market Share around Earnings Announcements and Speed of Resolution of Investor Disagreement The Accounting Review (IF 4.4) Pub Date : 2021-11-30 Karthik Balakrishnan,Xanthi Gkougkousi,Wayne R. Landsman,Peeyush Taori
This study examines how the market share of dark venues changes at earnings announcements. Our analysis shows a statistically significant increase in dark market share in the weeks prior to, during, and following the earnings announcement. We also predict and find evidence that increases in dark market share around earnings announcements are higher for firms with high quality accounting information
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Spillover Effects in Disclosure-Related Securities Litigation The Accounting Review (IF 4.4) Pub Date : 2021-11-23 Dain C Donelson,Rachel W Flam,Christopher G. Yust
Securities litigation is relatively rare but can significantly affect sued firms. We extend this research by examining the spillover effect of securities litigation on industry peers using a sample of disclosure-related litigation—distinct from events such as restatements and SEC enforcement. We find investors respond immediately as peers exhibit negative abnormal returns before and after case filings
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Fracking Disclosure, Collateral Value, and the Mortgage Market The Accounting Review (IF 4.4) Pub Date : 2021-11-23 Kirti Sinha
This paper examines whether laws requiring oil and gas firms to disclose the chemicals used in their fracking operations affect the mortgage lending activity for properties located in nearby areas. I hypothesize and find that the disclosure mandate reduces uncertainty about the value of housing collateral and subsequently increases 1) the probability of obtaining a mortgage by 2.5 percentage points
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The Role of Social Bonds in Understanding the Pre- and Post-Recognition Effects of Recognition Visibility The Accounting Review (IF 4.4) Pub Date : 2021-11-12 Joe Burke
Distinguishing high-performing employees imposes choices on managers: Is recognition most effectively delivered publicly or privately? If delivered publicly, what setting is best? This paper broadens the accounting literature on the implications of these decisions. Via experiment, I examine how the social bond between recognized employees and those observing the recognition influences the effect of
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The Information Content of Publicly Accessible Federal Court Documents The Accounting Review (IF 4.4) Pub Date : 2021-11-09 Richard Carrizosa,Richard A. Cazier
Prior literature documents a negative stock price reaction to initial securities lawsuit filings, on average. Securities litigation produces a host of publicly accessible court documents, however, and prior research provides no evidence regarding whether or how the market prices information generated by the litigation process. We shed light on the information content of federal court filings by examining
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Do Firms Redact Information from Material Contracts to Conceal Bad News? The Accounting Review (IF 4.4) Pub Date : 2021-11-09 Dichu Bao,Yongtae Kim,Lixin (Nancy) Su
The Securities and Exchange Commission (SEC) allows firms to redact information from material contracts by submitting confidential treatment requests, if redacted information is not material and would cause competitive harm upon public disclosure. This study examines whether managers use confidential treatment requests to conceal bad news. We show that confidential treatment requests are positively
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Disciplining Role of Auditor Tenure and Mandatory Auditor Rotation The Accounting Review (IF 4.4) Pub Date : 2021-11-08 Aysa Dordzhieva
ABSTRACT This study addresses the international debate over whether the rotation of audit firms should be mandatory. Mandatory rotation rules have been adopted by the European Union, but these rules have not been established in the United States. Proponents of the policy believe that a long-tenure auditor-client relationship leads to the auditor building an excessive economic bond with the client,
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Managerial Response to Macroeconomic Uncertainty: Implications for Firm Profitability The Accounting Review (IF 4.4) Pub Date : 2021-11-08 Oliver Binz
This paper examines how agents’ response to macroeconomic uncertainty affects firms’ revenues, expenses, and profitability in a global sample of firms spanning 1997 to 2018. Consistent with consumers reducing purchases and managers cutting costs, I find that increases in macroeconomic uncertainty lead to both lower revenues and lower expenses. The net short-term effect on profitability is positive
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Financial Reporting, Auditing, Analyst Scrutiny, and Investment Efficiency The Accounting Review (IF 4.4) Pub Date : 2021-11-05 Derek Chan,Nanqin Liu
This paper presents an economic framework to study strategic interactions along the analyst-auditor-owner disciplinary chain, in which the auditor examines the financial reports prepared by the owner, and the analyst uncovers financial misreporting as well as audit failure. We find that although analyst scrutiny ex post detects misreporting, it ex ante aggravates the owner's misreporting behavior and
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The Beneficial Learning Effects of Combining a Hypothesis-Testing Mindset with a Causal Model The Accounting Review (IF 4.4) Pub Date : 2021-11-04 Kun Huo,Khim Kelly,Alan Webb
Firms often use causal models to align decision-making with strategic objectives. However, firms often operate in changing environments such that an accurate causal model can become inaccurate. Prior research has not examined the consequences a change in the accuracy of causal models may have for managerial learning. Using an experiment, we predict and find that providing an accurate causal model positively
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Taxes and Haven Activities: Evidence from Linguistic Cues The Accounting Review (IF 4.4) Pub Date : 2021-11-04 Kelvin K. F. Law,Lillian Mills
Users of Exhibit 21 cannot tell whether a tax haven subsidiary is actively operating or a dormant shell company. In this paper, we develop a new set of parsimonious measures to highlight the distinct mechanisms and tax effects of offshore sales to, as opposed to purchases from, tax haven countries, offering insights on the effects of certain types of offshoring activities on firms’ tax burdens. Our
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The Real Effects of Mandatory Nonfinancial Disclosure: Evidence from Supply Chain Transparency The Accounting Review (IF 4.4) Pub Date : 2021-11-01 Guoman She
This paper studies whether and how mandatory nonfinancial disclosure affects firms’ real decisions. I exploit a disclosure regulation enacted in California, which mandates that firms disclose how they conduct due diligence to address their suppliers’ human rights abuses. I find that treated firms increase their supply chain due diligence, and their suppliers’ human rights performance improves following
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The Effect of Accrual Heterogeneity on Accrual Quality Inferences The Accounting Review (IF 4.4) Pub Date : 2021-10-21 Patricia M. Dechow,Chad R Larson,Robert J Resutek
We investigate the impact of the mixed attribute GAAP measurement model on accrual quality inferences. GAAP rules vary from an income statement 'matching' focus to a balance sheet 'fair-value' focus. Accrual properties are also affected by the business activity being measured and the activity's recurrence. Furthermore, accrual measurement is affected by managerial estimation error/manipulation. As
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Analyst Dividend Forecasts and Their Usefulness to Investors The Accounting Review (IF 4.4) Pub Date : 2021-09-30 Pawel Bilinski,Mark T. Bradshaw
In contrast to the disappearing dividends view prevalent in the literature, we document extensive dividend payments by firms and significant variability within firms and across 16 countries during 2000-2013. We predict that within-firm variability in dividends increases investor demand for forward-looking dividend information, and analysts respond by producing informative dividend forecasts. We find
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Construct Validity in Accruals Quality Research The Accounting Review (IF 4.4) Pub Date : 2021-09-30 Alexander Nezlobin,Richard G. Sloan,Jenny Zha Giedt
A large body of empirical research in accounting investigates the causes and consequences of accruals quality, reaching numerous influential conclusions. Yet little work has been done to systematically evaluate the validity of the underlying measures of accruals quality. We evaluate these measures using three criteria: (i) Is the measure unaffected by the underlying economic determinants of accruals
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Law Firms as Tax Planning Service Providers The Accounting Review (IF 4.4) Pub Date : 2021-09-30 Andrew A. Acito,Michelle L. Nessa
We provide large sample evidence of law firms facilitating U.S. publicly traded companies' tax planning, investigate when evidence of law firm involvement is strongest, and examine some tax planning mechanisms law firms facilitate. Because companies' tax planning relationships with law firms are not publicly observable, we use litigation filings and SEC comment letters to identify companies' observable
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Can FinTech competition improve sell-side research quality? The Accounting Review (IF 4.4) Pub Date : 2021-09-02 Russell Jame,Stanimir Markov,Michael Wolfe
We examine how increased competition stemming from an innovation in financial technology influences sell-side analyst research quality. We find that firms added to Estimize, an open platform that crowdsources short-term earnings forecasts, experience a pervasive and substantial reduction in consensus bias and a limited increase in consensus accuracy relative to matched control firms. Long-term forecasts