Accounting Comparability and the Accuracy of Peer-Based Valuation Models.
TAR(2015)
Young, Steven
Yachang Zeng
用的欧洲Data
借鉴accounting comparability，改善peer-based valuation model。
We examine the link between enhanced accounting comparability and the valuation performance of pricing multiples. Using the warranted multiple method proposed by Bhojraj and Lee (2002), we demonstrate how enhanced accounting comparability leads to better peer-based valuation performance. Empirical tests using firms from 15 European Union (EU) countries over the period 1997-2011 (with comparable peers selected from the entire cross-section of foreign firms) document significant improvement in valuation performance measured as pricing accuracy, the ability of value estimates to explain cross-sectional variation in observed price, and the ability of the pricing multiple to predict future market-to-book multiples. Findings for a series of identification tests suggest that enhanced valuation performance is the consequence of improvements in the degree of cross-border accounting comparability that occurred during the sample window, and that a significant fraction of comparability gain operates through improved peer selection.
Monday, November 30, 2015
Do Clients Avoid ''Contaminated'' Offices? The Economic Consequences of Low-Quality Audits.
Do Clients Avoid ''Contaminated'' Offices? The Economic Consequences of Low-Quality Audits.
TAR(2015)
Swanquist, Quinn T.
Whited, Robert L.
就是Auditor的客户出过Restatement，Auditor的Fee会受影响。
This study investigates whether the market for audit clients penalizes auditors following association with low-quality audits. Specifically, we examine whether audit offices experience a loss in local market share following client restatements. We document that the frequency of restatement announcements within an office-year (''contamination'') is inversely related to subsequent year-over-year change in local market share. Further analysis indicates that restatements impair the office's ability to both attract and retain audit clients. We find that this effect is strongest in high competition markets and diminished in low competition markets. We also examine auditor retention decisions at the client level and find that the likelihood of auditor dismissal increases with contamination, even for non-restating clients. We also find that, on average, clients dismissing their auditor select less contaminated audit offices. Taken together, our results suggest that market forces penalize auditors for association with audit failures, thereby providing an incentive to maintain high-quality audits and protect reputational capital.
TAR(2015)
Swanquist, Quinn T.
Whited, Robert L.
就是Auditor的客户出过Restatement，Auditor的Fee会受影响。
This study investigates whether the market for audit clients penalizes auditors following association with low-quality audits. Specifically, we examine whether audit offices experience a loss in local market share following client restatements. We document that the frequency of restatement announcements within an office-year (''contamination'') is inversely related to subsequent year-over-year change in local market share. Further analysis indicates that restatements impair the office's ability to both attract and retain audit clients. We find that this effect is strongest in high competition markets and diminished in low competition markets. We also examine auditor retention decisions at the client level and find that the likelihood of auditor dismissal increases with contamination, even for non-restating clients. We also find that, on average, clients dismissing their auditor select less contaminated audit offices. Taken together, our results suggest that market forces penalize auditors for association with audit failures, thereby providing an incentive to maintain high-quality audits and protect reputational capital.
Why do Restatements Decrease in a Clawback Environment? An Investigation into Financial Reporting Executives' Decision-Making during the Restatement Process.
Why do Restatements Decrease in a Clawback Environment? An Investigation into Financial Reporting Executives' Decision-Making during the Restatement Process.
TAR(2015)
Pyzoha, Jonathan S.
Clawback Policies降低Restatement几率
和Auditor quality也有点关系
Prior archival studies find that firms that voluntarily adopted clawback policies have experienced a reduction in restatements. I experimentally examine this outcome by investigating the influence of two key factors (i.e., executive compensation structure and auditor quality) on financial reporting executives' (hereafter, ''executives'') decision-making regarding a proposed restatement that will lead to a clawback of their incentives. I find that executives (i.e., CFOs, controllers, and treasurers) facing a lower quality auditor are less likely to agree with amending prior financial statements when a higher proportion of their pay is incentive-based. However, this tendency is reduced when executives face a higher quality auditor, indicating that higher quality auditors can act as effective monitors. My results identify an ex post unintended consequence of clawback regulation that could at least partially offset the benefits of the ex ante deterrent effects of clawbacks, and that could contribute to findings of less frequent restatements when clawback policies are in place. I discuss potential implications regarding the role of executives during restatement decisions and auditors' risk assessments in a clawback environment.
TAR(2015)
Pyzoha, Jonathan S.
Clawback Policies降低Restatement几率
和Auditor quality也有点关系
Prior archival studies find that firms that voluntarily adopted clawback policies have experienced a reduction in restatements. I experimentally examine this outcome by investigating the influence of two key factors (i.e., executive compensation structure and auditor quality) on financial reporting executives' (hereafter, ''executives'') decision-making regarding a proposed restatement that will lead to a clawback of their incentives. I find that executives (i.e., CFOs, controllers, and treasurers) facing a lower quality auditor are less likely to agree with amending prior financial statements when a higher proportion of their pay is incentive-based. However, this tendency is reduced when executives face a higher quality auditor, indicating that higher quality auditors can act as effective monitors. My results identify an ex post unintended consequence of clawback regulation that could at least partially offset the benefits of the ex ante deterrent effects of clawbacks, and that could contribute to findings of less frequent restatements when clawback policies are in place. I discuss potential implications regarding the role of executives during restatement decisions and auditors' risk assessments in a clawback environment.
The Earnings Quality and Information Processing Effects of Accounting Consistency.
The Earnings Quality and Information Processing Effects of Accounting Consistency.
TAR(2015)
Peterson, Kyle
Schmardebeck, Roy
Wilks, T. Jeffrey
这是他们的independent variable:
textual similarity of accounting policy footnotes（由这个计算的accounting consistency）
然后就是各earnings quality之间的联系。
可以看看。
We specify measures of accounting consistency both across time and across firms based on the textual similarity of accounting policy footnotes disclosed in 10-K filings. We first examine how these measures relate to earnings quality. Accounting consistency over time is positively associated with a number of earnings quality proxies, including earnings persistence, predictability, accrual quality, and absolute discretionary accruals. We also find that lower consistency relative to other firms in the industry is associated with larger absolute accrual model residuals. Finally, we examine the information processing effects of accounting consistency. We find that greater accounting consistency in the time-series and the cross-section is associated with lower information asymmetry, as proxied by bid-ask spread and illiquidity. Greater cross-sectional consistency is also associated with greater analyst coverage, more accurate analyst forecasts, decreased dispersion in analyst forecasts, and stronger stock return synchronicity.
TAR(2015)
Peterson, Kyle
Schmardebeck, Roy
Wilks, T. Jeffrey
这是他们的independent variable:
textual similarity of accounting policy footnotes（由这个计算的accounting consistency）
然后就是各earnings quality之间的联系。
可以看看。
We specify measures of accounting consistency both across time and across firms based on the textual similarity of accounting policy footnotes disclosed in 10-K filings. We first examine how these measures relate to earnings quality. Accounting consistency over time is positively associated with a number of earnings quality proxies, including earnings persistence, predictability, accrual quality, and absolute discretionary accruals. We also find that lower consistency relative to other firms in the industry is associated with larger absolute accrual model residuals. Finally, we examine the information processing effects of accounting consistency. We find that greater accounting consistency in the time-series and the cross-section is associated with lower information asymmetry, as proxied by bid-ask spread and illiquidity. Greater cross-sectional consistency is also associated with greater analyst coverage, more accurate analyst forecasts, decreased dispersion in analyst forecasts, and stronger stock return synchronicity.
On the Pricing of Mandatory DCF Disclosures: Evidence from Oil and Gas Royalty Trusts.
On the Pricing of Mandatory DCF Disclosures: Evidence from Oil and Gas Royalty Trusts.
TAR(2015)
Patatoukas, Panos N.
Sloan, Richard G.
Zha, Jenny
发现：
(1) DCF比historical cost有用
(2) investors misprice 因为他们低估DCF
(3) 如果有媒体提出某公司的这个问题，misprice问题会缓解。
We identify a setting in which firms are required to disclose discounted cash flow (DCF) estimates relating to the value of their primary assets. ASC 932 (formerly SFAS No. 69) has mandated DCF disclosures for proved oil and gas reserves since 1982, and these reserves constitute the primary assets of oil and gas royalty trusts. For a hand-collected sample of oil and gas royalty trusts, we find that (1) the mandatory DCF disclosures are incrementally value-relevant over historical cost accounting variables, (2) investors misprice royalty trust units because they underweight the disclosed DCF estimates when forecasting future distributions, and (3) media articles bringing attention to discrepancies between price and the disclosed DCF estimates are significant stock price catalysts. While our evidence indicates that mandatory DCF disclosures can be incrementally useful for security valuation, it also indicates that investors may overlook such information, potentially due to lack of attention and accounting expertise.
TAR(2015)
Patatoukas, Panos N.
Sloan, Richard G.
Zha, Jenny
发现：
(1) DCF比historical cost有用
(2) investors misprice 因为他们低估DCF
(3) 如果有媒体提出某公司的这个问题，misprice问题会缓解。
We identify a setting in which firms are required to disclose discounted cash flow (DCF) estimates relating to the value of their primary assets. ASC 932 (formerly SFAS No. 69) has mandated DCF disclosures for proved oil and gas reserves since 1982, and these reserves constitute the primary assets of oil and gas royalty trusts. For a hand-collected sample of oil and gas royalty trusts, we find that (1) the mandatory DCF disclosures are incrementally value-relevant over historical cost accounting variables, (2) investors misprice royalty trust units because they underweight the disclosed DCF estimates when forecasting future distributions, and (3) media articles bringing attention to discrepancies between price and the disclosed DCF estimates are significant stock price catalysts. While our evidence indicates that mandatory DCF disclosures can be incrementally useful for security valuation, it also indicates that investors may overlook such information, potentially due to lack of attention and accounting expertise.
Recognition versus Disclosure of Fair Values.
Recognition versus Disclosure of Fair Values.
TAR(2015)
Müller, Maximilian A.
Riedl, Edward J.
Sellhorn, Thorsten
市场misprice fair value的两大原因：
(1) lower reliability of the disclosed information
(2) investors' higher related information processing costs
用了欧洲的Data
发现相关性确实很低
这两大原因确实可以解释
This paper examines pricing differences across recognized and disclosed fair values. We build on prior literature by examining two theoretical causes of such differences: lower reliability of the disclosed information, and/or investors' higher related information processing costs. We examine European real estate firms reporting under International Financial Reporting Standards (IFRS), which require that fair values for investment properties, our sample firms' key operating asset, either be recognized on the balance sheet or disclosed in the footnotes. Consistent with prior research, we predict and find a lower association between equity prices and disclosed relative to recognized investment property fair values, reflecting a discount applied to disclosed fair values. We then predict and find that this discount is mitigated by lower information processing costs (proxied via high analyst following), and some support that it is also mitigated by higher reliability (proxied via use of external appraisals). These latter results are documented using subsample analyses to test one attribute (either information processing costs or reliability) while holding the other constant. Overall, these findings are consistent with fair value reliability and information processing costs providing complementary explanations for observed pricing discounts assessed on disclosed accounting amounts.
TAR(2015)
Müller, Maximilian A.
Riedl, Edward J.
Sellhorn, Thorsten
市场misprice fair value的两大原因：
(1) lower reliability of the disclosed information
(2) investors' higher related information processing costs
用了欧洲的Data
发现相关性确实很低
这两大原因确实可以解释
This paper examines pricing differences across recognized and disclosed fair values. We build on prior literature by examining two theoretical causes of such differences: lower reliability of the disclosed information, and/or investors' higher related information processing costs. We examine European real estate firms reporting under International Financial Reporting Standards (IFRS), which require that fair values for investment properties, our sample firms' key operating asset, either be recognized on the balance sheet or disclosed in the footnotes. Consistent with prior research, we predict and find a lower association between equity prices and disclosed relative to recognized investment property fair values, reflecting a discount applied to disclosed fair values. We then predict and find that this discount is mitigated by lower information processing costs (proxied via high analyst following), and some support that it is also mitigated by higher reliability (proxied via use of external appraisals). These latter results are documented using subsample analyses to test one attribute (either information processing costs or reliability) while holding the other constant. Overall, these findings are consistent with fair value reliability and information processing costs providing complementary explanations for observed pricing discounts assessed on disclosed accounting amounts.
Earnings Announcements, Information Asymmetry, and Timing of Debt Offerings.
Earnings Announcements, Information Asymmetry, and Timing of Debt Offerings.
TAR(2015)
Kerr, Jon N.
Ozel, N. Bugra
在Earnings Announcment前后发Load是最少的，Bond强一点，Equity最强。
Earnings的News Size和选择哪种融资方式的公告有关。但News是好是坏无关(这不是很奇怪吗？) 文章的解释是，极端负面消息，比如litigation risk不在样本，所以导致了符号不相关。
We empirically examine the joint predictions of the pecking order theory and the theory of time-varying asymmetric information regarding the timing of security offerings around information disclosures. We analyze loan originations and bond offerings around earnings announcements and compare them against equity offerings. In support of the theories' predictions, we find a positive association between the information sensitivity of securities and the likelihood of their issuance after earnings announcements. In particular, we find that clustering after earnings announcements is weakest in loan originations, stronger in bond offerings, and strongest in equity offerings. Also consistent with the theories, we find that the size of news in earnings announcements matters in the timing decision. We find weak evidence regarding the theories' implication that the direction of news in the announcement plays a role in the timing decision. We test and find that this latter result is partly attributable to potential costs associated with the omission of material negative information, such as litigation risk.
TAR(2015)
Kerr, Jon N.
Ozel, N. Bugra
在Earnings Announcment前后发Load是最少的，Bond强一点，Equity最强。
Earnings的News Size和选择哪种融资方式的公告有关。但News是好是坏无关(这不是很奇怪吗？) 文章的解释是，极端负面消息，比如litigation risk不在样本，所以导致了符号不相关。
We empirically examine the joint predictions of the pecking order theory and the theory of time-varying asymmetric information regarding the timing of security offerings around information disclosures. We analyze loan originations and bond offerings around earnings announcements and compare them against equity offerings. In support of the theories' predictions, we find a positive association between the information sensitivity of securities and the likelihood of their issuance after earnings announcements. In particular, we find that clustering after earnings announcements is weakest in loan originations, stronger in bond offerings, and strongest in equity offerings. Also consistent with the theories, we find that the size of news in earnings announcements matters in the timing decision. We find weak evidence regarding the theories' implication that the direction of news in the announcement plays a role in the timing decision. We test and find that this latter result is partly attributable to potential costs associated with the omission of material negative information, such as litigation risk.
Evidence on Contagion in Earnings Management.
Evidence on Contagion in Earnings Management.
TAR(2015)
Kedia, Simi
Koh, Kevin
Rajgopal, Shivaram
同行业其他Restatements之后，这些公司反而更可能开始Earnings management.（这有理论基础吗？？？）但如果那个restatement比较严重，是SEC强制执行公告的，就木有这个现象。
Contagion传染现象，有以下特性：
(1) 和restatement公司的restate的量，差不多
(2) 时间相关
(3) 如果restate不那么严重
Contagion现场2003-2005暂停，也许因为SOX，但2006-2008又有了。
We examine contagion in earnings management using 2,376 restatements announced during the years 1997-2008. Controlling for industry and firm characteristics, firms are more likely to begin managing earnings after the public announcement of a restatement by another firm in their industry or neighborhood. Such contagion is absent when the restating firm is disciplined by the SEC or class action lawsuits, suggesting deterrent effects of enforcement activity. Contagion among peers is observed (1) in the same account as the one restated by the target firm, or (2) when larger target firms restate or the restatement is prominently disclosed, or (3) when the target firm's restatement is less severe. Contagion stops during the years 2003-2005, possibly due to the enforcement associated with the Sarbanes-Oxley Act (SOX), but reappears during 2006-2008, perhaps because the sting associated with SOX has worn off. In sum, peers' actions appear to affect a firm's earnings management decisions.
TAR(2015)
Kedia, Simi
Koh, Kevin
Rajgopal, Shivaram
同行业其他Restatements之后，这些公司反而更可能开始Earnings management.（这有理论基础吗？？？）但如果那个restatement比较严重，是SEC强制执行公告的，就木有这个现象。
Contagion传染现象，有以下特性：
(1) 和restatement公司的restate的量，差不多
(2) 时间相关
(3) 如果restate不那么严重
Contagion现场2003-2005暂停，也许因为SOX，但2006-2008又有了。
We examine contagion in earnings management using 2,376 restatements announced during the years 1997-2008. Controlling for industry and firm characteristics, firms are more likely to begin managing earnings after the public announcement of a restatement by another firm in their industry or neighborhood. Such contagion is absent when the restating firm is disciplined by the SEC or class action lawsuits, suggesting deterrent effects of enforcement activity. Contagion among peers is observed (1) in the same account as the one restated by the target firm, or (2) when larger target firms restate or the restatement is prominently disclosed, or (3) when the target firm's restatement is less severe. Contagion stops during the years 2003-2005, possibly due to the enforcement associated with the Sarbanes-Oxley Act (SOX), but reappears during 2006-2008, perhaps because the sting associated with SOX has worn off. In sum, peers' actions appear to affect a firm's earnings management decisions.
Unraveling the Black Box of Cost Behavior: An Empirical Investigation of Risk Drivers, Managerial Resource Procurement, and Cost Elasticity
Unraveling the Black Box of Cost Behavior: An Empirical Investigation of Risk Drivers, Managerial Resource Procurement, and Cost Elasticity
TAR(2015)
Holzhacker, Martin
Krishnan, Ranjani
Mahlendorf, Matthias
讲了两种主要的risk driver: demand uncertainty and financial risk.
文章认为 financial risk 影响 cost management activities
然后他们用了这些cost相关variables: outsourcing, leasing of equipment, and hiring contract labor
Data来自加州医院
结论是，这两件事情相关。
This paper extends prior literature on cost behavior by providing insights into how firms achieve changes to cost structure in response to two important risk drivers, i.e., demand uncertainty and financial risk. Using theory from labor economics, supply-chain management, and finance, we posit that demand uncertainty and financial risk influence cost management activities. Specifically, we argue that firms are likely to alter resource procurement choices to increase cost elasticity in response to these two risk drivers. We use data from California hospitals that allow for the calibration of three distinct resource procurement choices that increase cost elasticity: outsourcing, leasing of equipment, and hiring contract labor. Mediation analysis using 2,202 hospital year observations indicates that both demand uncertainty and financial risk influence cost elasticity. Importantly, these effects are mediated by the three aforementioned resource procurement choices. Overall, our findings support the view that firms make procurement choices to manage the risk associated with cost structures.
Accounting Conservatism and Creditor Recovery Rate.
Accounting Conservatism and Creditor Recovery Rate.
TAR(2015)
Donovan, John / Frankel, Richard M. / Martin, Xiumin
TAR(2015)
Donovan, John / Frankel, Richard M. / Martin, Xiumin
倒闭企业越Conservatism，银行的recovery rate越高。
We examine the relation between accounting conservatism and creditor recovery rates for firms in default. We also test the link between conservatism and the length of bankruptcy resolutions. We find that creditors of firms with more conservative accounting before default have significantly higher recovery rates, and that this positive relation is more pronounced for default firms that violated covenants before the default. We also find that conservative firms have higher asset productivity, shorter bankruptcy resolution, and a significantly higher probability of emerging from bankruptcy. These results suggest that accounting conservatism preserves firm value, leading to higher creditor recovery upon borrower default.
Priority Dissemination of Public Disclosures.
Priority Dissemination of Public Disclosures.
TAR(2015)
Bei Dong / Xuejun Li, Edward / Ramesh, K. /Min Shen
TAR(2015)
Bei Dong / Xuejun Li, Edward / Ramesh, K. /Min Shen
15分钟提早获取信息的Priority.
This study examines the unintended effects of a pre-Reg FD practice that gave a broad group of sophisticated market participants 15-minute earlier access to all corporate press releases than the general public. We find that roughly one-eighth of the price discovery to earnings announcements issued during regular trading hours was due to privileged access to information in earnings press releases, with the 15-minute priority dissemination contributing to just over 50 percent of price discovery from all privileged access. In addition, we find that transient institutions benefited from priority dissemination, especially when the earnings contained good news. Finally, consistent with economic theory, we find that intraday bid-ask spreads decreased post-Reg FD for firms that had sufficient market liquidity to allow trading opportunities during the 15-minute window. Our study has implications for current discussions on whether preferential information distribution by firms and information intermediaries creates an uneven playing field among investors.
Executive Equity Risk-Taking Incentives and Audit Pricing.
Executive Equity Risk-Taking Incentives and Audit Pricing.
TAR(2015)
Yangyang Chen / Gul, Ferdinand A. / Veeraraghavan, Madhu / Zolotoy, Leon
TAR(2015)
Yangyang Chen / Gul, Ferdinand A. / Veeraraghavan, Madhu / Zolotoy, Leon
CEO越风险偏好，审计费用越高。
Using a large sample of U.S. firms spanning the period 2000-2010, we document a strong positive association between the sensitivity of CEO compensation portfolio to stock return volatility (vega) and audit fees. We also show that the positive association between vega and audit fees is weaker in the post-Sarbanes-Oxley Act (SOX) period. In supplementary tests, we show that the relation between vega and audit fees is stronger for firms with older CEOs and in firms where the CEO is also chairman of the board. Collectively, our results suggest that audit firms incorporate executive risk-taking incentives in the fees they charge for their services.
Capital Market Consequences of Audit Partner Quality
Capital Market Consequences of Audit Partner Quality
TAR(2015)
Aobdia, Daniel / Lin, Chan-Jane / Petacchi, Reining
TAR(2015)
Aobdia, Daniel / Lin, Chan-Jane / Petacchi, Reining
就是审计质量和ERC的关系。正比咯当然！
This paper examines whether the identity of the individual audit partners provides informational value to capital market participants beyond the value provided by the identity of the audit firms. Using data from Taiwan, where firms are mandated to disclose the names of the engagement partners, we find a positive association between the partner's quality and the client firm's earnings response coefficient. We also find a positive market reaction when a firm replaces a lower quality partner with a higher quality one. Moreover, we find evidence that firms audited by higher quality partners experience smaller initial public offering (IPO) underpricing and are able to obtain better debt contract terms. Overall, these results suggest that the quality of engagement partners matters to capital market participants.
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