When Auditors Say ‘No,’ Does the Market Listen?

Previous research on whether the market responds to auditors’ opinions has provided mixed results. We revisit this issue in China, where individual investors who are more likely to neglect value-relevant information dominate the stock market. In addition to going concern opinions (GCOs), China permits modified audit opinions (MAOs) on violations of accounting standards or disclosure rules (GAAP/DISC MAOs), providing an opportunity not available in the literature to enrich the study of audit-opinion pricing. We find that, ceteris paribus, MAO recipients underperform in the future and have a higher incidence of adverse outcomes such as misreporting and stock delisting, and the market reacts negatively to MAOs during the short window around MAO disclosure. Importantly, MAO disclosure is not followed by negative long-term stock returns, suggesting stock price adjustments to MAOs are speedy and unbiased. These findings hold for both GCOs and GAAP/DISC MAOs. Together, our findings support the informativeness of audit opinions and cast doubt on the argument that investors inefficiently price audit opinions due to information-processing bias.     

The capital market spillover effect of product market advertising: Evidence from stock price synchronicity

We analyze whether product market advertising has a spillover effect on stock price synchronicity by transmitting firm-specific information to the capital market and attracting more investor attention. Using a sample of Chinese listed firms from 2009 to 2017, we find that firms with greater advertising expenditures have lower stock price synchronicity. The results are robust after we address endogeneity concerns. In accord with our hypothesis that product market advertising increases the amount of firm-level information capitalized into stock prices through the information channel, we find that the impact of advertising on synchronicity is more pronounced for firms with a higher degree of information asymmetry and firms in the consumer-product industry. Further tests show that product market advertising enhances the ability of current period returns to reflect future earnings, and thus rules out that the negative relationship between advertising and synchronicity is driven by noise trading. Our results imply that product market advertising plays an informative role and improves information efficiency in a capital market.     

The market microstructure of the European climate exchange

This paper analyzes the market microstructure of the European Climate Exchange, the largest EU ETS trading venue. The ECX captures 2/3 of the screen traded market in EUA and more than 90% in CER. Volume growth has averaged 277% in EUA between 2005 and 2009 and 724% in CER since 2007. Spreads range from €0.0188 to €0.0406 for EUA and €0.0276 to €0.0796 for CER. The median proportion of the spread due to adverse selection reaches 76% for EUA and 75% for CER. Realized volatility, bid-ask spreads and adverse selection costs decline with verified emission releases. Market impact estimates imply that an average trade will move the EUA market by 1.06 euro centimes and the CER market 1.45. The ECX is providing between 75% and 88% of price discovery for EUA trading and between 64% and 72% for CER. We find imbalances in the order book help predict returns for up to three days. A simple trading strategy that enters the market long or short when the order imbalance is strong is profitable even after accounting for spreads and market impact.     

What influences consumers’ intention to purchase organic personal care products? The role of social reassurance

Green and organic markets have grown rapidly in recent times, thanks to the increasing global popularity of having a healthier lifestyle. Rising consumer awareness of the risks of synthetic chemicals for humans as well as the environment have boosted the demand for organic personal care products (PCPs). To better understand the micro-mechanisms guiding the organic PCPs buying process, this study builds on the social proof theory by examining the drivers leading this process in two different national contexts. Partial least squares structural equation modelling was used to conduct a multigroup analysis on a sample of 473 consumers (n = 266 from Spain, n = 207 from Italy). Findings reveal the significant role of environmental value, product knowledge, convenience & quality, and information adoption. Furthermore, the study introduces and validates the new construct ‘social reassurance’ explaining the psychological mechanisms leading the organic PCPs buying process.     

Uncertainty perception in bidding for Product-Service Systems under competition

This research investigates what impact of uncertainty perception arising from the existence of competition has on the pricing decision for Product-Service Systems (PSS) under uncertainty. PSS provision is an increasingly important area for many businesses and competition increases cognitive pressures on providers even further. We present an experimental study with industrial costing and bidding experts from the defence and aerospace sector. The study consisted of an experimental set-up via two questionnaires which differed in the existence of competition in the bidding scenario. The findings showed that bidding decision makers changed their evaluation of the cost estimate due to the introduction of competition but kept their evaluations of the profit margin and price bids constant. Furthermore, the participants listed the relevant sources of uncertainty that influenced their decision-making process. This research contributes to the literature in two ways. First, our findings showed that predictions from current theory regarding decision-making of cost estimation and pricing are not confirmed when competitively bidding for PSS. Second, we show uncertainty sources that influenced the decision makers and identified p the importance of internal processes of the PSS provider and environmental uncertainty.     

How to get banks to take less risk and disclose bad news

There is wide agreement that before the recent financial crisis, financial institutions took excessive risk in their investment strategies. At the same time, regulators complained that banks did not reveal the extent of their difficulties in a timely fashion thus reducing the effectiveness of government intervention to prevent or mitigate the deleterious effects of the financial crisis. The purpose of this paper is to investigate how regulators can best use certain tools at their disposal to motivate banks to take less risk and to provide adverse information to regulators early. We argue that two tools, namely (i) allowing bank payouts to equity holders even when banks report they are in trouble and (ii) constraining banks’ future investment strategy when they are in trouble can achieve both goals. We show that, in some cases, it is optimal to use both of these tools in combination. That is, in such cases it is optimal to allow equity payouts when banks report they are in trouble, even though such payouts increase the incentive for banks to take excessive risk and even though these payments are financed by taxpayers. We also show that the more socially costly is constraining the bank’s portfolio selection or the more complex are the bank’s assets, the more likely it is that allowing larger payouts and fewer constraints is optimal. Finally we discuss how changes in bank capital requirements interact with inducing disclosure and preventing excessive risk taking.     

Can information and communication overload influence smartphone app users' social network exhaustion,privacy invasion and discontinuance intention? A cognition-affect-conation approach

Thanks to the expansion of network technologies and the coupling of smartphone hardware, younger generations have unparalleled access to a diverse range of information and interactive communication opportunities. Despite voluminous research on the causes of social network exhaustion and privacy invasion, limited academic attention has been devoted to understanding the driving forces and contributing factors for discontinuing usage of smartphone app. Drawing on the cognition-affect-conation paradigm, the present research proposes a conceptual research model to examine how information overload and communication overload effect social network exhaustion, privacy invasion, and ultimately, smartphone app users' intentions to discontinue usage. The study evaluates data from 442 smartphone app users, employing statistical analyses to demonstrate that both information overload and communication overload significantly impact users' exhaustion and privacy invasion. Additionally, social network exhaustion and privacy invasion are two major predictors of smartphone app discontinuance intention. By identifying the influential factors and causes of younger generations' discontinuous usage intention of smartphone app, this study meets the need for a thorough assessment of the social network exhaustion and privacy invasion phenomena. The findings may potentially enhance comprehension of the discontinuation intention phenomenon in the context of cognitive overload. Furthermore, they may provide novel insights for practitioners regarding effective strategies conducive to managing mobile social network adoption behavior, as well as the preservation of engagement levels among young users in mobile-saturated societies.     

Information leakage of ADRs Prior to company issued guidance

We examine whether the degree of selective disclosure (as measured by information leakage prior to managerial earnings guidance) of foreign firms with ADRs is different from that of U.S. firms. We find that there is no variation of leakage before earning guidance between ADRs and U.S. firms. This result is consistent with the prediction that, despite being exempt from Regulation FD, ADRs have sufficient incentives to avoid selective disclosure even without the regulatory enforcement. In addition, we attempt to determine whether the variation in selective disclosure among the foreign firms with ADRs is conditioned on the respective home country transparency and governance standards. We find that country-specific characteristics, such as corruption perception, economic freedom and the legal system origin, explain the variation in information leakage of ADRs.     

中国制造业企业开放式创新行为及影响因素

开放式创新行为对提高企业创新绩效有显著影响。基于2012年世界银行调查数据，对中国企业开放式创新行为影响因素进行了实证分析。研究表明：①企业开放式创新行为在区域、行业上分布不均；②竞争对手情况、信息技术支持度、数据软件共享度、产品出口、产品销售范围等对研发合作有显著正向影响；③高管工作经历、竞争者数量、信息技术支持度等对企业创新开放度有显著正向影响。     

Does Investor Sentiment Affect the Value Relevance of Accounting Information?

We investigate whether investor sentiment affects the relationships between accounting variables and contemporaneous stock returns. Using price-relevant accounting variables identified by Chen and Zhang (2007) and the investor sentiment index constructed by Baker and Wurgler (2006), we find that the value relevance of accounting variables is collectively lower in high sentiment periods than in low sentiment periods. More importantly, earnings yield appears to be more related to contemporaneous stock returns in high sentiment periods, while other accounting variables are more related to stock returns in low sentiment periods. The effect of investor sentiment on the value relevance of accounting information is stronger for firms that are more difficult to value and to arbitrage.