STOCK MARKET REACTION TO ANTICIPATED VERSUS SURPRISE RATING CHANGES

I examine whether bond rating changes can be anticipated by investors and test whether the stock price reaction to the eventual change varies as a result. All else equal, the market reaction to changes that could have been easily predicted should be significantly smaller than the reaction to changes that are largely a surprise. Although rating upgrades prove difficult to predict, approximately 20% of downgrades can be correctly predicted using a relatively small number of publicly available variables. There is no significant difference between the stock price reaction to anticipated versus unanticipated rating changes.     

Perceptions of Dishonesty among Two-year College Students: Academic versus Business Situations

This study statistically analyzes two-year college students' attitudes toward cheating via a survey containing academic and business situations that the students evaluated on a seven point scale from unethical to ethical. When both the general questions concerning attitudes about cheating and the opinions on the ethical statements are considered, the business students were generally more unethical in their behavior and attitudes than non-business majors. These results indicate a need for more ethical exposure in business courses to help students distinguish ethical from unethical decisions.     

Choosing Transformation Over Tradition: The Changing Perception of Online Education

Despite advancements in online education, misperceptions persist that create obstacles to the integration of online classes in higher education. This essay refutes misconceptions about online education and highlights key components of a strong online course. As a result of the pandemic, it became apparent that there is a conflation between “school” and “education” that has prompted contradistinction. This discussion provides insight into some of the social and economic implications of the culture of our education system.     

Accounting Variables,Deception, and a Bag of Words: Assessing the Tools of Fraud Detection

We develop a data‐generated tool for distinguishing between fraudulent and truthful reports based on the language used in the management discussion and analysis section of annual and interim reports. Using this method, we are able to assign a probability of truth to each report which is then shown to be an effective indicator of fraud. Our work goes beyond the development of a tool alone, however, by conducting an extensive comparison of our probability‐of‐truth measure with eight alternative detection tools representing both quantitative and language‐based approaches. Comparisons are made across a variety of samples and show that our language‐based approach can be effective in both cross‐sectional and time‐series settings. It is useful both in distinguishing between fraudulent and truthful firms and in identifying fraudulent reports from a series of reports issued by a single firm. This second setting is one in which accounting‐based detection tools have frequently struggled. We establish that, not only is our probability‐of‐truth measure significantly associated with fraud, so too is the change in this measure from a firm's previous reports. Prior reports may serve an important benchmarking role in using language‐based tools to identify fraud.     

Online Education in a Pandemic: Stress Test or Fortuitous Disruption?

This study explores higher education and the ways in which the shutdown caused by the COVID‐19 pandemic have accelerated the evolution of online education. This movement from face‐to‐face (F2F) education to a virtual environment was forced and unplanned. It can be viewed as a stress test for digital teaching and learning in the higher education system. The study addresses course conversions and the progress of online education in response to the current crisis.     

Can Fraudulent Cues Be Transmitted by Innocent Participants?

The authors explore whether and how linguistic indicators of fraud make their way into the Management Discussion & Analysis (MD&A) section of financial reports. Although research has shown that word choice and tone can help identify fraudulent financial reports, it is as yet unclear how this occurs when these reports are written by many individuals, some of whom are unaware that financial misrepresentation is occurring. Through an examination of industry recommendations and interviews with individuals experienced in writing the MD&A section, the authors confirm that many hands are involved in drafting this portion of financial reports. The authors then structure an experiment, using a real fraud case, that asks participants to write an MD&A from truthful prior U.S. Securities and Exchange Commission filings and a memo from the CFO with suggestions of what to say in the current period MD&A. Unbeknownst to participants the CFO memo was created using phrases from financial statements subsequently identified to be fraudulent. The authors find that individuals do unwittingly write MD&A associated with fraudulent financial statements with relatively little suspicion and that linguistic cues contained in the CFO memo are transmitted to the ultimate MD&A through naive and innocent participants.     

Institutional influence on syndicate structure and cross‐border leveraged buyouts

We explore the extent to which differences in countries’ formal and informal institutions reduce cross‐border leveraged buyout transactions and the potential influence these same institutions have on how private equity (PE) investors choose to enter these transactions. Although institutional differences have frequently been viewed as barriers to cross‐border investment, we find evidence that these same differences may motivate a PE firm's decision to enter the transaction with a syndicate of firms rather than undertaking the transaction on their own. Cultural differences between a PE firm and the target nation are significantly related to the choice to enter the deal via a multinational syndicate. The varying nationalities within the syndicate contribute to enhanced familiarity, with average institutional distances between the syndicate and target firms being significantly lower than for single‐PE‐led deals. Overall, deals undertaken by syndicates are more likely to be successfully completed and require less time in negotiation. These results persist even after accounting for selection bias with regard to target country choice. We explore whether other features of the syndicate are responsible for improved deal outcomes, such as repeated transactions with the same partners, but find no evidence that this is the case.