Tick Size and Financial Reporting Quality in Small-Cap Firms: Evidence from a Natural Experiment

Using a natural experiment (the SEC's 2016 Tick Size Pilot Program), we investigate the effects of an increase in tick size on financial reporting quality. The tick size pilot program reduces algorithmic trading (AT) and increases fundamental investors’ information acquisition and trading activities. This in turn increases the scrutiny of managers’ financial reporting choices and reduces their incentives to engage in misreporting. Using a difference-in-differences research design, we find a significant decrease in the magnitude of discretionary accruals, a significant reduction in the likelihood of just meeting or beating analysts’ forecasts, and a marginally significant decrease in restatements for the treated firms in the pilot program. Furthermore, we find that the change in financial reporting quality is concentrated in treated firms experiencing decreases in AT and increases in information acquisition activities. We also find that the mispricing of accruals is significantly lower for treated firms. Taken together, our results suggest that an increase in tick size has a causal effect on firms’ financial reporting quality.     

The Global Impact of Brexit Uncertainty

We propose a text-based method for measuring the cross-border propagation of large shocks at the firm level. We apply this method to estimate the expected costs, benefits, and risks of Brexit and find widespread reverberations in listed firms in 81 countries. International (i.e., non-U.K.) firms most exposed to Brexit uncertainty (the second moment) lost significant market value and reduced hiring and investment. International firms also overwhelmingly expected negative first-moment impacts from the U.K.'s decision to leave the European Union (EU), particularly related to regulation, asset prices, and labor market impacts of Brexit.     

Managerial Overconfidence and Accounting Conservatism

Overconfident managers overestimate future returns from their firms’ investments. Thus, we predict that overconfident managers will tend to delay loss recognition and generally use less conservative accounting. Furthermore, we test whether external monitoring helps to mitigate this effect. Using measures of both conditional and unconditional conservatism respectively, we find robust evidence of a negative relation between CEO overconfidence and accounting conservatism. We further find that external monitoring does not appear to mitigate this effect. Our findings add to the growing literature on overconfidence and complement the findings by Schrand and Zechman [2011] that overconfidence affects financial reporting behavior.     

Corporate Governance and the Prediction of the Impact of AIFRS Adoption

This study examines whether a firm's corporate governance system, particularly with respect to the characteristics of the board of directors and senior management, affects how accurately the impact of accounting changes is reported to shareholders. We concentrate on the relation between corporate governance measures and accounting forecast errors that arise with adoption of the International Financial Reporting Standards by listed Australian firms. Evidence reveals that corporate governance mechanisms are associated with the likelihood and magnitude of managerial forecast errors.     

Introduction to a Debate on the World Social Forum

Social Forums, modeled on the World Social Forums, are not social movements in the classic sense. They are not, and do not purport to be, the organizational form through which basic social change will be achieved, or can best be pursued. But they do bring together elements of many social movements, afford an opportunity for coalition‐building among them, frequently around urban issues, and thus make a significant contribution to achieving such change. Conceivably they may be the foundation for an international social movement for change, but if so it is likely to coalesce about a specifically political program. Some concrete suggestions are made which might enhance their effectiveness. Les Forums sociaux, sur le modèle des Forums sociaux mondiaux, ne sont pas des mouvements sociaux au sens traditionnel. Ils ne sont, ni ne sont censés être, la forme d’organisation permettant d’atteindre ou de mener au mieux un changement social fondamental. Cependant, ils réunissent des composantes de nombreux mouvements sociaux, leur offrent une possibilité de créer une coalition (souvent autour de problèmes urbains) et contribuent ainsi fortement à l’évolution visée. En théorie, ils peuvent servir de base à un mouvement social international en faveur d’un changement, quoique ayant alors tendance à s’unir sur un programme politique. Les suggestions concrètes qui sont formulées peuvent en améliorer l’efficacité.     

Officer retention and military spending: the rise of the military-industrial complex during the Second World War

This article examines how the regional distribution of US military personnel contributed to military expenditures around the country. We first discuss a theory of political economy for military spending—officers who remain in service can eventually help channel military funds and employment to their respective regions of origin, through direct military spending decisions or indirect political channels. Further, if officer retention is positively related to less industrialization at home (fewer work opportunities at home induce greater service lengths), this channel will induce greater progressiveness in military spending. To test these ideas we use the personnel records of officers serving in the US Navy from 1870 to the late 1930s. Tracking the tenure of all officers, we construct measures of ‘military representation’ across US counties. Through ordinary least squares, Tobit, and instrumental variable approaches, we find that senior naval officer representation across regions positively and robustly predicts regional naval spending (but not spending from other branches) during the Second World War.     

Dividend Payouts and Information Shocks

We examine changes in firms’ dividend payouts following an exogenous shock to the information asymmetry problem between managers and investors. Agency theories predict a decrease in dividend payments to the extent that improved public information lowers managers’ need to convey their commitment to avoid overinvestment via costly dividend payouts. Conversely, dividends could increase if minority investors are in a better position to extract cash dividends. We test these predictions by analyzing the dividend payment behavior of a global sample of firms around the mandatory adoption of IFRS and the initial enforcement of new insider trading laws. Both events serve as proxies for a general improvement of the information environment and, hence, the corporate governance structure in the economy. We find that, following the two events, firms are less likely to pay (increase) dividends, but more likely to cut (stop) such payments. The changes occur around the time of the informational shock, and only in countries and for firms subject to the regulatory change. They are more pronounced when the inherent agency issues or the informational shocks are stronger. We further find that the information content of dividends decreases after the events. The results highlight the importance of the agency costs of free cash flows (and changes therein) for shaping firms’ payout policies.     

Modelling money demand in open economies: the case of selected Asian countries

While early work on money demand estimation focused primarily on the importance of domestic variables, many studies in later years have suggested that foreign variables also influence the domestic demand for money in an open economy. With the rapid financial market liberalization in some of the Asian economies in the last couple of decades, open economy factors have become very important in the determination of money demand. Therefore, this paper aims to ascertain the degree to which foreign opportunity cost variables influence money demand in the Philippines, Singapore and South Korea. Cointegration analysis is performed and an error correction model estimated using quarterly time-series data. The empirical results support the inclusion of foreign opportunity cost variables in the money demand function.