The effect of capital market pressures on the association between R&;D spending and CEO option compensation

We examine the effect of capital market pressures for meeting earnings benchmarks on the relationship between R&D spending and CEO option compensation. We consider a particular scenario when firms face small earnings declines but could opportunistically reduce R&D spending to increase reported earnings. We find that firms with income reporting concerns punish their CEOs with lower option compensation when R&D spending increases but reported earnings decreases. Further, for firms with income reporting concerns, we find that the penalty for increasing R&D is greater when the firms frequently miss quarterly earnings benchmarks in the year. Overall, our findings suggest that the adverse consequence on CEO options encourages short-run compensation-motivated actions to eliminate or postpone R&D projects with positive net present values.     

Accounting Ph.D. program graduates: affiliation performance and publication performance

We examine the affiliation performance and publication performance of 1991–1997 accounting Ph.D. graduates. We define affiliation performance as whether or not an individual is employed at a school with an accounting program ranked by Trieschmann et al. (Academy of Management Journal 43:1130–1141, 2000). We define publication performance in two ways, whether or not the Ph.D. graduate published in at least one of: (1) three premier accounting journals, and (2) a broader set of eight accounting journals. We examine the influence of the institutional status (private versus public) of the graduating institution on both affiliation performance and publication performance. We examine the institutional status both unconditionally and conditionally on four article types published in three premier journals: (1) articles from Ph.D. dissertations, (2) co-authored articles with degree-school faculty, (3) co-authored articles with degree-school Ph.D. students, and (4) co-authored articles with affiliated faculty. We show that accounting graduates of private schools are more likely to be affiliated with higher ranked schools, but they are not more likely to publish in the premier journals or the broader set of eight journals.

The Impact of Corporate Social Responsibility on Risk Taking and Firm Value

We hypothesize that CSR serves as a control mechanism to reduce deviations from optimal risk taking, and therefore, CSR curbs excessive risk taking and reduces excessive risk avoidance. Based on the stakeholder theory, firms with CSR focus must balance the interests of multiple stakeholders, and therefore, managers must allocate resources to satisfy both investing and non-investing stakeholders’ interests. Using five measures of corporate risk taking and a sample of 1718 US firms during 1998 to 2011, we find that stronger CSR performance is associated with smaller deviations from optimal risk taking levels. We examine the mechanism through which CSR has an impact on firm value and find a positive indirect impact of CSR on firm value through the impact of CSR on risk taking. CSR performance is positively associated with firm value because CSR reduces excessive risk taking and risk avoidance.     

Product market competition and earnings management: Evidence from discretionary accruals and real activity manipulation

We examine the association between product market competition and earnings management activities. We use the Herfindahl-Hirschman Index (HHI), a widely used measure for market concentration, as a proxy for product market competition. We examine two forms of earnings management: accrual-based and real activity-based. Our results are mixed, but generally suggest that both income-increasing accrual manipulation and real activity-based manipulation are more prevalent among firms in low competition industries than those in high competition industries. Our findings are robust to various measures of earnings management, alternative measures of product market competitions, and different subsamples. We further explore the reasons why firms in low competition industries are more inclined to manage earnings and find that the market consequences of missing important earnings targets are more severe among firms in low competition industries than those in high competition industries.     

Compensation discussion and analysis (CD&A): Readability and management obfuscation

This paper examines the relationship between the readability of the CD&A section in proxy statements and management motives to obfuscate executive compensation disclosures. Using the CD&As in the 2007 and 2008 proxy statements, we examine whether the CD&A readability is associated with the proportion of CEO pay not related to the economic determinants of compensation. We note that the average CD&A is difficult to read. We find that firms with CEO pay exceeding the benchmark pay have a more difficult to read CD&A in the 2007 proxy season. The result suggests that, in its first CD&A report, top management tends to cloak its compensation practices when the practices are not tied to the economic determinants of pay. However, we also find those firms with CEO pay exceeding the benchmark pay improve the readability of their CD&As in the 2008 proxy season, suggesting that executive compensation disclosure improves under regulatory oversight and public pressure.     

Corporate citizenship and earnings attributes

This study examines the association between corporate citizenship and earnings attributes. We examine four accounting-based earnings attributes, including persistence, predictability, smoothness, and accrual quality. Our sample consists of 652 public companies used to select the 100 Best Corporate Citizens (BCC) published by Business Ethics Magazine in 2001 and 2002. We find that BCC's earnings are more predictable, more persistent, and smoother than non-BCC's. Consistent with prior research findings, our results also indicate that BCC report higher subsequent accounting returns than non-BCC in the three-year period following the publication of the 2001 and 2002 BCC lists. We attribute these findings to the effort of good corporate citizens to preserve their reputation and the public's trust.     

Corporate social responsibility and stock split

This study examines whether socially responsible companies are likely to conduct a stock split. We argue that these companies, compared to their counterparts, could use their strong corporate social responsibility (CSR) performance to reduce information asymmetry with shareholders, and therefore, are less likely to rely on stock splits to signal their future growth potentials. We find empirical evidence to support our hypothesis and investigate the reasons for the lower frequency of stock splits among CSR oriented firms. We find that more socially responsible firms experience a smaller increase in trading volume and a greater increase in bid-ask spread following a stock split than less socially responsible firms. Furthermore, our study finds that, when more socially responsible firms decide to conduct a stock split, they attract a greater proportion of institutional investors with long-term investment horizons.