Disclosure “Bunching”

This paper studies managers' preferences among information acquisition and disclosure policies when their firms are required to engage in “real‐time” or “continuous” financial reporting. The paper predicts that for many, but not all, processes describing the distribution of their firms' cash flows, when subject to such reporting requirements, managers will engage in disclosure “bunching,” that is, they will bunch the discretionary component of the information they acquire and disclose into a single point in time rather than spread the acquisition and disclosure of that information over time. We show that managers' preferred bunching period depends on managers' strategy for trading in their firms' shares, managers' risk aversion, the risk premium the capital market attaches to firms' shares, and the size of managers' initial ownership stakes in their firms. We also study and characterize how the equilibrium prices of firms' shares vary over time and also how managers' optimal trading strategies vary with their most preferred “bunching” strategies. Several extensions confirm the robustness of the optimality of disclosure “bunching.”     

Stock-market disruptions and corporate disclosure policies

We examine managers’' disclosure decisions in response to non-fundamental price shocks. Using mutual fund fire sales as a source of market disruption, we show some firms respond by issuing earnings guidance. Others, especially firms with weaker performance and more short-term-oriented investors, engage in accrual-based earnings management. To identify the efficacy of firm disclosure choices, we examine passage of Sarbanes-Oxley and Regulation Fair Disclosure and show that they increased reliance on guidance rather than earnings management. The shift is associated with faster post-fire-sales price recovery, suggesting enhancing information disclosure rather than manipulation is effective in mitigating the effect of market disruptions.     

Pledgee competition,strategic disclosure,and future crash risk

We investigate whether pledgee competition affects the disclosure choice of firms whose controlling shareholders pledge their shares. We find that pledgee competition is positively related to pledge firms’ annual report tone management. This positive relationship is stronger for pledge firms with lower credit quality and non-state-owned enterprise pledge firms. Further corroborating our results, higher pledgee competition increases the future crash risk of pledge firms. Collectively, our results suggest that competition pressure induces pledgees to lower their monitoring incentives to remain competitive in the marketplace, thus leading to pledge firms’ bad news hoarding behavior.     

Short term real earnings management prior to stock repurchases

This study examines whether firms engage in income-decreasing real earnings management before open market stock repurchases to reduce the cost of stock buybacks. In the short run, managers have the ability to underproduce inventory and increase discretionary expenditures, thus decreasing current period earnings. We find that managers engage in both of these activities before repurchasing their firms’ shares, especially the latter. Also, companies increase their discretionary spending before making repurchases to a greater extent following the passage of the Sarbanes–Oxley Act of 2002 as well as when they are financially healthy and have high marginal tax rates. Finally, we document that firms with the most income-decreasing real earnings management experience the largest positive abnormal returns during the subsequent period. Our findings highlight the importance of considering firms’ use of real operating decisions, as opposed to just opportunistic disclosure practices, around significant corporate events, such as the repurchase of their own stock.     

The usefulness of firm risk disclosures under different firm riskiness,investor-interest,and market conditions: New evidence from Finland

To date, there is only meager research evidence on the usefulness of mandatory annual report risk disclosures to investors. Although it has been argued that corporate disclosure decreases information asymmetry between management and shareholders, we do not know whether investors benefit from high-quality risk reporting in a highly regulated risk disclosure environment. In this paper, we performed association tests to examine whether the quality of firms' mandatory risk disclosures relate to information asymmetry in the Finnish stock markets. In addition, we analyzed whether the usefulness of risk disclosures depends on contingency factors such as firm riskiness, investor interest, and market condition. We demonstrate that the quality of risk disclosure has a direct negative influence on information asymmetry. We also document that risk disclosures are more useful if they are provided by small firms, high tech firms, and firms with low analyst coverage. We also found that momentum in stock markets affects the relevance of firms' risk reports.     

Internal control effectiveness,textual risk disclosure,and their usefulness: U.S. evidence

This paper investigates the impact of internal control effectiveness (ICE) on the level of textual risk disclosure (TRD; including aggregate risk disclosure and its tone of good news and bad news about risk). Our findings suggest that firms with an ineffective internal control system exhibit significantly lower levels of TRD than firms with effective internal controls. Besides, we show a significant change in TRD behavior provided by managers of firms with recurrent ineffective internal controls. Pursuant to agency theory, this behavior change is prompted to reduce the expected public uncertainty and agency problems. We also investigate the usefulness of ICE reporting and TRD to the market. Results suggest that firms reporting ineffective internal controls are likely to have higher investor-perceived risk than firms reporting effective internal controls. Furthermore, TRD improves firms' market liquidity, and such improvement is principally driven by good news rather than bad news about risk. Collectively, our results fill an apparent gap in the literature on the importance of ICE, as well as the usefulness of the external auditor's attestation on a firm's internal controls and management TRD.     

Preemption,leverage, and financing constraints

This paper investigates the interactions between preemptive competition and leverage in a duopoly market. We investigate both a case in which the firms have optimal financial structures, and a case in which financing constraints require firms to finance their investments by debt. Our findings are that the second mover always leaves the duopoly market before the leader, although the leader may exit before the follower's entry. The leverage effects of debt financing can increase the value of a firm and accelerate investment, even in the presence of preemptive competition. Notably, financing constraints can delay preemptive investment and improve firm values in preemptive equilibrium. Indeed, the leader's high leverage due to financing constraints can lower the first-mover advantage and weaken preemptive competition. Especially with strong first-mover advantage, the financing constraint effects can dominate the leverage effects. These findings are almost consistent with the empirical evidence, which shows that high leverage leads to competitive disadvantage and mitigates product market competition.     

存款保险、市场竞争与银行经营稳健性

本文基于银行存款市场空间竞争模型,探讨存款保险制度的实施效果和福利效应,及其与市场竞争政策的交互作用。研究表明,政府隐性担保尽管能够保障存款人利益,但会降低存款人对银行经营稳健性的要求,使得银行追求高风险高收益资产从而降低经营稳健性;而市场化的存款保险制度通过费率与风险挂钩的激励机制,能够有效提升银行经营稳健性,同时避免过高政策成本负担,实现较高的社会福利水平。随着市场竞争强化,引入风险差别费率保险制度,在提升银行经营稳健性和增进社会福利方面的效果逐渐增强。模型分析表明,当长期允许机构自由进出市场时,政府强化竞争政策短期可能降低银行的经营稳健性,但长期内高风险银行逐渐退出市场而更有效率的低风险银行进入市场,这种柔性市场退出机制使得银行业整体经营稳健性增强。因此,在金融市场中强化竞争政策,推行并完善当前市场化的风险差别费率存款保险制度,长期内有助于在保护存款人利益的同时,提升银行稳健性和社会福利。     

The Impact of Pillar 3 Disclosure Requirements on Bank Safety

We consider the impact of a mandatory information disclosure on bank safety in a spatial model of banking competition, in which a bank’s probability of success depends on the quality of its risk measurement and management systems. Under Basel capital requirements, this quality is at least partially disclosed to market participants by the Pillar 3 disclosures. We show that the regulator can improve the safety of the banking system by tightening the disclosure requirements. Furthermore, the stricter the disclosure requirements are the bigger is a positive impact of an increase in capital requirements on bank safety.     

The effect of trade secrets protection on disclosure of forward-looking financial information

Using the recognition of the Inevitable Disclosure Doctrine (IDD) by US state courts as an exogenous shock to the risk of losing trade secrets, this study examines the effects of trade secrets on disclosure of forward-looking financial information. We find that management earnings forecast frequency and forecast horizon increases after the US state where a firm is headquartered starts to recognize IDD. We also find that the effect of IDD recognition on management forecasts is more pronounced for firms that have larger market shares, higher product market competition, more intensive R&D, shorter distance to their industry rivals, and more employees who possess knowledge of the firms’ trade secrets.     

商业银行市场风险披露对使用者的决策影响研究

本文从使用者风险分析的角度分析了企业会计准则第37号的市场风险披露对商业银行报表使用者的影响,得出了四个结论:37号准则关于市场风险的定义是恰当的,有利于商业银行报表使用者做出更为有效的风险分析;商业银行报表使用者比准则制定的预期有更为复杂的风险分析;37号准则允许的灵活性要求商业银行报表使用者有较高水平的风险分析能力;37号准则有必要进一步要求商业银行披露特定的对风险分析至关重要的量化信息。本研究以商业银行和市场风险为研究重点,研究结论对其他行业以及其他种类的风险披露也具有一定的扩展意义。     

国有商业银行上市与信息披露机制完善研究

在中国加入WTO和四大国有商业银行积极准备股改上市的背景下,建立和完善适应资本市场要求的信息披露机制意义重大.对照国际银行业的通行标准和资本市场的监管要求,我国国有商业银行的信息披露机制仍存在较大的完善空间.本文在归纳巴塞尔委员会和国内相关监管部门对上市银行信息披露要求的基础上,指出国有商业银行应尽快完善对风险管理定量信息、非财务信息、公司治理信息和表外业务信息的披露,充实会计报表附注的披露要素,并妥善处理信息披露与商业秘密保护的关系;通过完善信息披露机制,树立与国有商业银行资产规模和市场地位相称的上市公司形象.     

Corporate reputation and hedging activities

This study examines whether corporate reputation affects derivative hedging. We posit that high-reputation firms are more likely to engage in hedging due to greater reputation costs and/or their commitment to lower financial risks. We find that high-reputation firms are more likely to engage in hedging, especially when their hedging efforts or effects are more observable to stakeholders. We also find that high-reputation firms are less likely to disclose the notional values of hedging positions and that interest rate hedging by high-reputation firms is detrimental to firm value. Our results shed light on the impact of reputational concerns on corporate risk management and disclosure policies.     

高管持股、择时披露与市场反应

基于2001至2008年间A股公司业绩预告的样本,本文研究了高管持股对择时信息披露策略的影响,以及市场对择时披露信息的反应。研究发现,A股公司在业绩预告时存在择时披露的行为:好消息①更倾向于在交易日披露,坏消息更倾向于在休息日披露。高管持股比例会显著影响择时披露策略:高管持股比例越高的公司,进行择时披露的可能性也越高。从市场反应角度看,休息日披露的坏消息与交易日披露的坏消息没有显著差异,休息日披露的好消息反而会产生更加显著的正面市场反应。本文的研究意味着,高管持股比例会显著提高上市公司进行择时信息披露的可能性,但是市场在一定程度上能够识别择时披露策略,本文的研究结果支持了"信息消化"假说。     

Competition among the big and the small

Many industries are made up of a few big firms, which are able to manipulate the market outcome, and of a host of small businesses, each of which has a negligible impact on the market. We provide a general equilibrium framework that encapsulates both market structures. Due to the higher toughness of competition, the entry of big firms leads them to sell more through a market expansion effect generated by the shrinking of the monopolistically competitive fringe. Furthermore, social welfare increases with the number of big firms because the procompetitive effect associated with entry dominates the resulting decrease in product diversity.     

Competition among exchanges through simplified disclosure requirements: evidence from the American and Global Depositary Receipts

In this study, we address the ongoing debate as to whether the competition among the world's major exchanges through simplified disclosure requirements is justified. Companies from across the globe have a choice of cross-listing shares as either American or Global Depositary Receipts (ADRs and GDRs, respectively). The former are primarily listed on the US exchanges – NYSE, NASDAQ and AMEX – whereas the latter are issued into non-US markets such as the London Stock Exchange (LSE). The GDRs listed on the LSE are subject to simplified disclosure requirements compared to their exchange-listed ADR peers that have to meet more stringent compliance standards. Proponents of the ‘light touch’ approach argue that firms cross-listing as GDRs are not subject to the higher reporting costs faced by ADRs yet still face similar valuation benefits. Those who challenge this approach argue that simplified disclosure requirements set by the LSE will ultimately be recognised by the market as ineffective, diverting traders from investing in GDRs. This study provides evidence that supports the LSE's ‘light touch’ approach and shows that the benefits of information risk reduction for ADRs and GDRs are comparable. The explanation for this finding is that the two avenues through which information asymmetry is expected to be resolved after cross-listing – disclosure and analysts – are substitutive and make equally important contribution to information risk reduction, eventually leading to similar cost of capital decline for ADRs and GDRs.     

Voluntary disclosure,ownership structure,and corporate debt maturity: A study of French listed firms

This study examines the effect of voluntary disclosure on corporate debt maturity and the role of ownership structure in this effect. For a sample of 440 French listed firms from 2007 to 2013, the empirical results indicate that firms with greater voluntary disclosure have more long-term debt, suggesting that companies benefit from extensive disclosure through greater access to long-maturity debt. This finding is consistent with the evidence that voluntary disclosure provides an efficient monitoring mechanism in firms where long-term debt could insulate firms from lender scrutiny for long periods. The results also show that the positive association between voluntary disclosure and long-term debt is relevant only when the control rights of the controlling shareholders are significantly in excess of cash-flow rights. This finding supports recent work showing that better disclosure policies are viewed more positively by the market in environments where the risk of wealth expropriation by dominant shareholders is higher.     

Public Disclosure of Forward Contracts and Revelation of Proprietary Information

Financial executives of firms engaged in forward contracting have raised concerns that mandated disclosure of those contracts would reveal proprietary information to rival firms. This paper considers the basis for those concerns in the framework of a duopoly in which one privately informed producer enters the forward market prior to production. In choosing its forward position, the firm considers the effects of that position on the forward price and second stage product market competition with its rival. Two regimes are considered: mandated disclosure and no disclosure. Under the former, the contracting firm faces a tension between exploiting its information advantage in the forward market and attempting to influence the production decision of its rival. On average, in equilibrium, the contracting firm gains a first-mover advantage, but at the cost of revealing its private information to its rival and extracting less expected gains from uninformed forward market participants. In contrast, with no disclosure, the contracting firm cannot influence rival firm beliefs, but extracts more expected gains from its private information in both the forward and product markets. On balance, the contracting firm prefers no disclosure. Moreover, parameterizations exist such that the rival also prefers that regime. These findings explain the opposition of respondents to draft proposals of Statement of Financial Standards No. 133.     

Multidimensional Competition and Corporate Disclosure

In this paper, we argue that the influence product market competition exerts on disclosure is defined by the combined effect of the incentives and disincentives to disclose raised by the multiple competition dimensions. We distinguish between firm‐ and industry‐level competition measures, and we hypothesize that the former raises agency and proprietary costs, whereas the latter creates incentives to disclose either to fulfil the owners’ need for information to monitor managers or to deter the entrance of new competitors in the industry. Our research design allows for non‐monotonic relationships between competition and disclosure as well as for interactions between competition dimensions. Using a sample of US manufacturing companies, we gather evidence that is consistent with our hypotheses. First, we find an inverted U‐shape relationship between corporate disclosure and a firm's abnormal profitability, which is suggestive of firms being reluctant to disclose when they are underperforming (outperforming) their rivals because of the fear of unveiling agency conflicts (raising proprietary costs). Second, we observe a U‐shape relationship between corporate disclosure and industry profitability, although this U design evolves to approximate a rising function as the protection provided by entry barriers increases.     

Duration of equity overvaluation and managers’ choice to use aggressive underlying earnings disclosure and accrual-based earnings management: Australian evidence

This paper examines whether equity overvaluation duration influences managers’ choice of different earnings management mechanisms and how corporate governance and the Australian Securities and Investment Commission’s underlying earnings disclosure guidelines influence managers’ choices. The study samples Australian Securities Exchange 200 firms from 2009 to 2016. Findings show that on average, firms more likely engage in accrual-based earnings management in the early overvaluation stage. In later stages, firms more likely disclose underlying earnings aggressively to sustain overvaluation. Additionally, firms with a high proportion of independent directors on the board prefer to disclose underlying earnings aggressively to sustain the equity overvaluation; firms with a low proportion of independent directors prefer both accrual-based earnings management and aggressive underlying earnings disclosure to sustain the overvaluation. Moreover, firms that conform to the Commission’s underlying earnings disclosure guidelines use neither accrual-based earnings management nor aggressive underlying earnings disclosure to sustain overvaluation, but non-conforming firms use both mechanisms.