Disclosure and Exchange of Inside Information*

This paper investigates how cooperation of stock analysts can affect voluntary disclosures of corporate inside information. Previous studies show that corporate insiders have incentives to disclose the information commonly shared by stock analysts, taking stock analysts’ actions as given. We focus on the strategic interactions between corporate insiders and stock analysts, and between stock analysts themselves. We show that voluntary disclosures may occur only when stock analysts intend to share their specialized information. In some sense managers are “forced” to disclose information because if they do not, stock analysts’ information sharing would put them at a disadvantage. Our results highlight the role of information exchange between stock analysts in stimulating voluntary disclosures, and provide an alternative explanation of managers’ motives for voluntary disclosures.     

The Capital Gains Tax: A Curse but Also a Blessing for Venture Capital Investment

Our study analyzes the effect of the capital gains tax on the individual investment decisions of venture capitalists. By doing so, we are able to study the decisions for a sample of 61,558 funding rounds in 32 countries from 2000 to 2012. Our results support the predictions of the theoretical model that higher capital gains tax rates are associated with fewer start‐ups financed and a lower probability of receiving follow‐up funding. However, the results concerning the effect on the probability of success of start‐ups show that a higher tax burden is associated with a higher probability of eventual start‐up success.     

Quality signaling through ex-ante voluntary information disclosure in entrepreneurial networks: evidence from franchising

This paper examines antecedents of ex-ante voluntary information disclosures for standardized contracts in entrepreneurial networks. Entrepreneurs (e.g., franchisors) may make such disclosures to prospective business partners in order to signal profitability of partnering, attract financial and managerial resources, and develop their entrepreneurial networks. In practice, only a fraction of franchisors make financial performance representations (FPRs), an ex-ante voluntary information disclosure to prospective franchisees. We address gaps in the signaling, voluntary information disclosure, franchising, entrepreneurship, and small- and medium-enterprise (SME) literatures. We draw on signaling theory to develop a theoretical framework and investigate factors that influence a franchisor’s disclosure decision. We evaluate hypotheses from our theoretical framework through econometric analyses of multi-sector panel data for the US franchising industry. We estimate a logit model and use lagged independent variables to address our dichotomous independent variable and potential endogeneity, respectively. Our results support the view that firms signal their quality through FPRs to attract potential business partners and expand their entrepreneurial networks. Beyond the extant literature, we find that rigorous partner qualification is another driver of voluntary information disclosure in franchising. Our findings also provide empirical support for the complementary role played by multiple quality signaling mechanisms used by franchisors and yield public policy implications for franchising.     

Binary funding impacts in derivative valuation

We discuss the binary nature of funding impact in derivative valuation. Under some conditions, funding is either a cost or a benefit, that is, one of the lending/borrowing rates does not play a role in pricing derivatives. When derivatives are priced, considering different lending/borrowing rates leads to semilinear backward stochastic differential equations (BSDEs) and partial differential equation (PDEs), and thus it is necessary to solve the equations numerically. However, once it can be guaranteed that only one of the rates affects pricing, linear equations can be recovered, and analytical formulae can be derived. Moreover, as a by‐product, our results explain how debt value adjustment (DVA) and funding benefits are dissimilar. It is often believed that considering both DVA and funding benefits results in a double‐counting issue but it will be shown that the two components are affected by different mathematical structures of derivative transactions. We find that funding benefit is related to the decreasing property of the payoff function, but this relationship decreases as the funding choices of underlying assets are transferred to repo markets.     

Trust and reciprocity with transparency and repeated interactions

This paper uses data from a controlled laboratory environment to study the impact of transparency (i.e., complete information versus incomplete information) and repeated interactions on the level of trust and trustworthiness (reciprocity) in an investment game setting. The key findings of the study are that transparency (complete information) significantly increases trusting behavior in one-shot interactions. This result persists in repeated interactions. Further, transparency appears important for trustworthiness in one-shot interactions. In addition, repeated interaction increases trust and reciprocity with or without transparency. These results suggest that transparency is important in building trust in business environments such as alliances and joint ventures which are loosely connected organizational forms that bring together otherwise independent firms. It also provides support for the Sarbanes-Oxley Act of 2002 (SOX) and similar legislation elsewhere which attempt to regain investors' trust in corporate management and financial markets by stipulating enhanced disclosures.     

Do Variations in the Strength of Corporate Governance Still Matter? A Comparison of the Pre- and Post-Regulation Environment

Corporate scandals brought the issue of corporate governance to the forefront of the agendas of lawmakers and regulators in the early 2000s. As a result, Congress, the New York Stock Exchange, and the NASDAQ enacted standards to improve the quality of corporate governance, thereby enhancing the quantity and quality of disclosures by listed companies. We investigate the relationship between corporate governance strength and the quality of disclosures in pre- and post-regulation time periods. If cross-sectional differences in corporate governance policies affect the quality of financial disclosures, the quality of information available to analysts varies with such policies. Specifically, higher quality disclosures, produced as a result of strong corporate governance, should lead to more accurate and less dispersed analysts’ forecasts. Our analysis suggests that voluntary implementation of stronger corporate governance enhanced the quality of disclosures in the pre-regulation period; however, exceeding current corporate governance standards does not appear to result in higher quality disclosures post-regulation. These results suggest that SOX and the stronger regulations enacted by U.S. exchanges were effective in reducing variation in the quality of financial information available to investors.     

Disclosure of Corporate Environmental Policies in Annual Reports: Further Evidence Incorporating a National Ideology–An Australian Study

ABSTRACT

During the last decade, there has been a growing awareness at a community level and, more recently, at a business level of a changing emphasis on the disclosure of environmental performance by Australian public companies. Over the last few years, many studies have been undertaken which have examined the disclosure of environmental information by analyzing public company Annual Reports in Australia. Previously, public companies preferred to prepare Corporate Environmental Policy (CEP) statements for internal use only rather than for external reporting (Tilt, 1997, 2001). However, now these reports appear in the annual reports of Australian public companies. Using content analysis, this study examines a sample of public companies listed on the ASX (Australian Stock Exchange) in 2000 and the reporting nexus between these companies' CEPs and their Annual Reports. The results show that environmentally sensitive companies are disclosing more environmental information than other companies. Emerging from these results, our study shows that companies involved in the survey adopted some disclosure on environmental issues based on the ideological belief in such environmental issues. There are currently only limited requirements for any formal identification or reporting with regard to environmental assets, liabilities or contingencies in Australia. Our research has shown that environmentally sensitive companies provided a significantly greater amount of voluntary positive environmental disclosures than the non-sensitive companies. Based on the results of our research it is fair to say that there is an ideological belief within the Australian public companies and the Accounting profession on environmental reporting issues.     

Following the Crowd—Does Crowdfunding Affect Venture Capitalists’ Selection of Entrepreneurial Ventures?

Given the increasing popularity of crowdfunding as a new means to finance entrepreneurial ventures, we assess whether and how crowdfunding campaign‐specific signals that affect campaign success influence venture capitalists’ selection decisions in ventures’ follow‐up funding process. Our study relies on cross‐referencing a proprietary data set of 56,000 crowdfunding campaigns that ran on Kickstarter between 2009 and 2016 with 100,000 investments in the same period from the Crunchbase data set. Drawing on signaling theory and the microfinance literature, our empirical findings reveal that a successful crowdfunding campaign leads to a higher likelihood to receive follow‐up venture capital (VC) financing, and that there exists an inverted U‐shaped relationship between the funding‐ratio and the probability to receive VC funding. Further, we find statistical evidence that an endorsement by the platform provider has a likewise positive impact on the receipt of VC. Contrary to our expectations, word‐of‐mouth volume seems to be a negligible factor when it comes to follow‐up VC financing. Our results support the view that crowdfunding signals are factored into the VC’s funding decision in order to evaluate the potential of entrepreneurial ventures.     

Financial underdevelopment,distorted lending and export market survival

This paper examines the impact of financial development on exporter survival in foreign markets with Chinese firm-level data over the period 1998–2008. We measure financial development using the size, lending efficiency, term structure of bank loans and degree of state intervention in financial resource allocation, respectively. We find that a larger scale and greater efficiency of bank lending and less state intervention facilitate while the relative abundance of long-term credit deteriorates exporter survival. These effects are more pronounced for private exporters compared with state-owned exporters. For foreign-invested exporters, weakened state intervention is of relatively great importance. We attribute this disproportional impact to the government's intervention in funding investment and the distortional lending of banks, which varies across regions and industries with different levels of presence of state-owned enterprises.     

Corporate Governance and Corporate Social Responsibility Disclosures: Evidence from an Emerging Economy

We examine the relationship between corporate governance and the extent of corporate social responsibility (CSR) disclosures in the annual reports of Bangladeshi companies. A legitimacy theory framework is adopted to understand the extent to which corporate governance characteristics, such as managerial ownership, public ownership, foreign ownership, board independence, CEO duality and presence of audit committee influence organisational response to various stakeholder groups. Our results suggest that although CSR disclosures generally have a negative association with managerial ownership, such relationship becomes significant and positive for export-oriented industries. We also find public ownership, foreign ownership, board independence and presence of audit committee to have positive significant impacts on CSR disclosures. However, we fail to find any significant impact of CEO duality. Thus, our results suggest that pressures exerted by external stakeholder groups and corporate governance mechanisms involving independent outsiders may allay some concerns relating to family influence on CSR disclosure practices. Overall, our study implies that corporate governance attributes play a vital role in ensuring organisational legitimacy through CSR disclosures. The findings of our study should be of interest to regulators and policy makers in countries which share similar corporate ownership and regulatory structures.     

Microfinance,subsidies and local externalities

We analyse equilibrium borrowers’ effort and the cost of microcredit loans in the presence of moral hazard, project correlation and subsidies under group lending conditions. Our results show that under the assumption of endogenous effort, project correlation has significant effects on borrowers’ effort only when it is determined by asymmetric (positive or negative) shocks. These findings indicate that the well-known negative effect of within-group (symmetric) project correlation on group lending with joint liability disappears once endogenous effort is taken into account. We also analyse the effects of subsidised lending (and asymmetric correlation) on the relative convenience (in terms of borrowers’ effort) of the alternative (1) between group lending and individual lending with notional collateral and (2) among three different market structures of the microfinance industry.     

The Relevance of XBRL Voluntary Disclosure for Stock Market Valuation: The Role of Corporate Governance

The aim of this paper is to investigate the relevance for stock market pricing of accounting earnings of voluntary disclosures in XBRL files considering the quality of corporate governance. Results are the following. It appears that XBRL extensions attract financial analysts. Good governance is positively associated with voluntary XBRL extensions. We observe that XBRL extensions enhance the positive relationship between accounting earnings and stock price. However, this positive association is reduced for firms with good governance, suggesting a substitution effect between XBRL extensions and corporate governance. Finally, it appears that XBRL extensions would strategically be related to earnings quality. This research highlights the importance to consider governance when assessing the value relevance of XBRL disclosures for stock market pricing.     

De-internationalization through the lens of intellectual property rights

Many studies have focused on internationalization, with few shedding light on de-internationalization. In this article, we contended that de-internationalization is common in a world of matured globalization, yet it remains underexplored. We sought to build on the seminal articles on de-internationalization by extending our understanding of the concept from a voluntary to an involuntary perspective. In particular, we used intellectual property rights as an institutional coercive dimension and set theory as a discerning mechanism to enrich our understanding of de-internationalization. Our article, which demonstrates the multi-faceted conditions of de-internationalization, should benefit formal institutions and policy makers in developing a greater understanding of the relationship between public policies and focal firms' decisions to de-internationalize. We also hope that our article will contribute to greater visibility of de-internationalization and make the concept more approachable to our international business audience.     

Venture capitalists' decision criteria in new venture evaluation

What criteria do venture capitalists use to make venture investment decisions? The criteria venture capitalists use to make their venture investment decisions are of interest for several reasons. First, venture capitalists are conspicuously successful in their investment decisions. The success rate of venture capital-backed ventures is significantly higher than the success rate of new ventures generally (Dorsey 1979: Davis and Stetson 1984). A better understanding of the criteria used could lead to a better understanding of the reasons for this success.Second, a better understanding of the criteria for successful new ventures could lead to an improvement in the success rate of new ventures. Although there is no clear agreement on the precise rate, the failure rate among new ventures is generally viewed as significantly higher than the average failure rate (Dun and Bradstreet 1984; Van de Ven 1980; Shapero 1981).Finally, venture capitalists' investment criteria are of enormous import to entrepreneurs seeking venture funding. Such entrepreneurs require a significant infusion of capital in order to grow their businesses, and knowledge of the criteria sought by venture capitalists can aid entrepreneurs in gaining the necessary financing.This study attempts to uncover the criteria used by venture capitalists through semistructured interviews and verbal protocol analysis of venture capitalists' evaluations of actual venture proposals. Sixteen verbal protocols—in which the participants “think aloud” as they review business proposals— were made of venture capitalists' venture evaluation decisions.The findings of this study suggest that venture capitalists screen and assess business proposals very rapidly: the subjects in this study reached a GO/NO-GO decision in an average of less than six minutes on initial screening and less than 21 minutes on proposal assessment. In venture capitalists' initial proposal screening, key criteria identified include fit with the venture firm's lending guidelines and the long-term growth and profitability of the industry in which the proposed business will operate. In the second stage of proposal assessment, the source of the business proposal also played a major role in the venture capitalists' interest in the plan, with proposals previously reviewed by persons known and trusted by the venture capitalist receiving a high level of interest.In addition to the specific criteria identified and how they were used in reaching GO/NO-GO decisions, the findings of this study also were surprising for the lack of importance venture capitalists attached to the entrepreneur/entrepreneurial team and the strategy of the proposed venture during these early stages of the venture evaluation process.     

Who Benefits from Longer Lending Relationships? An Analysis on European SMEs

This paper empirically investigates the impact of lending relationships duration on SMEs financial stability. Our research hypothesis is that the balance between benefits and costs of longer bank‐firm ties may be different depending on the degree of firms' financial health. Using a large sample of European manufacturing SMEs that excludes firms that have defaulted and those with less than ten employees, we find that the overall positive effect of enduring lending relationships tends to progressively increase for more stable firms, being greater when the main bank operates nearby the firm. Our findings, yet, are conditional on firm survival and may not be generalized to the smallest of firms.     

内地与香港关联方披露会计准则的比较研究

内地和香港加强会计合作并实现会计准则等效,是两地的共同愿望。本文通过对两地的关联方披露会计准则的比较研究分析,发现香港准则比内地准则对关联方披露的要求更严格、更详细,披露的整体质量和效果也要比内地的情况好。同时,由于内地准则披露的不到位,内地公司通过关联方交易进行盈余管理的动机和可能性更强。最后根据比较分析结果,提出对我国关联方披露会计准则的完善建议。     

The role of network embeddedness across multiple social networks: Evidence from mobile social network games

This article examines peer influences from network relationships within a social network game (i.e., embeddedness) and across such games (i.e., multiplexity). Drawing on social influence theory, we develop a bivariate Poisson model of users’ repeated visits and latent attrition that accommodates peer interaction after controlling for homophily. We estimate the model using data from two social network games with considerable overlap among network members. We find that friends who are only multiplex across games exert greater peer influence on users’ game visits than members who are embedded within a single game. We also determined that ignoring network multiplexity across games may lead firms to mistarget users due to biased peer influences of embedded friends. This result provides an unresearched explanation—strength of peer influence—for the mixed findings in previous literature on network embeddedness. We utilized our results to conduct several scenario analyses to demonstrate how firms can effectively manage users’ engagement and target users in multiple social network games.     

Perceptions of Intentional Wrongdoing and Peer Reporting Behavior Among Registered Nurses

Researchers and practitioners have devoted considerable attention to firms' policies regarding discretionary disclosures. Prior studies argue that firms increase demand for their debt and equity issues and, thus, lower their cost of capital, by providing more informative disclosures. However, empirical research has generally not been able to document significant benefits from increased disclosure.This paper proposes an alternative explanation – firms disclose because it is the socially responsible thing to do. We argue that companies have incentives to engage in stakeholder management by undertaking socially responsible activities and that providing extensive and informative disclosures is one such practice.We examine the relationship between firms' disclosures and measures of social responsibility. We use ratings provided by the Council on Economic Priorities as proxies for the degree of social responsibility adopted by the sample firms. Disclosure rankings provided by the annual Association for Investment Management and Research Corporate Information Committee Reports (AIMR Reports) are used to measure disclosure level.Our results indicate that there is a positive relationship between disclosure level and corporate social responsibility. That is, firms that engage in socially responsive activities provide more informative and/or extensive disclosures than do companies that are less focused on advancing social goals. In addition, we find that socially responsible firms are more likely to provide this increased disclosure through better investor relations practices. These results support our contention that increased disclosure is a form of socially responsible behavior.     

Income Distribution,Consumer Debt and Keeping up with the Joneses

We extend Kaldor's theory of income distribution to include workers' debt accumulation and their motive to emulate rentiers' consumption. Our results show that (i) the interaction between income distribution and emulation can produce instability; (ii) instability is more likely when the workers' emulation motive is strong and bankers' lending decisions are highly accommodating; and (iii) a plausible assumption on the non‐linearity of emulation behavior can generate a limit cycle. Our analysis provides an alternative perspective on the increase in household indebtedness for the decades before the recent crisis and the subsequent deleveraging process.     

Reporting Self-Made Errors: The Impact of Organizational Error-Management Climate and Error Type

We study how an organization’s error-management climate affects organizational members’ beliefs about other members’ willingness to report errors that they discover when chance of error detection by superiors and others is extremely low. An error-management climate, as a component of the organizational climate, is said to be “high” when errors are accepted as part of everyday life as long as they are learned from and not repeated. Alternatively, the error-management climate is said to be an “error averse” climate when discovery of errors invokes the laying of blame on those admitting to or found committing errors. We examine the effects of this error-management climate in a professional services environment where uncorrected errors may have severe consequences and discovery of work errors is crucial for organizational success. We find that error-management climate affects organizational members’ beliefs about what other members will report about discovered self-made errors, with a high error-management (versus error averse) climate leading to greater reporting willingness. We also find a significant interaction with a key contextual variable, error type (conceptual or calculation), that suggests the effect is more significant for conceptual errors than calculation errors. Our findings suggest that an organization’s error-management climate is an important factor in promoting ethical behavior of employees, especially junior employees, carrying out routine tasks whose failure to report errors discovered incidental to those tasks may have severe implications for their organizations.