The impact of energy-exporting countries’ EPUs on China’s energy futures investors: Risk preference,investment position and investment horizon

This study brings some new insights into EPU risk management. By categorizing China’s energy futures (CEF) investors by risk preference, investment position and investment horizon, we identify how EPU in four energy-exporting countries affects CEF investors. The Russian EPU mainly produces influence on short-run investors and risk-seeking investors. The Australian EPU affects risk-seeking investors heavily, while the Brazilian EPU acts on risk-seeking investors with short positions. In terms of China’s coking coal futures, changes in Russian EPU generate the weakest impact on various types of investors, while the US EPU affects medium-run risk-averse and long-run investors. The Australian EPU’s impact on investor types covers a wide range, while the Brazilian EPU affects short-run risk-averse and long-run investors. Moreover, for medium-run CEF investors, energy-exporting countries’ EPU risk characteristics is most dynamic. Changes in the EPU risk impact type mainly occurred during the US-China trade war and the outbreak of COVID-19.     

An elusive panacea? The impact of the regulatory valuation regime on insurers' investment behaviour

This paper develops a framework to examine how the interactions between the valuation regime and solvency requirements influence investment behaviour of long-term investors with stable liabilities, such as life insurers. The results contribute to the debate over market-based valuation regimes, and shed light on new hybrid regimes explored in policy circles. We show that solvency requirements based on fair value regime can induce procyclical asset sales, but those based on historical cost valuation encourage insurers to engage in risk-shifting to the detriment of policyholders. A hybrid valuation regime, intended to address these unfavourable outcomes, does not strictly dominate the other two regimes on its own. However, market-based regimes can be made effective, if regulators calibrate their responses to solvency breaches using supervisory information about insurers' asset quality.     

Working for the enemy? The impact of investment banker job changes on deal flow

This paper examines the impact of job changes by prominent investment bankers on the M&A and equity market shares of investment banks. Using a hand-collected sample of job changes between 1998 and 2006, we find that after controlling for deal and bank-level characteristics, hiring a banker from an investment bank with a more prominent industry presence has a positive impact on both equity and M&A market share for the gaining bank and a negative impact on the losing bank's M&A market share. After the banker switches firms, we find a significant amount of business following the banker from the losing bank to the gaining bank, particularly when the relationship is strong between the client firm and the banker. Abnormal returns around the announcement of a banker changing employers are positive and significant for the gaining bank, suggesting that the market views banker additions as value increasing. Overall, our results suggest human capital is a critical component of investment banking deal flow.     

WSJ Category Kings – The impact of media attention on consumer and mutual fund investment decisions

We exploit a novel natural experiment to establish a causal relation between media attention and consumer investment behavior, independent of the conveyed information. Our findings indicate a 31% local average increase in quarterly capital flows into mutual funds mentioned in a prominent Wall Street Journal “Category Kings” ranking list, compared to those funds which just missed making the list. This flow increase is about seven times larger than extra flows due to the well-documented performance-flow relation. Other funds in the same fund complex receive substantial extra flows as well, especially in smaller complexes. There is no increase in flows when the Wall Street Journal publishes similar lists absent the prominence of the Category Kings labeling. We show mutual fund managers react to the incentive created by the media effect in a strategic way predicted by theory, and present evidence for the existence of propagation mechanisms including increased fund complex advertising subsequent to having a Category King and increased efficacy of subsequent fund media mentions.     

The impact of accruals and lines of business on analysts’ earnings forecast superiority

In this paper, we examine the linkage between analyst advantage (AA) (compared to the seasonal random walk model) in the prediction of quarterly earnings-per-share (EPS) and a broad set of economic determinants. Specifically, we employ a pooled cross-sectional time-series regression model where AA is linked to a set of firm-specific economic determinants that have been employed in extant work (e.g., Brown et al. in J Account Res 22:49?C67, 1987; Kross et al. in Account Rev 65:461?C476, 1990). We refine this set of independent variables by including a new variable (RATIODEV) based upon Sloan (Account Rev 71(3):289?C315, 1996) who documents that differential levels of accruals impact future earnings performance. This variable is particularly salient in explaining AA since analysts may be in a position to identify the permanent component of accruals via fundamental financial analysis. Additionally, we refine the measurement of lines of business??consistent with the reporting requirements of SFAS No. 131 relative to extant work that operationalized proxies for this variable based upon SFAS No. 14. Parameters for these aforementioned variables are significantly positively related to AA, consistent with theory.     

The impact of large tax settlement favorability on firms’ subsequent tax avoidance

Review of Accounting Studies - I consider how large tax settlements compare to management expectations and then test how the favorability of a resolution (from the firm’s perspective) affects...     

The impact of accounting standards convergence on Chinese firms’ overseas mergers and acquisitions

This paper investigates how accounting standards (AS) convergence influences Chinese firms’ overseas mergers and acquisitions (M&As) and shows that this convergence significantly promotes Chinese firms’ overseas M&As. Specifically, we find that both the probability of success and the value of transactions increases significantly in countries that implemented International Financial Reporting Standards (IFRS) prior to 2007. These results suggest that accounting standards (AS) convergence can improve the comparability of accounting information between China and other countries that have adopted IFRS. Moreover, we find that the impact of accounting standards (AS) convergence on state-owned enterprise (SOE) acquirers is weak. These findings demonstrate that accounting standards (AS) convergence can facilitate Chinese firms’ overseas M&As by improving the comparability of accounting information between China and target countries.     

The impact of intangibles on firms’ financial and market performance: UK evidence

This study provides empirical evidence about the effect of intangible assets on firms’ current and future financial and market performance by utilizing a sample the UK FTSE 150 nonfinancial companies. Generally, the findings of this examination reported a strong evidence on the role of intangibles in boosting firms’ performance. In particular, the results indicate that while goodwill (GW) does have a statistically positive effect on firms’ current and future performance, research and development (R&D) is only associated with firms’ future performance. The results of the current research is consistent with the market-based and resources-based theories which posits that intangible investments are the main driving factors of wealth creation in the long-run; Specifically, R&D operations can create new technologies and products that would enhance firms’ performance and value. In addition, the results reveal that both GW and R&D can explain variations in firms’ financial performance measures suggesting that such investments can enhance firms’ earning leading to capitalization such earnings in the market value. Finally, the results of this research provide practical implication for policy makers and managers.     

The impact of audit firms’ characteristics on audit fees following information security breaches

Given the importance of auditors’ assessing business risks and evaluating internal controls, we investigate whether an audit firm’s industry expertise, tenure, and size can help its auditors better understand external and internal threats faced by the client with less effort. Using reported information security breach incidents from 2004 to 2013, we find that, consistent with prior studies, audit fees are higher after the occurrence of an information security breach. However, such an association is negatively moderated when the audit firm has industry-specific expertise, longer experience with the client, and is one of the Big 4 firms. Our results suggest that because of their better knowledge about a specific industry, increased familiarity with the client’s operations, and more resources to understand a client’s vulnerabilities and/or information security policies and procedures, these auditors are more capable of assessing the potentially changing information security risks implied by the occurrence of information security breach incidents. Our results are robust to a variety of sensitivity checks.     

The impact of CSR performance and CSR disclosure readability on investors’ earnings estimates

We investigate how the valence of corporate social responsibility (CSR) performance and the readability of CSR disclosure impact investors’ earnings estimates. Ninety-seven part-time MBA students participate in an experiment, in which we manipulate the valence of CSR performance (positive versus neutral) and the readability of CSR reports (high versus low), while holding financial information constant. Our findings reveal that investors make more positive earnings estimates when CSR performance is positive. The readability level of CSR reports also influences investors’ decision-making process. Moreover, by using an eye-tracking device, we are able to observe investors’ different reading behaviours upon the different levels of readability.     

The impact of subjectivity in performance evaluation practices on public sector managers’ motivation

We conduct an explorative study to investigate the effect of subjectivity in performance evaluation practices on managerial motivation in public sector organisations. Increased subjectivity can enhance motivation if supervisors are able to provide better informational feedback. However, subjectivity is likely to reduce motivation if it reduces perceived mission clarity or negatively affects relations between supervisors and subordinates. Our analysis is based on a survey among 94 public sector managers in the Netherlands. We predict and find that subjectivity in performance evaluation practices reduces perceived mission clarity, which in turn decreases motivation. We also find that subjectivity negatively affects subordinate managers’ trust in their supervisor, which also reduces motivation. Jointly, these results indicate that the negative effects of subjectivity in performance evaluation practices outweigh its potential positive consequences, suggesting that New Public Management's focus on more objective performance measures can indeed be beneficial. By itself, however, this does not automatically imply that more objective systems in general are optimal in all public sector organisations as such systems may have dysfunctional side effects such as distortion of performance measures, gaming or manipulation. In addition, we find that the effects of subjectivity are moderated by organisational characteristics.     

The impact of revolving door practice and policy on nonprofessional investors’ perceptions of auditor independence

This study investigates whether an ex-auditor’s employment with an audit client impairs nonprofessional investors’ perceptions of auditor independence, and whether the strength of the US revolving door policy improves their perceptions of auditor independence. Despite nonprofessional investors owning over one-third of the US equity holdings, the literature has not examined how revolving door policy impacts their perceptions of auditor independence. Two between-subjects experiments examine these issues. The first experiment finds that investors perceive the ex-auditor’s integrity to be significant in explaining the firm’s decision to manage earnings, irrespective of the firm’s previous working relationship with the ex-auditor. The results from experiment two indicate that strengthening the revolving door policy above that of the American Institute of Certified Public Accountants’ policy does not improve perceptions of auditor independence. Academics may be interested in triangulating the independence ‘in appearance’ results of this study to the independence ‘in fact’ results of other studies, since the Securities and Exchange Commission asserts that both facets of independence are equally important. The results may also be of interest to academics and practitioners, as prior research suggests that restricting auditors’ moves to management positions with the client impairs firms’ abilities to hire quality auditors.     

The impact of multi-dimensional corporate transparency on us firms’ credit ratings and cost of capital

This study examines corporate transparency in the US market for a sample of 319 S&P 500 firms. We examine whether a number of disparate measures of corporate transparency used by other researchers are distinct, cohere as measures of a single factor of corporate transparency, or capture multiple different dimensions. Next, we begin to examine the impact of corporate transparency, conceived in the broadest sense, and not limited to financial reporting, on US firms. We develop a model of corporate transparency based on a broad definition and framework proposed by Bushman, Piotrowski and Smith, which we extend in several ways, and then study the effect of corporate transparency on cost of debt, credit rating, and cost of equity. First, we find that corporate transparency is neither a unitary concept nor merely an ambiguous term for multiple distinct concepts: factor analysis of ten corporate transparency variables identifies four independent underlying dimensions: public disclosure information, intermediary information, earnings quality information and insider information. Second, we find that corporate transparency has significant power to explain cross-sectional variation in credit rating and cost of capital. More specifically, (i) credit rating, cost of debt, and beta are significantly associated with disclosure information transparency; (ii) credit rating, cost of equity, and beta are significantly associated with intermediary information transparency; and (iii) cost of equity and beta are significantly associated with insider information transparency. Our findings offer a more comprehensive evaluation of corporate transparency than prior studies, and we demonstrate direct economic implications for both US firms and markets.     

Learn from peers? The impact of peer firms' analyst earnings forecasts on a focal firm's corporate investment efficiency

We explore whether a firm can learn from information on peers produced by analysts. Based on a sample of Chinese firms, we document that analyst earnings forecast accuracy (dispersion or optimism) of peer firms is positively (negatively) associated with the focal firm's investment efficiency. The effect is more salient when the focal firm operates in a competitive industry, when analysts are predicting positive earnings, when peers produce low-quality annual reports, or when the focal firm has high information asymmetry. Overall, our findings provide new insights on learning from peer information produced by a third party and show that analyst earnings forecasts have spillover effects in the product market.     

The impact of directors’ and officers’ insurance on audit pricing: Evidence from UK companies

This paper examines the impact of directors’ and officers’ (D&O) insurance on audit pricing in a large sample of UK companies. The existence of D&O insurance is expected to exert a dual impact on auditors’ pricing decisions. The presence of an additional source of funds to satisfy stakeholder claims in the event of audit client failure suggests that audit fees in insured companies should be lower. Alternatively, recent research has identified a positive link between the presence of D&O insurance and a number of characteristics traditionally associated with more expensive audits. The main objective of this study is to ascertain which of these influences pre-dominates. Analysing a sample of 753 UK listed companies in the early 1990s, when companies were obliged to disclose the presence of D&O insurance, this study shows that D&O insurance is associated with higher audit fees. It also confirms that insured companies are larger, more complex and present a greater audit risk (using a range of measures) than uninsured companies. Further analysis suggests that the impact of D&O insurance on audit fees may be influenced by company size, auditor size, and the extent of non-executive presence on the company's board.     

The effects of problem severity and recovery strategy on managers’ going concern judgments and decisions

Accounting standards now require management (as preparers of the financial statements) to assess and disclose going concern problems to stakeholders. However, important questions exist about managers’ ability and willingness to provide credible going concern assessments given their role as financial statement preparers and incentives to avoid self-reporting problems. The objective of this study is to investigate the effects of problem severity and recovery strategy on managers’ going concern disclosure judgments and decisions. We conduct an experiment with 84 experienced managers involved with financial reporting and find they are most likely to recommend going concern disclosure when financial distress is high and the recovery plan focuses on debt and equity. The results also suggest that managers have higher “substantial doubt” thresholds than auditors, and their perceptions regarding the fairness of the going concern standard also influence their decisions about disclosures of going concern issues.     

The impact of auditor rotation on auditor–client negotiation

This paper reports the results of an experiment designed to investigate how mandatory audit firm rotation affects auditor–client negotiations. Drawing upon process theories of negotiation, we examine the strategies used by auditors and clients as well as the outcomes of their negotiations in alternative settings in which mandatory rotation is imposed or is not imposed. We posit that mandatory rotation changes (1) the dynamics of the audit market by increasing the number of clients who are in the market for a new auditor, and (2) the political costs to a client who switches auditors. These changes, in turn, alter the willingness of the auditor and the client to cooperate during negotiation. The results suggest that with mandatory rotation auditors adopt less cooperative negotiation strategies, producing asset values that are more in line with the auditor’s preferences than with the client’s preferences and more negotiation impasses.     

The role of accounting in bank regulation on the eve of japan’s financial crisis: a failure of the new capital adequacy regulation

In contrast to previous examinations of the role of accounting in financial crises, this paper explores the way in which accounting has been woven into a new system of banking regulations. Although the regulatory reform of the mid-1980s was intended to maintain the soundness of banking businesses, it failed to prevent banks from excessive asset expansion in the latter half of the 1980s in Japan. One of the major causes of this regulatory failure is found in the way that the regulatory capital is defined for the new capital adequacy regulation. The latent revaluation reserves are partially counted as capital. Japanese domestic regulatory reform took place in the wider context of the international standardization of capital adequacy regulations (BIS standards). Japanese regulators utilized taken-for-granted practices of accounting to creatively comply with the BIS standards.     

The impact of FIFA’s official announcements on the stock market of Qatar: The case of the 2022 World Cup

This study examines the impact of the FIFA’s official announcements on Doha Stock Exchange (DSE) of Qatar with respect to the 2022 World Cup. Using the abnormal unsystematic volatility method of Hilliard and Savickas (2002), our empirical findings reveal that the DSE market is sensitive to FIFA’s announcements about the 2022 World Cup. We find that four out of six FIFA announcements act as primary drivers to the DSE market volatility. The significant reactions of the DSE market to these announcements unveil the investors’ sentiments about the fate of the governmental and private expenditures on medium- and long-term projects undertaken in anticipation of hosting the 2022 World Cup. The results have some implications to investors in this newly emerging market related to this global sporting event. Any future announcements, good or bad, are likely to impact share prices in DSE market and trigger portfolio reallocation by local and international investors, leading to increased volatility.