Experimental research in financial accounting

This paper uses recent experimental studies of financial accounting to illustrate our view of how such experiments can be conducted successfully. Rather than provide an exhaustive review of the literature, we focus on how particular examples illustrate successful use of experiments to determine how, when and (ultimately) why important features of financial accounting settings influence behavior. We first describe how changes in views of market efficiency, reliance on the experimentalist’s comparative advantage, new theories, and a focus on key institutional features have allowed researchers to overcome the criticisms of earlier financial accounting experiments. We then describe how specific streams of experimental financial accounting research have addressed questions about financial communication between managers, auditors, information intermediaries, and investors, and indicate how future research can extend those streams. We focus particularly on (1) how managers and auditors report information; (2) how users of financial information interpret those reports; (3) how individual decisions affect market behavior; and (4) how strategic interactions between information reporters and users can affect market outcomes. Our examples include and integrate experiments that fall into both the “behavioral” and “experimental economics” literatures in accounting. Finally, we discuss how experiments can be designed to be both effective and efficient.     

Business groups in China

We investigate whether business groups in China act as internal capital markets, in an environment that is characterized by a high level of government intervention, a weak legal system, and an underdeveloped financial market. We study how institutional factors, such as the ultimate owner and level of market development, shape the role of these business groups. We find that business groups help member firms overcome constraints in raising external capital, and that the internal capital market within a business group is more likely to be an alternative financing channel among state-owned firms than among private firms. We also find that the internal capital market is more likely to help those affiliated firms which are private, local government owned relative to those owned by central government, or located in regions with a well-developed institutional environment. We present evidence of the role of business groups in risk sharing among affiliated firms, but find that business group affiliation has no impact on firm accounting performance. This study sheds new light on the theory of the firm and its boundaries, and provides a better understanding of China's rapidly growing economy.     

制度环境、政治关系与会计信息质量——来自中国民营上市公司的检验

文章以2007～2009年中国613家民营上市公司为样本,考察了制度环境、政治关系与企业会计信息质量三者的相互关系。研究发现:政治关系显著影响我国民营上市公司会计信息质量,有政治关系的民营上市公司会计信息质量显著低于无政治关系的民营上市公司,且这种影响存在显著的地域差异,中西部地区有政治关系的民营上市公司会计信息质量显著低于无政治关系公司,但东部地区民营上市公司政治关系对会计信息质量的影响并不显著,究其根源是因为我国不同地区存在显著的制度差异,制度环境能有效削弱政治关系对民营上市公司会计信息质量的影响。     

论会计透明度

普华永道关于“不透明指数”的研究报告 ,引发了本文对会计透明度的进一步讨论。会计透明度是一个全面、综合性的概念 ,它不仅同时顾及了会计信息自身的质量标准以及实现会计信息质量标准的方式 ,而且还丰富了会计信息质量标准和实现会计信息质量标准的方式 ,是一套全面的会计信息质量标准和一个进行会计信息全面质量管理的“工具箱”。本文还分析了会计透明度的制度基础 ,并以我国证券市场为例 ,讨论了实现高会计透明度的方式。     

Discussion of Privacy in E-Commerce: Development of Reporting Standards, Disclosure, and Assurance Services in an Unregulated Market

Jamal, Maier, and Sunder (hereafter, JMS), have written an interesting paper on the development of standards in an unregulated market. The development of private standards and assurance that there is compliance are important for creating trust among market participants and for the success of new markets. The paper is relevant for accounting professionals who are responsible for assuring investors that firms' financial information is reliable and trustworthy. It shows that there is demand for market standards absent regulation, that firms voluntarily adopt standards, and that they generally comply with them. The authors contrast these findings with the regulated outcomes in the capital market and raise questions about the merits of regulation.     

Portfolio preferences of foreign institutional investors

This paper examines the investment allocation choices of actively-managed US mutual funds in emerging market equities after the market crises of the 1990s. We analyze both country- and firm-level disclosure and institutional policies that influence mutual funds’ allocation choices relative to major stock market indices. At the country level, we find that US funds invest more in open emerging markets with stronger accounting standards, shareholder rights, and legal frameworks. At the firm level, US funds are found to invest more in firms that adopt discretionary policies such as greater accounting transparency and the issuance of an ADR. Our results suggest that steps can be taken both at the country and the firm level to create an environment conducive to foreign institutional investment.     

The Evolution of Private Equity in Emerging Markets: The Case of Poland

In the last ten years, there has been a pronounced shift toward emerging markets in institutional investor allocations of capital to private equity. While the lion's share of the allocations to emerging markets have gone to the “BRIC” nations, lesser‐known markets like Poland are threatening to steal the spotlight. Economic stabilization, development of the private sector, a favorable business outlook, and continuous improvement of the local institutional infrastructure (laws, accounting rules, and fiscal regimes) have all contributed to the development of a vibrant private equity industry in Poland. Most private equity firms in Poland structure their deals around five broad investment themes: technology; media; and telecommunications; manufacturing; consumer services; business services; and financial services. Local private equity firms have traditionally adopted two different strategies towards these sectors. The first group of private equity firms initially targeted manufacturing, with the conviction that, as the Polish economy developed, the satisfaction of consumer needs for basic products would be the largest source of market demand. The second group assumed that the market would require access to more services to accommodate the growing local economy. Both approaches have proved reasonably successful, as the leaders among these two groups of firms have continued to succeed in raising new funds while achieving high returns for their limited partners. And while the accomplishments of the private equity industry have been made possible by the extent of Poland's transformation from a socialist into a market economy, the industry itself continues to play an important role in this transformation by providing both outside capital and know‐how for local firms and managers.     

Institutional arrangements and debt financing

I find that institutional arrangements have an impact on the real economy by affecting firms’ choice between private and public debt and the subsequent financing costs. Using new debt issued by firms in 26 non-US countries, I find, after controlling for firm characteristics predicted by debt agency and information asymmetry theories, that the level of financial market development, the efficiency of bankruptcy procedure, the integrity and enforceability of laws, and the transparency of financial information have significant impacts not only on firms’ debt choice and yield to maturity in domestic debt market, but also their issuance choice in the international debt market.     

政治问责视角下的政府财务信息供求机制研究

资本市场中的会计改革已经证实,宏观制度因素能够影响资本市场中的财务信息供求。在公共领域,学者们发现宏观层面的制度变化也对政府会计信息的供求机制产生影响。政治问责形式根据制度环境变迁,从而改变政府会计信息供求关系,引起政府会计改革,但将政治问责与财务信息供求联系起来的研究却屈指可数。论文从政治问责视角切入研究我国政府财务信息供求问题,从理论上探讨了政治问责与信息供求机制的内在关系;较为全面、系统地梳理了我国政治问责与政府财务信息供求的历史与现状;从我国目前的实际情况出发,结合具体案例进行论证,提出了相关的政府会计信息披露的政策建议。。     

Sub-nationals' risk premia in fiscal federations: Fiscal performance and institutional design

The recent debt crisis in Europe highlighted the importance of institutional design and, in particular, bail-out clauses in determining States' risk premia in fiscal or quasi-fiscal federations. This paper examines the determinants of sub-national governments' risk premia in fiscal federations using secondary market data for the USA, Canada, Australia and Germany. It finds that, as for central governments, fiscal fundamentals matter in the pricing of risk, and sub-national governments with higher public debt and larger deficits pay higher premia. However, this relationship is not uniform across federations and it differs with institutional arrangements. In particular, market pricing mechanisms are less effective in presence of explicit or implicit guarantees from the central government. We show that when sub-national governments depend on high transfers from the central government (i.e., when there is some form of implicit guarantee from the center), markets are less responsive to sub-national governments' fiscal fundamentals. Using primary market data, the paper also shows that high transfer dependency lowers the probability of sub-national governments to borrow on capital markets.     

Information asymmetry and risk transfer markets

We provide a tractable model of counterparty risk in a risk transfer market, and analyze the consequences of this risk being private information. We show that unknown type information can be revealed in the presence of a large trader identification policy; however, the market allocation is shown to be constrained inefficient. The inefficiency is highlighted by considering the imposition of a transaction tax, which can improve welfare by encouraging more information revelation and increasing risk transfer. The results suggest that increased transparency and/or central counterparty arrangements in over-the-counter derivative markets may promote transparency of counterparty risk.     

制度安排与会计信息质量——红光实业的案例分析

本文对会计信息失真、特别是违法造假的会计信息失真现象 ,以四川红光实业公司的案例为分析对象 ,从我国现有制度安排的角度进行分析。分析认为 ,现有的制度安排本身排斥高质量的会计信息 ,并诱发会计信息违法性失真。本文分析的政策性意义在于 :会计信息失真的治理 ,不仅仅是一部《会计法》或相应的会计技术规范所能解决的 ,相关的法律制度安排等才是解决会计信息失真的治本之举     

Financial Markets Where Traders Neglect the Informational Content of Prices

We model a financial market where some traders of a risky asset do not fully appreciate what prices convey about others' private information. Markets comprising solely such “cursed” traders generate more trade than those comprising solely rationals. Because rationals arbitrage away distortions caused by cursed traders, mixed markets can generate even more trade. Per‐trader volume in cursed markets increases with market size; volume may instead disappear when traders infer others' information from prices, even when they dismiss it as noisier than their own. Making private information public raises rational and “dismissive” volume, but reduces cursed volume given moderate noninformational trading motives.     

Annuity Markets and Retirement Security

The growing importance of defined contribution pension arrangements has drawn increased attention to the means by which retired people draw down their assets. Current UK law requires annuitisation of at least a fraction of defined contribution plan accumulations. Annuity markets have recently attracted some criticism with respect to pricing and the available range of product options. This paper describes a key feature of voluntary annuity markets: the presence of ‘adverse selection’. This is the tendency of annuitants to live longer than non‐annuitants, since individuals who know that they are likely to die soon do not purchase annuities. The paper presents information that quantifies the importance of adverse selection in the setting of private annuity prices and discusses the role of compulsory annuitisation requirements in reducing it. Requiring individuals to participate in the annuity market can reduce selection effects, at the cost of reducing individuals' range of retirement income options.     

Private and public disclosures and the efficiency of stock prices

In this paper I examine the effects of private and public disclosures on the informational efficiency of stock prices. In addition to making a public announcement such as an earnings announcement, a public firm can make private disclosure to an analyst. If the analyst's relative information advantage is below a threshold level, private disclosure to the analyst leads to more efficient stock price. I demonstrate that the allocation of information across market participants is an important determinant of price efficiency. While accounting regulators often argue the need for equal access to information, the paper shows that there are conditions under which a limited amount of informational inequality may lead to more efficient stock prices.     

私人信息、公开信息与中国的金融市场参与

金融市场的发展能够为长期的经济增长提供动力,家庭对金融市场的有限参与是制约金融发展的重要因素之一。2015年中国绝大多数家庭未能参与金融市场。本文采用倾向得分匹配方法考察了私人信息和公开信息对家庭金融市场参与的影响以及两者的影响差异。基于2015年CGSS数据集的分析结果显示,家庭拥有金融市场私人信息或者能够充分获取公开信息都会显著提升其参与金融市场的概率。家庭获取公开信息的渠道越广泛,经由各种渠道获取的公开信息越多,参与金融市场的概率就越高。总体而言,充分获取公开信息比拥有私人信息对家庭金融市场参与的影响更大,这是源于个体对两种信息质量预期的不同。公开信息具有比私人信息更广泛的信息来源和更强的可验证性,这提升了家庭对公开信息质量的预期,为其提供了参与金融市场的更大激励。对中国而言,改善政策制定和执行的效率以及政策承诺的可信性有助于提升家庭对公开信息质量的预期,从而鼓励家庭参与金融市场。     

Price Discovery and Dissemination of Private Information by Loan Syndicate Participants

We delineate key channels through which flows of confidential information to loan syndicate participants impact the dynamics of information arrival in prices. We isolate the timing of private information flows by estimating the speed of price discovery over quarterly earnings cycles in both secondary syndicated loan and equity markets. We identify borrowers disseminating private information to lenders relatively early in the cycle with firms exhibiting relatively early price discovery in the secondary loan market, documenting that price discovery is faster for loans subject to financial covenants, particularly earnings‐based covenants; for borrowers who experience covenant violations; for borrowers with high credit risk; and for loans syndicated by relationship‐based lenders or highly reputable lead arrangers. We then ask whether early access to private information in the loan market accelerates the speed of information arrival in stock prices. We document that the stock returns of firms identified with earlier private information dissemination to lenders indeed exhibit faster price discovery in the stock market, but only when institutional investors are involved in the firm's syndicated loans. Further, the positive relation between institutional lending and the speed of stock price discovery is more pronounced in relatively weak public disclosure environments. These results are consistent with institutional lenders systematically exploiting confidential syndicate information via trading in the equity market.     

The Informational Efficiency of the Equity Market As Compared to the Syndicated Bank Loan Market

The loan market is a hybrid between a public and a private market, comprised of financial institutions with access to private information about borrowing firms. We test whether this is reflected in informationally efficient price formation in the loan market vis-a-vis the equity markets, and reject this private information hypothesis. We also reject a liquidity hypothesis which suggests that equity markets always lead loan markets, despite bank lenders' access to private information, because of greater liquidity in equity markets. We further test, and reject, an asymmetric price reaction hypothesis that states that loan returns are more sensitive to negative information whereas equity returns respond symmetrically to both positive and negative information. We find evidence most consistent with an integrated markets hypothesis that suggests that both the equity and syndicated bank loan markets are highly integrated such that information flows freely across markets. This is particularly true when the equity market makers are also loan syndicate members.      

Global Public‐Private Investment Partnerships: A Financing Innovation with Positive Social Impact

Global bond markets, along with banks and governments, are the main source of funding for investment in environmentally friendly infrastructure and the transition to clean energy. Although such bonds are a relatively recent innovation, the green bond market has grown rapidly from its start in 2008 to around $800 billion in outstanding issues. The problem, however, is that green bonds, which represent less than 1% of global bond markets, have been issued disproportionately by government‐sponsored entities, corporations, and municipalities in developed markets. In the emerging market countries where the infrastructure investments are most needed, they barely exist. The authors describe a new investment vehicle, called the AP EGO fund, whose mission and MO are to channel the vast global pools of institutional savings that are now invested in low or (even negative) yield fixed‐income assets—as much as $17 trillion in 2019—to higher‐return emerging markets green investments, in particular sustainable infrastructure, by creating a new asset class: emerging‐market green bonds issued by banks. The AP EGO fund is premised on and involves a reworking of the public‐private partnership (PPP) into a form they call the global public‐private investment partnership (or GPPIP). Unlike the PPP, which combines a public agency with a private operator, the GPPIP has four instead of just two partners. In addition to the standard public agency and the private concession operator, there is a development bank—in this case the International Finance Corporation (IFC), which is the financial markets affiliate of the World Bank—and private investors that include emerging‐market banks as well as global institutional investors. Along with the mediating role played by a public agency like the IFC, the AP EGO Fund is fundamentally different from other PPPs in that it takes the form of a special purpose securitization vehicle whose shares are backed by a pool of green bonds issued by emerging market banks in multiple emerging market countries. And besides its application to a new asset class, the fund also breaks new ground by applying a securitization technique with a fund structure designed with an embedded “first‐loss” protection to a global pool of green bonds originated in emerging market economies. By means of this structuring, the green‐bond‐backed fund shares issued by the AP EGO are now providing developed market institutional investors with somewhat higher‐yielding fixed income securities that nevertheless carry an investment‐grade rating.