Within-industry timing of earnings warnings: do managers herd?

An earnings surprise can be caused by a combination of firm-specific factors and market or industry factors. We hypothesize that managers have an incentive to time their warnings to occur soon after their industry peers’ warnings to minimize their apparent responsibility for earnings shortfalls. Using duration analysis, we find that firms accelerate their warnings in response to peer firms’ warnings. We conduct several tests to control for alternative explanations for warning clustering (for example, common shocks and information transfer) and conclude that the observed clustering is primarily due to herding. Our study is one of the first to empirically examine managers’ herding behavior and the first to document clustering of bad news. Moreover, we provide a multi-firm perspective on managers’ disclosure decisions that alerts researchers to consider or control for herding when they examine other determinants of managers’ disclosure decisions.     

Give it to us straight (most of the time): Top managers’ use of concrete language and its effect on investor reactions

Research Summary : Building on the communications and linguistics literatures, we explore the language attributes managers use in interactions with investors and the subsequent reactions of investors. Specifically, we hypothesize that top managers’ use of concrete language attributes in communication with investors broadly associates with positive investor reactions. We further posit that this relationship will be moderated by the level of firm risk. Our results support our hypotheses and, thus, offer important insights to the impression management literature. First, subtle elements of managerial communication can have significant impression management consequences. More specifically, language concreteness is a key language attribute that generally induces positive investor responses. Finally, the effectiveness of language concreteness is conditional on the informational environment of the firm. Managerial Summary : How can managers communicate in a way that presents the firm more positively or reduces the negativity associated with perceived firm risks? Our findings indicate that choosing appropriate persuasive language features in interactions with investors can help a firm manage its impressions. Specifically, we find that top managers’ use of concrete language that provides details and specific information in communication with investors, in general, garners positive investor reactions. Further, the effectiveness of top managers’ use of concrete language depends on investor concerns. More specifically, we find that when a firm is seen as having a riskier profile, using concrete language helps induce a more positive investor response; while when a firm is seen as low risk, using abstract language may be more beneficial.     

Supply chain vulnerability assessment: A network based visualization and clustering analysis approach

Supply chains are large, complex, and often unpredictable. Purchasing and supply managers and supply chain risk managers need methods and tools to enable them to quickly understand how unexpected disruptions in the supply chain start and grow and to what extent will they negatively impact the flow of goods and services. This paper introduces a methodological approach that can be used by both researchers and managers to quickly visualize a supply chain, map out the propagation path of disruptive events from the supply side to the end customer and understand potential weaknesses in the supply chain design; taking into account the structure, connectivity, and dependence within the supply chain. The approach incorporates a Petri net and Triangularization Clustering Algorithm to offer insights into a supply chain network's vulnerabilities and can be used to efficiently assess supply chain disruption mitigation strategies, especially in complex and difficulty to analyze supply chain systems.     

What fosters awe-inspiring experiences in nature-based tourism destinations?

Awe, an intense, and usually positive emotion often experienced by individuals visiting nature-based tourism destinations, has the potential to nurture strong connections between individuals and their environment. Despite this, awe research has been neglected in the tourism literature, especially in relation to the aspects or features that foster awe-inspiring experiences. This study sought to rectify this by focusing on such experiences in the remote, unique Kimberley region in north-western Australia. A total of 49 tourist interviews were conducted to ascertain their responses to the question “what has been your most awe-inspiring experience and why?” Responses highlighted five distinct facets contributing to respondents’ awe-inspiring experiences: marine fauna, aesthetics, ecological phenomena, vast geological landscapes and reflective/perspective moments. Future research should focus on exploring the applicability of these facets to other nature-based tourism destinations.     

How Are Derivatives Used? Evidence from the Mutual Fund Industry

We investigate investment managers' use of derivatives by comparing return distributions for equity mutual funds that use and do not use derivatives. In contrast to public perception, derivative users have risk exposure and return performance that are similar to nonusers. We also analyze changes in fund risk in response to prior fund performance. Changes in risk are substantially less severe for funds using derivatives, consistent with the explanation that managers use derivatives to reduce the impact of performance on risk. We provide new evidence regarding the implications of cash flows and managerial gaming for the relation between performance and risk.     

Environmental Protection,Agency Motivations,and Rent Extraction: The Regulation of Water Pollution in Louisiana

Direct environmental regulation has been in place in the United States for more than twenty-five years. Yet there has been little study of what actually affects regulatory enforcement levels. This study examines enforcement issues by focusing on water quality enforcement by the Louisiana Department of Environmental Quality. The study finds that penalties are more likely to occur, and are likely to be higher, the more serious a firm's violation of a regulation. Penalties are also more likely, and likely to be higher, if a firm has a previous record of environmental violations. In contrast to other studies, however, we do not find that enforcement varies across regional offices. In addition, we did not find any systematic effects of the Weingast and Moran (1983) theory of legislative dominance. We did, however, find evidence of rent extraction, along the lines of McChesney (1987; 1991).     

Coercive,normative and mimetic isomorphism as determinants of the voluntary assurance of sustainability reports

This study offers an opportunity to understand how country- and industry-specific effects may affect the decision to assure sustainability reports by identifying institutional pressures. Based on neo-institutional theory, the aim of this research is to highlight whether assurance derives from the coercive, normative and mimetic forces related to legal and cultural strength and the industry pressure for assurance, respectively. The panel data analysis of an international sample of 696 companies for the period 2007–2014 shows that voluntary assurance acts as a legitimization tool implemented by companies in response to normative, coercive and mimetic pressures; that is, companies operating in countries that have a greater legal system and cultural development, especially in industries that are greatly concerned about sustainability, are more likely to issue an assurance statement. Moreover, through a two-stage logit model, we respond to the question of which is the relevant institutional factor that causes voluntary assurance to be adopted. Specifically, we evidence that the normative factor is the one that exerts the greatest explanatory power in the assurance demand, followed by coercive pressure.     

Use of behavioral reasoning theory to examine the role of social responsibility in attitudes toward apparel donation

Drawing on behavioral reasoning theory, this study investigated drivers of young consumers’ apparel donation behavior. By examining the impact of values (i.e., benevolence and power) and reasons (i.e., other‐oriented reasons and self‐oriented reasons) on attitudes, this study highlights the different motivations individuals have for donating clothing. As predicted, benevolence was positively related to other‐oriented reasons for donations and power was positively related to self‐oriented reasons for donations. Both other‐ and self‐oriented reasons for donating influenced attitudes related to apparel donation behavior. These findings offer an overarching explanation for the seemingly disparate reasons for apparel donation previously identified.     

Industry self‐regulation and adverse selection: a comparison across four trade association programs

In an attempt to avoid costly regulation and liability as a result of externalities, a number of trade associations have promoted industry self‐regulation – the voluntary association of firms to control their collective behavior. However, previous studies have found that, without explicit sanctions for malfeasance, such self‐regulatory programs are likely to attract more polluting firms. In this paper, we examine four environmental self‐regulatory programs in the chemical, textile, and pulp and paper industries. Using a sample of over 4000 firms within these industries, we find evidence that in at least one program more polluting firms tended to join, while in another cleaner firms were more likely to join. We propose that differences in the structure of the programs drive the appearance of this form of adverse selection. In particular, we speculate that only when self‐regulatory programs have explicit sanctions for malfeasance may they avoid adverse selection problems. Copyright © 2003 John Wiley & Sons, Ltd and ERP Environment.     

The Association between External Monitoring and Earnings Management in the Property-Casualty Insurance Industry

This paper examines the association between external monitoring and earnings management by property-casualty insurers. We extend previous work by Petroni and Beasley (1996) by expanding the set of external monitors to include both auditors and actuaries. We investigate whether certain auditor-actuary pairs are associated with less understatement of the loss reserve account by financially struggling insurers. Our data consist of loss adjustments reported by 465 property-casualty insurers for reserves established in 1993. The results indicate that under-reserving by weak insurers is essentially eliminated when the firm uses auditors and actuaries that are both from Big Six accounting firms. In contrast, non-Big Six actuaries have less impact on under-reserving by weak insurers. Our results suggest that the quality usually associated with Big Six auditors falls when the audit firm relies on third party actuaries to evaluate the loss reserve estimates of struggling insurance clients. We conjecture that Big Six actuaries insist on more conservative loss reserve levels because, compared to actuarial consulting firms, they are more attuned to the liability exposure of the auditor.