The Effects of Governance on Classification Shifting and Compensation Shielding

Prior research (e.g., Dechow, Huson, and Sloan 1994 ) documents that, on average, compensation practices appear to shield CEO pay from income‐decreasing special items. In some circumstances, compensation shielding can be efficient. For example, it may encourage CEOs with earnings‐sensitive pay to take an action that reduces current earnings but nevertheless enhances value. Compensation shielding can be inefficient in other circumstances, such as when a board of directors is captured by an overly powerful CEO or the magnitude of negative special items has been overstated (e.g., by shifting core expenses into special items). This paper explores whether strong governance can explain cross‐sectional variation in compensation shielding, and whether stronger governance and auditing are associated with less shifting of expenses. We find that strong corporate governance mechanisms, as captured by board (and committee) independence, the Sarbanes‐Oxley (2002) Act (SOX) and its related governance reforms, and switches to Big 4 auditors, are all associated with less compensation shielding. While our evidence suggests that strong overall governance is associated with a reduction in manipulation of core earnings through classification shifting in the cross‐section, we find inconclusive evidence to suggest that board independence or SOX influence classification shifting.     

Short interest and the stock market relation with news sentiment from traditional and social media sources

We examine how the stock market relation to news sentiment—from traditional and social media (Twitter) sources—interacts with short selling of stocks. Our sample includes the S&P500 constituents for the period January 2016 to December 2020, providing 704,452 firm-day observations. We find evidence that both news sources are positively related to returns. The relationship is stronger for firms with a high short interest ratio, for small firms, and particularly for firms that are both small and highly shorted. This is consistent with short sellers targeting firms that are most responsive to (negative) news releases and so more likely to compensate for the additional costs encountered in shorting.     

Working Capital Management and Firm Performance: Some Evidence from Europe

International Advances in Economic Research -     

OPTIONS LISTING, MARKET LIQUIDITY AND STOCK BEHAVIOUR: SOME CANADIAN EVIDENCE

This study examines the price behaviour, trading volume and liquidity of stocks in the Canadian market at the time of options listing. Unlike some studies examining similar effects in the United States, the present one finds no evidence to indicate that either daily return volatility or trading volume is affected by the listing. Similarly, liquidity, as measured by the bid-ask spread, is unaffected. At the same time, cross-sectional tests indicate an inverse relationship between before-to-after trading volume and the before-to-after bid-ask spread.