CEO internal experience and voluntary disclosure quality: Evidence from management forecasts

Internally‐promoted CEOs should have a deep understanding of their firm's products, supply chain, operations, business climate, corporate culture, and how to navigate among employees to get the information they need. Thus, we argue that internally‐promoted CEOs are likely to produce higher quality disclosure than outsider CEOs. Using a sample of US firms from the S&P1500 index from 2001 to 2011, we hand‐collect whether a CEO is hired from inside the firm and, if so, the number of years they worked at the firm before becoming CEO. We then examine whether managers with more internal experience issue higher quality disclosures and offer three main findings. First, CEOs with more internal experience are more likely to issue voluntary earnings forecasts than those managers with less internal experience as well as those managers hired from outside the firm. Second, CEOs with more internal experience issue more accurate earnings forecasts than those managers with less internal experience as well as those managers hired from outside the firm. Finally, investors react more strongly to forecasts issued by insider CEOs than to those issued by outsider CEOs. In additional analysis, we find no evidence that these results extend to mandatory reporting quality (i.e., accruals quality, restatements, or internal control weaknesses), perhaps because mandatory disclosure is subjected to heavy oversight by the board of directors, auditors, and regulators. Overall, our findings suggest that when managers have work experience with the firm prior to becoming the CEO, the firm's voluntary disclosure is of higher quality.     

Prediction based on entrepreneurship-prone personality profiles: sometimes worse than the toss of a coin

Small Business Economics - The human personality predicts a wide range of activities and occupational choices—from musical sophistication to entrepreneurial careers. However, which method...     

Intra-Household Resource Allocation, Consumer Preferences and Commodity Tax Reforms: Australian Evidence

Empirical analysis of household expenditure behaviour has traditionally ignored the issue of resource allocation between household members, assuming that they have identical or unitary preferences. This paper relaxes that assumption, develops a household sharing rule and proposes intra-household demand systems that are able to identify differences in the preferences of members from conventional data. The resulting price and expenditure elasticities are used to demonstrate that collective demand models suggest different directions for commodity tax reforms to those implied by the traditional unitary model.     

Predicting Household Poverty: A Methodological Note with a Kenyan Example

Household surveys provide data that is used for identifying and measuring the poverty status of households and individuals. However, carrying out such surveys is expensive, especially in poor developing countries. Thus it is important to make maximum use of the available survey data in developing countries, especially in sub‐Saharan Africa, where such data are expensive to collect and analyse. This paper develops a simple method for using poverty indices derived from survey data for a given year, to predict poverty rates for subsequent periods without having to conduct a new household survey. We illustrate the workings of the method with data from Kenyan household surveys for 1994 and 1997.     

Intertemporal Substitution and Terms-of-Trade Shocks

The paper examines the relationship between transitory terms‐of‐trade shocks and private saving. Using a model allowing for nonseparability between the consumption of tradables and nontradables, the paper estimates the intertemporal elasticity of substitution while accounting for the intratemporal elasticity of substitution between the consumption of tradables and nontradables. Empirical analysis of data for five industrial countries indicates that in response to transitory terms‐of‐trade shocks, intertemporal substitution of consumption and intratemporal substitution of consumption between tradables and nontradables both have large effects on private saving.     

The Effect of Accounting Restatements on Earnings Revisions and the Estimated Cost of Capital

This paper examines the effect of accounting restatements on a firm's cost of equity capital. We show that, on average, accounting restatements lead to both decreases in expected future earnings and increases in the firm's cost of equity capital. Depending on the model used, relative percentage increases in the cost of equity capital average between 7 and 19% in the month immediately following a restatement. The relative increase in the cost of capital dissipates as time passes and after controlling for analyst forecast biases, but continues to average between 6 and 15% in the most conservative setting. We also show that restatements initiated by auditors are associated with the largest increase in the cost of capital, and that firms with greater leverage experience greater increases in their cost of capital. Overall, our evidence is consistent with accounting restatements lowering the perceived earnings quality of the firm and increasing investors' required rates of return.     

Aid, policy and growth in post-conflict societies

Countries emerging from civil war attract both aid and policy advice. This paper provides the first systematic empirical analysis of aid and policy reform in the post-conflict growth process. It is based on a comprehensive data set of large civil wars, and covers 17 societies that were in their first decade of post-conflict economic recovery. We first investigate whether the absorptive capacity for aid is systematically different in post-conflict countries. We find that during the first 3 post-conflict years absorptive capacity is no greater than normal, but that in the rest of the first decade it is approximately double its normal level. Thus, ideally, aid should phase in during the decade. Historically, aid has not, on average, been higher in post-conflict societies, and indeed it has tended to taper out over the course of the decade. We then investigate whether the contribution of policy to growth is systematically different in post-conflict countries, and in particular, whether particular components of policy are differentially important. For this we use the World Bank policy rating database. We find that growth is more sensitive to policy in post-conflict societies. Comparing the efficacy of different policies, we find that social policies are differentially important relative to macroeconomic policies. However, historically, this does not appear to have been how policy reform has been prioritized in post-conflict societies.     

Import Protection Bias

Rodrik (1995) notes that trade regimes tend to be biased towards import protection, while the standard political economy models either yield no prediction on the bias of the trade regime or predict, counterfactually, a bias towards the export sector. This constitutes an important shortcoming in the political economy of trade literature. In this paper, the Grossman and Helpman (1994 ) “Protection for Sale” model is extended by adding government expenditure. This expenditure may be financed via a combination of tariff revenue and a distorting wage tax. In addition to the government expenditure, export subsidies need to be financed either via tariff revenue or a distorting wage tax. With this addition, plausible values of the model's parameters yield import protection bias.