Endogeneity and the Dynamics of Voluntary Disclosure Quality: Is there Really an Effect on the Cost of Equity Capital?*

Research on the effects of voluntary disclosure quality on the cost of equity capital is often plagued by endogeneity concerns. In this paper, I use a dynamic panel system GMM estimator, which provides internal instruments from the firm's history that directly address endogeneity arising from unobserved heterogeneity and simultaneity. By using hand-collected voluntary disclosure scores for firms listed in the Swiss stock exchange, I examine the dynamic relation between voluntary disclosure quality and the cost of equity capital in a panel over a period of 10 years. The results suggest that the relation between voluntary disclosure quality and the cost of equity capital becomes insignificant after controlling adequately for potential dynamic endogeneity, simultaneity, and unobserved heterogeneity.     

The Effects of Creative Culture on Real Earnings Management*

Creativity and innovation have been identified by senior executives as some of the most desired characteristics of corporate culture. Accordingly, managers strive to build these cultures within their organizations. However, research in psychology suggests that these attempts may have unintended negative consequences. In this study, I predict and find that managers in a more (versus less) innovative company culture will engage in higher levels of real earnings management (REM). I then test two construal level theory (CLT)-based interventions designed to reduce REM. As I predict, I find that in more innovative corporate cultures an intervention that makes downside risk more salient reduces REM, but an intervention that encourages managers to consider the “big-picture” impact of their decision reduces REM to a greater extent. Unexpectedly, I also find that the effect of the “big-picture” intervention reverses in a less innovative corporate culture leading to an increase in REM. My findings contribute to the emerging accounting literature regarding REM. I also extend the psychology literature investigating the link between opportunistic behavior and creativity, and I also expand research into how interventions based on CLT can affect judgment and decision making in an accounting context.     

Shareholder Empowerment and Board of Directors Effectiveness*

We develop a model to examine implications of empowering shareholders to replace directors. We find that shareholder empowerment functions as a double-edged sword. On the one hand, it can weaken ineffective boards' incentive to hold on to their position. On the other hand, it can induce both effective and ineffective boards to behave strategically to avoid a potential dismissal. As a result, empowerment does not necessarily increase firm value; in some cases, empowerment exacerbates the agency problem it is intended to address. Giving shareholders the power to set board compensation (have a “say on pay”) can mitigate these problems. However, even when empowerment benefits (harms) the shareholders, firm value may decrease (increase). Finally, we discuss empirical and policy implications of the main findings.     

Connections between the Market Pricing of Accruals Quality and Accounting-Based Anomalies*

We examine whether prior findings on the market pricing of accruals quality (AQ) can be attributed to other forms of accounting-based anomalies. Using hedge portfolio analysis and cross-sectional regressions, we find that the return predictive power of AQ overlaps with several other accounting signals. We also find that, similar to other accounting-based anomalies, especially the accruals anomaly, the AQ pricing effect (i) is likely due to mispricing instead of risk pricing, (ii) is attenuated in recent years, and (iii) disappears among firms with cash flow forecasts or long-term growth forecasts. Our findings highlight the importance of controlling for existing return predictive signals when evaluating the market pricing of AQ.     

Audit Regulation and Cost of Equity Capital: Evidence from the PCAOB's International Inspection Regime*

This study investigates the relation between audit regulation and cost of equity capital. There is scant empirical evidence on this relation because changes in audit regulation are frequently accompanied by other major regulatory changes. We exploit variation in the timing of regulatory changes induced by foreign governments' staggered allowance of PCAOB inspections. Using a difference-in-differences design, we find that foreign SEC registrants with auditors from countries that allow PCAOB inspections enjoy a lower cost of capital, relative to foreign SEC registrants with auditors from countries that prohibit inspections. Furthermore, we find that this cost of capital effect is attenuated for companies with higher-quality governance mechanisms. Finally, we document that inspection access is associated with higher-quality analyst forecasts, which suggests that this change in audit regulation reduces information risk for market participants.     

The Interplay of Core and Peripheral Actors in the Trajectory of an Accounting Innovation: Insights from Beyond Budgeting*

Previous studies on accounting innovations emphasize the key role played by innovators and other core actors in theorizing and popularizing such innovations. This paper extends this literature by drawing attention to the role of actors who occupy a more peripheral position within the innovation-based field. We regard accounting innovations as strategic action fields, in which core and peripheral actors interact to shape the trajectory of the innovation. In contrast to core actors, peripheral actors only weakly identify with the innovation-based field and often occupy a core position in some other industry, professional, and/or geographical field. Given their embeddedness in these other fields, they are likely to try to accommodate an innovation with existing practices. Such frame blending can be problematic for core actors who envisage a more radical frame shift. Using the case of Beyond Budgeting, we show how the interplay between core and peripheral actors shapes the trajectory of an innovation, in terms of the composition of the field and the framing tactics that dominate at different stages in the development of the field. Our paper advances a perspective on accounting innovations which highlights the variable nature of the innovation space, in terms of different actors entering and exiting this space over time, as well as the importance of considering the overlaps between an innovation-based field and other (industry, professional, geographical) fields.     

An Empirical Analysis of Analysts' Capital Expenditure Forecasts: Evidence from Corporate Investment Efficiency*

We examine whether the information conveyed in a relatively new analyst research output—capital expenditure (capex) forecasts—affects corporate investment efficiency. We find that firms with analyst capex forecasts exhibit higher investment efficiency. This effect is stronger when the forecasts are issued by analysts with higher ability or greater industry knowledge. Moreover, the effect of capex forecasts on investment efficiency varies with the signals they convey about future growth opportunities—positive-growth signals are more effective in reducing underinvestment, while negative-growth signals are more effective in reducing overinvestment. Cross-sectional tests suggest that these effects operate at least in part through both a financing channel and a monitoring channel. Taken together, our results suggest that analysts' capex forecasts convey useful information about firms' growth opportunities to managers and investors, which can facilitate efficient investment.     

Residents' perceptions on tourism impacts

The limited explanatory research on residents' perceptions of tourism impacts has resulted in an underdeveloped theoretical orientation of research on this subject. This paper presents a social exchange process model as a theoretical basis for some understanding of why residents perceive tourism impacts positively or negatively. The model is based upon the concept of the exchange relation. Propositions are derived from the model to test the relationships between the model's components. These propositions have been developed from inferences based upon the social exchange literature.     

U.S. tourism in Mexico: An empirical analysis

This study estimated demand functions for tourism by U.S. residents in Mexico border areas, the Mexican interior, and overseas. There was no evidence that U.S. tourists substitute Mexico for more distant destinations as transportation costs rise. Border tourism is income elastic when the share of U.S. income of the border states is held fixed. Tourism in the Mexican interior is also income elastic. Tourism along the border is price elastic, while tourism in the interior is elastic with respect to U.S. and overseas prices but inelastic with respect to Mexican prices. The rise in the share of the Mexican interior in U.S. overseas tourism is not related to price factors. Recent devaluations of the Mexican peso are unlikely to provide benefits to the Mexican tourism industry.     

Land tenure, population pressure, and deforestation in Haiti: The case of Forêt des Pins Reserve

Haiti, with a forest cover estimated at 3% of all land area, has experienced severe degradation of its natural resources and a significant change in its land cover. While deforestation in Haiti is obviously multifaceted, one issue emerges from previous empirical analysis in explaining deforestation: land tenure. This study focuses on the causes of deforestation in Haiti, particularly in Forêt des Pins Reserve, using the annual average area of cleared forest per household as the dependent variable. Data were collected with the use of a survey instrument administered to 243 farm households in 15 villages inside the Reserve. Tobit Regression results reveal that household size, education of head of the household, land tenure regime, and farm labor are important factors affecting land clearing.