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253
The Economic Implications of Corporate Financial Reporting
, 2004
"... We survey 401 financial executives, and conduct in-depth interviews with an additional 20, to determine the key factors that drive decisions related to reported earnings and voluntary disclosure. The majority of firms view earnings, especially EPS, as the key metric for outsiders, even more so than ..."
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Cited by 369 (17 self)
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We survey 401 financial executives, and conduct in-depth interviews with an additional 20, to determine the key factors that drive decisions related to reported earnings and voluntary disclosure. The majority of firms view earnings, especially EPS, as the key metric for outsiders, even more so than cash flows. Because of the severe market reaction to missing an earnings target, we find that firms are willing to sacrifice economic value in order to meet a short-run earnings target. The preference for smooth earnings is so strong that 78 % of the surveyed executives would give up economic value in exchange for smooth earnings. We find that 55 % of managers would avoid initiating a very positive NPV project if it meant falling short of the current quarter’s consensus earnings. Missing an earnings target or reporting volatile earnings is thought to reduce the predictability of earnings, which in turn reduces stock price because investors and analysts hate uncertainty. We also find that managers make voluntary disclosures to reduce information risk associated with their stock but try to avoid setting a disclosure precedent that will be difficult to maintain. In general, management’s views provide support for stock price motivations for earnings management and voluntary disclosure, but provide only modest evidence in support of other
Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature
, 2001
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Financial accounting information and corporate governance
, 2001
"... This paper reviews and proposes additional research concerning the role of publicly reported financial accounting information in the governance processes of corporations. We first discuss research on the use of financial accounting in managerial incentive plans and explore future research directions ..."
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Cited by 179 (5 self)
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This paper reviews and proposes additional research concerning the role of publicly reported financial accounting information in the governance processes of corporations. We first discuss research on the use of financial accounting in managerial incentive plans and explore future research directions. We then propose that governance research be extended to explore more comprehensively the use of financial accounting information in additional corporate control mechanisms, and suggest opportunities for expanding such research. We also propose cross-country research to investigate more directly the effects of financial accounting information on economic performance through its role in
2002) “ADRs, Analysts and Accuracy: Does Cross Listing
- Indiana University
"... This paper investigates the relation between cross listing in the U.S., with its resulting commitment to increased disclosure, and the information environment of non-U.S. firms. We find that firms that cross-list on U.S. exchanges have greater analyst coverage and increased forecast accuracy relativ ..."
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Cited by 158 (7 self)
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This paper investigates the relation between cross listing in the U.S., with its resulting commitment to increased disclosure, and the information environment of non-U.S. firms. We find that firms that cross-list on U.S. exchanges have greater analyst coverage and increased forecast accuracy relative to firms that are not cross listed. A time-series analysis shows that the change in analyst coverage and forecast accuracy occurs around cross listing. We also document that firms that have more analyst coverage and higher forecast accuracy have higher valuations. Further, the change in firm value around cross listing is correlated with changes in analyst following and forecast accuracy suggesting that cross listing enhances firm value through its effect on the firm’s information environment. Our findings support the hypothesis that crosslisted firms have better information environments, which are associated with higher market valuations.
Accounting information, disclosure, and the cost of capital”, Working Paper
, 2006
"... In this paper we examine whether and how accounting information about a firm manifests in its cost of capital, despite the forces of diversification. We build a model that is consistent with the CAPM and explicitly allows for multiple securities whose cash flows are correlated. We demonstrate that t ..."
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Cited by 110 (7 self)
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In this paper we examine whether and how accounting information about a firm manifests in its cost of capital, despite the forces of diversification. We build a model that is consistent with the CAPM and explicitly allows for multiple securities whose cash flows are correlated. We demonstrate that the quality of accounting information can influence the cost of capital, both directly and indirectly. The direct effect occurs because higher quality disclosures affect the firm’s assessed covariances with other firms ’ cash flows, which is non-diversifiable. The indirect effect occurs because higher quality disclosures affect a firm’s real decisions, which likely changes the firm’s ratio of the expected future cash flows to the covariance of these cash flows with the sum of all the cash flows in the market. We show that this effect can go in either direction, but also derive conditions under which an increase in information quality leads to an unambiguous decline the cost of capital.
Economic Consequences of SEC Disclosure Regulation
- 2004) http://papers.ssrn.com/paper.taf?abstract_id=307821 W Cary, “Federalism and Corporate Law: Reflections upon Delaware” (1974) 83 Yale Law Journal
"... of Mergent, and Gerry Cooke of Datastream International for their assistance with institutional details and data issues. Finally, we thank Brian Lempel, Darwin Rodriguez, and Richard Clattenburg for their research assistance. Economic Consequences of SEC Disclosure Regulation: The Case of the OTC Bu ..."
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Cited by 66 (6 self)
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of Mergent, and Gerry Cooke of Datastream International for their assistance with institutional details and data issues. Finally, we thank Brian Lempel, Darwin Rodriguez, and Richard Clattenburg for their research assistance. Economic Consequences of SEC Disclosure Regulation: The Case of the OTC Bulletin Board This paper examines the economic consequences of SEC disclosure requirements using a recent regulatory change in the OTC Bulletin Board. Starting in 1999, all firms trading on the OTCBB have to comply with the “eligibility rule ” requiring firms to provide SEC disclosure filings. For firms that previously did not file with the SEC, this rule is similar to the introduction of the Securities Exchange Act of 1934. In this unique setting, we document both significant costs and benefits to firms from the imposition of SEC disclosure requirements in terms of firms ’ listing choices, shifts in market liquidity and stock returns. Specifically, newly compliant firms experience permanent increases in liquidity and positive returns, whereas the reverse is true for noncompliant firms forced off the OTCBB. Using firms already filing with the SEC prior to the rule change, we provide evidence consistent with the existence of positive externalities from SEC disclosure regulation. JEL classification:
Identifying investor sentiment from price paths: The case of football betting
- Journal of Business
, 1999
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Insider and liquidity trading in stock and options markets
- Review of Financial Studies
, 1994
"... you have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you may use content in the JSTOR archive only for your personal, non-commercial use. Please contact the publisher regarding any further use of this work. Publisher contact inform ..."
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Cited by 42 (2 self)
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you have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you may use content in the JSTOR archive only for your personal, non-commercial use. Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained at
Firm Diversification and Asymmetric Information: Evidence from Analysts' Forecasts and Earnings Announcements
, 2002
"... Managers frequently cite the desire to mitigate asymmetric information as a motivation for increasing firm focus. The information benefits of focus appear relevant for the subset of firms that actually increase their focus; however, the relevance of focus-related information benefits for the populat ..."
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Cited by 37 (0 self)
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Managers frequently cite the desire to mitigate asymmetric information as a motivation for increasing firm focus. The information benefits of focus appear relevant for the subset of firms that actually increase their focus; however, the relevance of focus-related information benefits for the population of diversified firms is an open question. This paper examines the relation between corporate diversification and asymmetric information proxies derived from analysts' forecasts and abnormal returns associated with earnings announcements. I find that greater diversification is not associated with increased asymmetric information. These results call into question the notion that corporate diversification strictly exacerbates information problems. JEL classification: G34 Keywords: Transparency; Diversification; Focus; Asymmetric information; Corporate structure *I thank Anwer Ahmed, Bipin Ajinkya, Sanjeev Bhojraj, Ted Fee, Mark Flannery, Charles Hadlock, Joel Houston, Ken Lehn, M. Nimalendran, Richard Warr, an anonymous referee, and especially Mike Ryngaert for helpful comments. I gratefully acknowledge the contributions of I/B/E/S International Inc. and First Call for providing forecast data. All errors remain my own. E-mail address: shthomas@katz.pitt.edu 0304-405X/00/$-see front matter 2002 Elsevier Science S.A. All rights reserved 1 1.
Informed and Strategic Order Flow in the Bond Markets
, 2007
"... We study the role played by private and public information in the process of price formation in the U.S. Treasury bond market. To guide our analysis, we develop a parsimonious model of speculative trading in the presence of two realistic market frictions—information heterogeneity and imperfect compe ..."
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Cited by 34 (2 self)
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We study the role played by private and public information in the process of price formation in the U.S. Treasury bond market. To guide our analysis, we develop a parsimonious model of speculative trading in the presence of two realistic market frictions—information heterogeneity and imperfect competition among informed traders—and a public signal. We test its equilibrium implications by analyzing the response of two-year, five-year, and ten-year U.S. bond yields to order flow and real-time U.S. macroeconomic news. We find strong evidence of informational effects in the U.S. Treasury bond market: unanticipated order flow has a significant and permanent impact on daily bond yield changes during both announcement and nonannouncement days. Our analysis further shows that, consistent with our stylized model, the contemporaneous correlation between order flow and yield changes is higher when the dispersion of beliefs among market participants is high and public announcements are noisy. (JEL E44; G14) Identifying the causes of daily asset price movements remains a puzzling issue in finance. In a frictionless market, asset prices should immediately
