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Political contributions and the auditor–client relationship Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2024-03-05 Frank Heflin, Dana Wallace
We investigate the impact of audit client political contributions on various audit attributes. We find that, despite having poorer accruals quality, clients with higher political contributions have fewer restatements, receive no more going concern qualified opinions and receive fewer reported material weaknesses. Additionally, we find that auditors earn higher fees from and have longer tenure with
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The unintended cost of data breach notification laws: Evidence from managerial bad news hoarding Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2024-03-07 Ivan Obaydin, Limin Xu, Ralf Zurbruegg
We investigate how nonfinancial disclosure laws exacerbate agency issues in firms. Our analysis focuses on the staggered adoption of state‐level notification laws that require firms to disclose data breaches. Our findings reveal that the introduction of these laws increases the risk of stock price crashes. Managers appear motivated to accumulate unfavorable news in an effort to prevent market overreactions
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Excess control of family board seats and corporate innovation Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2024-03-02 Suyun Chen, Zongze Li, Lingling Chu, Qingzi Cao
We examine the impact of board-level control on corporate innovation in family firms. We find that excess control of family board seats (ECFBS) is negatively correlated with innovation investment, innovation output and innovation efficiency. Our findings suggest that ECFBS exacerbates type II agency problems. Mechanistic analyses show that ECFBS reduces firms’ risk-taking level, increases their financing
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Variable rate premiums and defined benefit pension funding Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2024-02-13 Abbie Sadler
This study investigates the association between variable rate premiums (VRPs) charged by the Pension Benefit Guaranty Corporation (PBGC) and defined benefit pension funding in the United States. The PBGC requires VRPs from firms that fail to adequately fund their pension plans. Because millions rely on pension income, it is important to understand how government incentives impact pension funding decisions
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Corporate disclosure differences around the world: International evidence Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2024-02-13 Zihua Liu, Ziyao San, Albert Tsang, Li Yu
We examine whether and how variations in country-level institutional factors explain the intensity, diversity and informativeness of corporate disclosures around the world. Using a comprehensive corporate disclosure dataset containing more than 100 types of disclosures from firms domiciled in 35 countries, we examine the effect of four core country-level institutional factors—legal system, creditor/investor
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The reputational costs of connections to controversial politicians: Evidence from political scandals Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2024-02-06 Susanne Preuss, Jacco L. Wielhouwer
We use the exogenous nature of political scandals to test whether political connections in the form of campaign contributions expose firms to reputational risk. We hand-collect a sample of 218 scandals of members of the U.S. Congress that occurred between 2000 and 2019 and estimate the abnormal returns around the day a scandal first appeared in the news. We find that connected firms and to a lesser
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Unexpected management forecasts and future stock returns Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2024-01-31 Norio Kitagawa, Akinobu Shuto
This study investigates the effect of managerial discretion regarding initial earnings forecasts on future stock returns for Japanese firms. We estimate the unexpected portion of initial management earnings forecasts (“unexpected forecasts”) based on the findings of fundamental analysis research and define it as a proxy for forecast management. Using this measure, we find that firms with higher unexpected
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Acquisitions and social capital Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2024-01-31 Hasibul Chowdhury, Ashrafee Hossain, Anand Jha
We examine the association between the social capital—social norms that encourage altruism and discourage opportunism—in the state of the firm's headquarters and the acquisitions it makes. We find that the cumulative abnormal return around an acquisition announcement is high when an acquirer is headquartered in a high social capital state in the United States. This effect is robust and incremental
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Options trading and firm investment efficiency Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2024-01-28 Charles Hsu, Junqiang Ke, Zhiming Ma, Lufei Ruan
We examine the effect of options trading on an optioned firm's investment decisions. We find that active options trading improves an optioned firm's investment efficiency, and that this effect holds under several alternative empirical specifications and identification strategies, including fixed-effects models, different matching methods, an instrumental variable approach, a Granger causality test
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Manager sentiment and conditional conservatism Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2024-01-15 Daniel W. Collins, Nhat Q. Nguyen, Tri T. Nguyen
This study examines the effect of manager sentiment on conditional conservatism. Manager sentiment refers to widely held beliefs of financial managers about their firms’ future economic prospects that are not justified by available economic fundamentals. Manager sentiment is likely to affect conditional conservative reporting because the decision to recognize unrealized economic losses in a timely
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Local community's social capital and CEO pay duration Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2024-01-08 Zhenjiang Gu, Jeong-Bon Kim, Louise Yi Lu, Yangxin Yu
In this study, we examine the impact of social capital surrounding firms’ headquarters on their chief executive officers (CEOs)’ pay duration, reflected by the vesting periods of the short-term and long-term components in their annual compensation. Our analysis reveals that CEO pay duration increases with the level of social capital in the county in which firms are headquartered. We further find that
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Disclosure specificity: Evidence from book-to-bill ratios Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2024-01-06 Kimball Chapman, Zachary Kaplan, Chase Potter
We investigate whether managers vary disclosure specificity strategically, by examining how the voluntary disclosure of a key performance indicator, the book-to-bill (BTB) ratio (the ratio of orders received to orders billed), varies with future firm performance. Consistent with theoretical predictions from prior research, we find that managers are more likely to provide precise BTB disclosures when
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Shareholder voting on golden parachutes: Effective governance or too little too late? Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2024-01-05 Stuart L. Gillan, Nga Q. Nguyen
The Dodd–Fank Act mandated shareholder votes on executive's change-in-control (golden parachute) payments at the time the firm is sold. We study bid premiums surrounding the introduction of the vote and find that they are lower in the post-period. Moreover, there is a positive association between the relative size of parachute payments and premiums, particularly after the parachute vote was required
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Geographic links and predictable returns Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2024-01-03 Zuben Jin, Frank Weikai Li
Using establishment-level data of U.S. public firms, we construct a novel measure of geographic linkage between firms. We show that the returns of geography-linked firms have strong predictive power for focal firm returns and fundamentals. This effect is distinct from other cross-firm return predictability and is not easily attributable to risk-based explanations. It is more pronounced for focal firms
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Internal governance and corporate social responsibility performance Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-12-29 Wanyu (Tina) Chen, Janus Jian Zhang, Gaoguang Zhou
Internal governance is the process by which vice presidents (VPs) use their influence with the chief executive officer (CEO) to impact the firm's direction and policy. This study examines the effect of internal governance on corporate social responsibility (CSR) performance. Based on a large sample of US firms and after controlling for various CEO incentives, corporate governance and other determinants
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Do climate risk disclosures matter to financial analysts? Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-12-26 Walid Ben-Amar, Diana Castro Herrera, Isabelle Martinez
This paper examines whether and when corporate disclosures about a firm's exposure to climate risks matter to financial analysts. More specifically, we investigate the association between climate risk disclosure (CRD) and two properties of financial analysts’ earnings forecasts (accuracy and dispersion). We predict that climate risk financial materiality at the industry level moderates this association
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The agency costs of investment opportunities and debt contracting: Evidence from exogenous shocks to government spending Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-12-14 Jeffrey L. Callen, Mahfuz Chy
This study investigates the impact of macroeconomic shocks to firm investment opportunities on firm debt contracting policy. We find that adverse shocks to investment opportunities lead to a significant reduction in the use of debt covenants in syndicated bank loans. Consistent with incomplete contract theory, we show that firms mitigate debt–equity conflicts arising out of investment opportunities
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The ability of employee disclosures to reveal private information Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-12-12 Yun Fan, Jiajia Fu, Yuan Ji, Wayne B. Thomas
Managers may provide incomplete disclosure for various reasons (e.g., high processing costs, operating uncertainty, proprietary concerns, agency conflicts, etc.). In contrast, rank-and-file employees face fewer of these limitations. Through “wisdom of the crowd” displayed on social media, employees can aggregate their individual private beliefs to provide an informative business outlook. Using employee
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Debt capacity, cash holdings and financial constraints Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-12-12 Chien-Lin Lu, Hsuan-Chi Chen, Robin K. Chou, Chih-Yung Lin
In this study, we explore the relationship among debt capacity, cash holdings and financial constraints by using the deviation in leverage as a proxy for debt capacity. Our findings show a positive relationship between cash holdings and debt capacity. Furthermore, financially constrained firms benefit more from holding cash that leads to larger increases in debt capacity and easier access to bank loans
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Does audit regulation improve corporate decision making? Evidence from the disclosure of tax-related key audit matters Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-12-12 Lijun (Gillian) Lei, Sydney Qing Shu
Our study examines changes in corporate cash tax savings around the disclosure of tax-related key audit matters (tax KAMs). We expect publicly disclosed tax KAMs to increase the visibility of a firm's tax complexity and uncertainty, thereby motivating the firm to improve its tax function. In turn, we expect to observe increased cash tax savings as an outcome of improvements to corporate tax functions
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CEOs’ capital gains tax liabilities and accounting conservatism Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-12-11 Gunratan Lonare
Recent studies show that the tax-induced lock-in effect discourages CEOs from unwinding their unrestricted equity and subsequently exacerbates their risk-aversion. I investigate how CEOs’ unrealized capital gains tax liabilities (tax burdens) influence financial reporting conservatism. I find that the demand for accounting conservatism decreases with CEO tax burdens. Further analyses show that the
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Global outsourcing and voluntary disclosure Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-12-08 Lili Dai, Rui Dai, Lilian Ng, Zihang Peng
Reliance on global outsourcing has become an economic imperative for many major corporations worldwide, but at the same time, it has brought substantial risks and complexities to these firms. This study employs novel international supply chain data to examine whether global outsourcing of goods or services shapes US corporate disclosure policies. Our main results suggest a negative impact of global
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Information or pressure? The effect of director experience on CEO CSR compensation adoption and design Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-12-08 Zhengyu Li, Lu Yang
We investigate the impact of director experience in integrating social responsibility criteria into CEO compensation (corporate social responsibility [CSR] contracting) in other firms on the adoption and design of CSR contracting within focal firms and address the question of whether such experience brings information or pressure to focal firms. Using hand-collected data of a sample from the Standard
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The joint effects of litigation risk and regulation on non-GAAP reporting Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-11-22 Richard A. Cazier, Theodore E. Christensen, Kenneth J. Merkley, John S. Treu
We examine the joint effects of litigation risk and regulation in shaping firms’ financial reporting decisions. Specifically, we investigate how these disciplining mechanisms influence firms’ disclosure of non-GAAP earnings metrics, which have been at the forefront of the SEC's regulatory concerns in recent years. We employ a plausibly exogenous shock to litigation risk based on a US circuit court
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The effect of affiliation with a large business group on trade credit finance: An empirical analysis of chaebol firms in Korea Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-11-12 Byung Uk Chong, Hyun Joong Im
We investigate the effect of affiliation with a large business group on a firm's trade credit policy while controlling for the effects of its financial health and bargaining power in the Korean setting. Group affiliation may influence trade credit finance through the internal capital market mechanism and/or the extra bargaining power mechanism. In our empirical analyses, we focus on identifying the
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Earnings management risk and audit pricing: Evidence from big bath accounting Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-11-07 Heeick Choi, Khondkar Karim, Yiye Zhang
We examine whether big baths (large and non-recurring charges) affect auditors’ risk assessments and therefore result in higher audit fees. Prior studies have found that there is an asymmetric reaction from auditors on firms’ income-increasing/decreasing accruals. We argue that auditors’ response to big baths is distinguishable from other types of earnings management as big baths provide incremental
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Risk management committee and bank performance: Evidence from the adoption of the Dodd–Frank Act Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-11-05 Liangliang Jiang, Mingming Ji
We test the effect of the establishment of a risk management committee on bank risk, bank loan performance and bank profitability. The Dodd–Frank Act of 2010 provides us with quasi-experimental variation on risk management committee establishment that facilitates identification. We identify the risk management committee effect using an instrumental variable model based on the difference-in-differences
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When do stock options affect CEO risk-taking? The moderating role of CEO regulatory focus Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-10-30 Yenn-Ru Chen, Tuck Siong Chung, Chia-Hsien Lin, Angie Low
Executive stock options are provided to risk-averse CEOs to encourage risk-taking. We show that the efficacy of such stock options is moderated by CEOs’ regulatory focus—their intrinsic motivations to avoid losses or achieve gains. We show that stock options have a negligible impact on the risk-taking behavior of CEOs who are intrinsically motivated to avoid losses or take on risks. The impact of stock
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Generalist CEOs and conditional accounting conservatism Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-10-22 Karel Hrazdil, Yi Liang, Lufei Ruan, Hakjoon Song
Generalist chief executive officers (CEOs) have accumulated transferrable general skills by working in multiple firms or industries. Recent decades have witnessed an increasing demand for generalist CEOs, which has resulted in a favorable job market for them. Favorable outside job opportunities reduce generalist CEOs’ career concerns and increase their agency problems and risk-taking incentives. We
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The information spillover role of corporate spin-offs in financing activities: Evidence from equity sales by private firms through Regulation D Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-10-18 Sangwan Kim, Jangwon Suh
We examine whether the increased quantity of public information has a spillover impact on equity sales by private industry peer firms. To capture an increase in the quantity of public peer information, we use corporate spin-offs as these events cause an increase in the number of independent public entities that mandatorily disclose financial reports. Using a unique dataset on private firms’ equity
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Income statement mismatching has not reduced the informativeness of earnings over time Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-10-12 Hyung Il Oh, Stephen Penman
Research has concluded that there has been a decline in the informativeness of earnings over recent years. The reported decline has been attributed to an increasing mismatch of expenses to revenues due to the increasing expensing of investments in so-called intangible assets to the income statement. That suggests a remedy is required and, with accounting standards boards now considering intangible
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The evolution of corporate twitter usage Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-10-05 Mohamed Al Guindy, James P. Naughton, Ryan Riordan
We study the evolution of corporate Twitter usage from 2006 to 2021 using a comprehensive dataset of over 19 million tweets covering publicly listed US firms. Overall, we find that Twitter usage has changed substantially over the past 15 years, with a broader set of firms using Twitter and with more firms using Twitter to communicate financial information. The stock market response to tweets, measured
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Are firms doing good also doing well?—The CSR advertising-analogous effect Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-10-05 She-Chih Chiu, Hsuan-Chu Lin
This paper provides a theoretical framework and empirical support for an examination of corporate financial performance (CFP) from the perspective of an effect that is analogous to corporate social responsibility (CSR) advertising. We propose that not all companies are capable of “doing well by doing good.” Through an analytic model, we identify three key elements for determining a company's CSR a
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Do exchange traded funds affect corporate cash holdings? Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-10-05 Beiqi Lin, Shunji Mei, Kelvin Jui Keng Tan, Lei Zhang
We examine the effects of equity ownership by exchange traded funds (ETFs) on corporate cash holdings. We find that firms increase their cash holdings in response to higher anticipated risks generated by ETFs. To establish a causal interpretation, we use the Russell 1000/2000 index reconstitution as an instrument for ETF ownership. We further show that shareholders place a higher value on the additional
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The Founder certification effect, firm disclosures, and the cost of SEO financing Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-09-28 Yun Fan, Xiaozhe Gu, Nandu J. Nagarajan
We investigate the effect of founder control on firms’ financing costs for seasoned equity offerings (SEOs). Firms issuing SEOs are subject to increased information asymmetry and associated agency conflicts. We hypothesize that founder control has a certification effect that mitigates such problems, and consequently, reduces the cost of issuing SEOs. Consistent with our prediction, firms with founder
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Institutional investors’ horizons and bank transparency Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-09-24 Mamiza Haq, Shams Pathan, Carlos Fernandez Mendez, Gerald J. Lobo
We examine the relation between institutional investors’ horizons and bank transparency. The novelty of this research is to consider three important aspects of transparency: disclosure quality, private information gathering and auditor fees. We find strong evidence indicating that banks dominated by long-term (short-term [ST]) institutional shareholders exhibit higher (lower) levels of disclosure quality
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Disentangling stock return synchronicity from the auditor's perspective Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-09-24 Iftekhar Hasan, Joseph A. Micale, Qiang Wu
This paper investigates a firm's stock return asynchronicity through the auditor's perspective to distinguish whether this asynchronicity can proxy for the company's firm-specific information or the quality of its information environment. We find a significant and positive association between asynchronicity and audit fees after controlling for auditor quality and other factors that affect audit fees
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Economic demand for auditing services in the “registered” investment management industry Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-09-24 Al (Aloke) Ghosh, Yang Liu
We hypothesize that the demand for auditing in the registered investment management industry arises from the auditor's ability to act as a solvent indemnifier when outside parties incur losses because of financial misrepresentations. Consistent with this insurance demand, we find that, relative to financial companies, registered investment companies are more likely to retain Big 4 auditors. Restricting
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Boardroom backscratching and stock price crash risk Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-09-21 Dean Hanlon, Mehdi Khedmati, Edwin KiaYang Lim, Cameron Truong
We empirically capture boardroom backscratching, or cronyism, as when a firm's Chief Executive Officer (CEO) and directors concurrently receive excessive remuneration. We argue that boardroom backscratching can inhibit a board's constructive criticism and monitoring, resulting in a greater likelihood of bad news hoarding. Using 14,104 US firm-year observations spanning 1999–2020, we document a significant
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Ex-military CEOs and readability of financial reports Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-09-13 Anand Jha, Humnath Panta, Salil K. Sarkar
In this study, we examine the effect of ex-military Chief Executive Officers (CEO)s on the readability of 10-Ks. Using the Bog Index as a measure of readability, we find that firms run by ex-military CEOs have much more readable financial reports, mainly because of the words used in these financial reports. Ex-military CEOs also have a moderating effect—we find that their leadership lessens the adverse
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Fiscal monitoring and corporate investment Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-09-11 Lucas Knust, David Oesch
Does state fiscal monitoring of local governments impact firms? Exploiting the staggered adoption of state fiscal monitoring policies, our results show that state fiscal monitoring of local governments increases corporate investment. Affected firms increase their investment by increasing capital expenditures as well as research and development expenditures. Additional analyses reveal that firms fund
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Venture capital and methods of payment in mergers and acquisitions Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-09-10 Giang Nguyen, Hung Pham
We find evidence that venture capital (VC)-backed targets receive more stock as the method of payment in mergers and acquisitions than non-VC-backed targets do, even after controlling for self-selection bias, differences of characteristics between transactions of VC-backed and non-VC-backed targets and VC information bridge-building. VC-backed targets prefer stock of acquirers that are small, young
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The influence of uncertainty on financial reporting behavior: The case of P&C insurers Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-09-08 Daniel Ames, Brent Lao, Jomo Sankara, Justin Wood
We examine how uncertainty about a firm's future cash flows influences the quality of its accounting information. As uncertainty increases, information asymmetry between managers and stakeholders will almost certainly increase, amplifying the potential influence of uncertainty. We focus on a specific setting where severe levels of uncertainty can influence financial reporting, the property-casualty
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Audit engagement partner ideology, ideological homophily, and audit quality Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-09-08 Cullen Goenner, Xiaoli Guo, Matthew Notbohm
Previous studies have shown that audit quality is influenced by the audit engagement partner's characteristics. Extending this literature, we examine the association between audit engagement partner ideology (i.e. conservatism) and audit quality. We find that clients whose audit engagement partners are ideologically more conservative receive higher quality audits, as indicated by lower discretionary
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Economic policy uncertainty and corporate divestitures Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-09-04 Melissa B. Frye, Duong T. Pham, Ann Marie Whyte
We examine the impact of economic policy uncertainty (EPU) on the propensity of firms to engage in divestitures. We find that EPU is positively related to the likelihood of divestitures in general and cashflow-generating divestitures in particular. Consistent with the desire for cash being a driving force behind divestitures, we find that underperforming firms are more likely to engage in cashflow-increasing
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Do creditor control rights impact corporate tax aggressiveness? Evidence from debt covenant violations Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-08-01 C. S. Agnes Cheng, Bill B. Francis, Zhi Li, Yinjie Shen, Qiang Wu
We examine the effect of bank interventions on corporate tax aggressiveness via the lens of debt covenant violations. Using three identification strategies, we find that bank interventions have a negative effect on corporate tax aggressiveness. This effect is less pronounced for more financially constrained firms, firms with higher shareholder power and firms facing less powerful banks. Covenant-violating
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Audit quality and engagement partner busyness: The role of internal resource allocation Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-07-20 Katsushi Suzuki, Tomomi Takada
Prior studies have found that engagement partner busyness influences audit effectiveness. The more workload partners have from clients, the busier partners will be, resulting in lower audit quality. However, internal resources available to partners can attenuate the partners’ work burden, although the moderating effect of such resources has been mostly overlooked in the literature. As partners’ work
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Founder premiums, venture capital investments and acquirer benefits Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-07-13 Yamin Xie
This study investigates whether the retention of founders has a greater impact on deal prices and acquirer benefits compared with the retention of family successors or CEOs when private firms pursue a merger exit strategy. The results demonstrate that higher prices and returns can be achieved when founders remain postmerger. These findings hold up even when considering the acquirer's long-term operating
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Environment-specific political risk mitigation: Political lobbying versus green innovation Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-07-12 Sohanur Rahman, Elisabeth Sinnewe, Larelle Chapple, Sarah Osborne
Greater political pressure to improve corporate environmental performance and mitigate climate change impact leads firms to operate under greater political risk and uncertainty, affecting productivity and firm value. Using a panel of 3255 US firms from 2002 to 2020, this research tests the effectiveness of two environment-specific political risk (EPR) mitigation approaches: political lobbying and green
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Audit committee oversight and bank financial reporting quality Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-07-11 Dimitris K. Chronopoulos, Lemonia M. Rempoutsika, John O. S. Wilson
This study investigates the impact of audit committee oversight on the financial reporting quality of US bank holding companies. To overcome identification concerns, we use Section 165 h of the Dodd–Frank Wall Street Reform and Consumer Protection Act, which requires publicly traded bank holding companies with assets exceeding $10 billion to have separate audit and risk committees. We utilise a di
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Yesterday is history, tomorrow is a mystery: Directors’ and CEOs’ prior bankruptcy experiences and the financial risk of their current firms Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-06-12 Mariya N. Ivanova, Henrik Nilsson, Milda Tylaite
Using a large sample of Swedish private firms, we investigate the link between the prior corporate bankruptcy experiences (BEs) of directors and CEOs and the financial risk of their current firms. We find that firms with directors and CEOs previously involved in bankruptcies exhibit more aggressive corporate financial policies, have a higher corporate bankruptcy risk and are subject to a higher cost
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Flood risk and corporate future orientation: Evidence from sea level rise risk Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-05-25 Qingjie Du, Albert Tsang, Yang Wang
We find that firms located in US counties with higher sea level rise (SLR) risk engage less in future-oriented activities, that is, lower corporate social responsibility performance, lower R&D investment and fewer patents granted than firms in counties with lower SLR risk. The effect is strengthened when media attention on climate change is high, when the firm has a high level of prior long-term investment
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The spillover effects of financial misconduct on director-interlocked firms: Evidence from auditor scrutiny Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-05-24 Rong Li, Wenjing Cai, Zehao Wang
This paper examines the impact of firm financial misconduct on its director-interlocked firms from the perspective of auditors. We argue that when a firm engages in financial misconduct, auditors tend to perceive its director-interlocked firms as having higher audit risks. This is because accounting policies, procedures and corporate governance can propagate via common directors. Using a sample of
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CEO performance-based grants’ vesting provisions and debt contracts: Evidence from GAAP, Non-GAAP and KPI metrics Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-05-20 Teena Rachel Philip, Daniela Sanchez, Juan Manuel Sanchez
We examine the influence of CEOs’ equity and cash grants’ vesting provisions that are based on (i) accounting performance metrics prepared under US generally accepted principles (GAAP), (ii) non-GAAP performance metrics and (iii) key performance indicators (KPIs) on debt contracts. We find that grants with vesting provisions based on GAAP metrics and KPIs lead to a lower cost of debt, a lower likelihood
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Does it pay to treat employees well?: The case of informal finance Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-05-17 Vuong Thao Tran, Van Hoang Vu, Anh Le, Dinh Hoang Bach Phan
We examine the role of employee treatment in firms’ access to informal finance in the form of trade credit. We find that better employee treatment improves the amount of informal finance a firm can obtain. This effect is stronger in environments with (1) more intensive product market competition, (2) highly customized inputs, (3) lower social capital and (4) high demand for skilled labor. Furthermore
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The persistence and consequences of share repurchases Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-04-20 Sadok El Ghoul, Omrane Guedhami, Hyunseok Kim, Jungwon Suh
Firms use cash flow primarily to finance increasingly persistent share repurchases. Such internal financing is accompanied by gradual increases in retained earnings in the capital structure, and results in high (low) repurchase (investment) sensitivity to cash flow. These effects are particularly pronounced among financially mature firms. The repurchase–cash flow sensitivity of US firms has increased
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The power of the business media: Evidence from firm-level productivity Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-04-12 Mariem Khalifa, Ali Sheikhbahaei, Mohammed Aminu Sualihu
We examine the impact of media coverage on firm-level productivity and find that firms with higher media coverage are associated with higher productivity. Using the launch of Barron's Online as a quasi-shock to media coverage, we document that this relationship is causal. Further exploration shows that the positive media–productivity relationship is stronger for firms with weaker governance mechanisms
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Financial reporting quality and optimal capital structure Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-04-04 Christina Synn, Christopher D. Williams
We investigate the role of financial reporting quality in reducing a firm's over- and underleverage problems. While the prior literature examining reporting quality and capital structure has focused on observed capital structure, research suggests that financing frictions arising from adverse selection concerns can result in differences between observed and optimal capital structures. Using the deviation
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An empirical analysis of the effects of the Dodd–Frank Act on determinants of credit ratings Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-03-19 Anwer S. Ahmed, Dechun Wang, Nina Xu
We study the effects of the Dodd–Frank Act (“Dodd–Frank”) on determinants of credit ratings. We predict that the increase in regulatory oversight and litigation risk prompted by Dodd–Frank, as well as requirements for improved disclosures and governance, motivated credit rating agencies (CRAs) to increase the reliance on verifiable quantitative fundamental information in determining ratings. We find
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Inherited trust and informal finance Journal of Business Finance & Accounting (IF 2.709) Pub Date : 2023-03-01 Jiaman Xu, Jiandong Chen, Mengfei Jiang, Jiafu An
This paper examines the impact of trust on informal financial development. We isolate the inherited component of trust for 19 countries using US census data and relate it to firms’ access to trade credit. We discover that trust disproportionately elevates the use of trade credit by companies that face obstacles to obtaining funds from formal channels. Further analyses show that the effect is more pronounced