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1 – 10 of over 23000The purpose of this research paper is to study attitudinal responses to the tone of a voluntary disclosure. It is known that tone can affect market response. Existing literature…
Abstract
Purpose
The purpose of this research paper is to study attitudinal responses to the tone of a voluntary disclosure. It is known that tone can affect market response. Existing literature assumes that investors' attitudes mediate these effects, but these attitudinal mediators have not been directly measured. The authors are especially interested in cases where a firm is reporting poor financial results. The purpose is to trace the mechanism and conditions under which tone affects the credibility of a voluntary disclosure.
Design/methodology/approach
The authors conducted a 2 × 2 between-subjects study that manipulates financial performance (good/bad) and tone (positive/negative). The attitudinal dependent variable is the credibility of the management discussion, with persuasive intent as a mediator of the effects of tone on credibility.
Findings
In the case of bad financial results, a positive tone has a negative effect on credibility as the authors predict. This effect is fully mediated by perceived “persuasive intent”. In the case of good financial performance, credibility is higher when management adopts a positive tone, even though there, too, subjects perceive the persuasive intent.
Research limitations/implications
The research paper establishes a bridge between the communications and finance literature on the effect of tone in voluntary disclosures. The empirical findings provide initial evidence and new detail regarding an attitudinal response (credibility) that the finance literature often assumes is responsible for mediating market responses to voluntary disclosures. One unexpected finding with interesting implications is that positive tone increases credibility in the case of good news. The implication is that a firm may indulge in taking a victory lap to celebrate good news, without harming the credibility of their corporate communications. Additional research is warranted that combines theory and methods from communications and finance, to further elaborate the attitudinal mechanisms behind the market effects of tone in voluntary disclosures.
Originality/value
At the most general level, the original contribution is the creation of a theoretical and methodological bridge between the communications and finance literature, regarding the effect of tone in voluntary disclosures. This research proposes an integrated theoretical framework, in which the concept of incentives shapes the relationships between the firm's financial situation, a disclosure's tone and its credibility. Methodologically, the authors employ an experimental method, which is more typical in the communications literature, to illuminate the attitudinal effects of tone that are frequently mentioned and assumed in the finance literature.
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Alastair Marsden, Russell Poskitt and Yinjian Wang
The purpose of this paper is to investigate the impact of the introduction of New Zealand's statutory‐backed continuous disclosure regime enacted in December 2002 on the…
Abstract
Purpose
The purpose of this paper is to investigate the impact of the introduction of New Zealand's statutory‐backed continuous disclosure regime enacted in December 2002 on the differential disclosure behaviour of New Zealand firms with good and bad earnings news.
Design/methodology/approach
This paper examines the level of information disclosure, analyst forecast error and forecast dispersion, abnormal returns and abnormal volumes for firms with good and bad news earnings announcements in a sample period surrounding reforms to New Zealand's continuous disclosure regime.
Findings
The authors find evidence that the pre‐announcement information flow was poorer prior to the reform for bad news firms compared to good news firms, in terms of greater analysts' forecast dispersion and a larger abnormal price reaction to the actual earnings announcement. Second, the reform reduced the asymmetry of information flow between good and bad news firms, with the differences in analysts' forecast dispersion and abnormal price reaction dissipating after the reform.
Research limitations/implications
The findings suggest that the reforms to New Zealand's continuous disclosure regime have reduced managers' propensity to withhold bad news and improved the quality of information provided to investors by firms with bad earnings news.
Originality/value
This study improves our understanding of the impact of disclosure reform on the behaviour of managers in a market with relatively low liquidity and less litigation risk in comparison to larger and more developed markets.
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Hoàng Long Phan and Ralf Zurbruegg
This paper examines how a firm's hierarchical complexity, which is determined by the way it organizes its subsidiaries across the hierarchical levels, can impact its stock price…
Abstract
Purpose
This paper examines how a firm's hierarchical complexity, which is determined by the way it organizes its subsidiaries across the hierarchical levels, can impact its stock price crash risk.
Design/methodology/approach
The authors employ a measure of hierarchical complexity that captures the depth and breadth of how subsidiaries are organized within a firm. This measure is calculated using information about firms' subsidiaries extracted from the Bureau van Dijk (BvD) database that allows the authors to construct each firm's hierarchical structure. The data sample includes 2,461 USA firms for the period from 2012 to 2017 (11,006 firm-year observations). Univariate tests and panel regression are used for the main analysis. Two-stage-least-squares (2SLS) instrumental variable regression and various other tests are employed for robustness check.
Findings
The results show a positive relationship between hierarchical complexity and stock price crash risk. This relationship is amplified in firms with a greater number of subsidiaries that are hierarchically distanced from the parent company as well as in firms with a greater number of foreign subsidiaries in countries with weaker rule of law.
Originality/value
This paper is the first to investigate the impact hierarchical complexity has on crash risk. The results highlight the role that a firm's organizational structure can have on asset pricing behavior.
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Shatha Mustafa Hussain and Amer Alaya
This study aims to examine investors' reactions to bad financial news (IRBFN) based on complex financial accounting disclosures (CFAD) as well as how investors' herding behavior…
Abstract
Purpose
This study aims to examine investors' reactions to bad financial news (IRBFN) based on complex financial accounting disclosures (CFAD) as well as how investors' herding behavior influences investor reactions in United Arab Emirates (UAE) project-based organizations (PBOs).
Design/methodology/approach
The primary data collection was furnished via online questionnaires, and 310 completed questionnaires were analyzed using structural equation modelling (SEM), moderation analysis, multiple regression simulations and path analysis.
Findings
The study shows that four out of the five CFAD dimensions observed – investors’ relations (IR), board and management structure, transparency disclosure and other disclosure channels – have a direct influence on investor's reactions to bad financial news, with the exception of “external auditing and audit service”. In addition, investor herding has a moderation impact on the relationship between CFAD and IRBFN.
Research limitations/implications
There is a possibility that the broad view of the results may be limited by the size of the research sample. The paper's findings should therefore be authenticated at an intercontinental level with the same conceptual framework in other nations.
Practical implications
The purpose of modeling stakeholders' decision-making process is to improve their decisions and to control their reactions that may negatively affect PBOs in the UAE.
Originality/value
This research contributes to planned behavior theory and agency theory in the UAE context, both of which are empirically tested.
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The present study focuses on the timeliness of financial reporting, which is an element of transparency. Specifically, it looks at the telecommunications industry in Russia and…
Abstract
The present study focuses on the timeliness of financial reporting, which is an element of transparency. Specifically, it looks at the telecommunications industry in Russia and computes the number of days it takes companies to receive an audit opinion, then compares the time lag to the number of days it takes non-Russian companies in the telecommunications industry to receive an audit opinion. The study concludes that Russian companies take longer to report financial results than do non-Russian companies. Larger Russian companies take less time to report their financial condition than do small Russian firms, but the difference is not significant. The same was true for the non-Russian companies included in the sample. Companies using Russian Accounting Standards took significantly less time to report financial results than did companies using either International Financial Reporting Standards (IFRS) or US generally accepted accounting principles (GAAP). Companies using IFRS took significantly longer to report financial results than did companies using US GAAP. The dominant auditor in the Russian telecommunications industry did not complete audits in significantly less time than did nondominant auditors. Although Russian companies take far less time to issue financial statements now than they did a few years ago, it is premature to definitively conclude that the improvement is significant due to the limited data set.
H. Young Baek, Dong‐Kyoon Kim and Joung W. Kim
The aim of this paper is to investigate the effect of management earnings forecasts on the level of information asymmetry around subsequent earnings announcement.
Abstract
Purpose
The aim of this paper is to investigate the effect of management earnings forecasts on the level of information asymmetry around subsequent earnings announcement.
Design/methodology/approach
Employing the adverse selection cost method suggested by George et al., the paper compares for each sample firm the adverse selection cost around earnings announcement in forecasting years with that in non‐forecasting years.
Findings
Consistent with Diamond and Verrecchia is the finding that the earnings announcement in non‐forecasting years decreases information asymmetry during a three‐day announcement period and increases in a post‐announcement period up to seven days. No significant change in information asymmetry between pre‐ and post‐announcement periods when firms released a “good” news forecast is found. The firms that previously released a “bad” news forecast experience a significantly lower information asymmetry than those that did not forecast during announcement or post‐announcement days, and experience a decrease in information asymmetry in a five to seven‐day post‐announcement period.
Originality/value
This paper provides the first empirical reports on the different information asymmetry changes around earnings announcements followed by a “good” news management forecast from those followed by a “bad” news forecast.
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Anjali Srivastava, Rima Assaf, Dharen Kumar Pandey and Rahul Kumar
Understanding and mitigating stock price crash risk is vital for investors and regulators to ensure financial market stability. This study aims to unveil significant research…
Abstract
Purpose
Understanding and mitigating stock price crash risk is vital for investors and regulators to ensure financial market stability. This study aims to unveil significant research trends and opportunities.
Design/methodology/approach
This study adopts the bibliometric and systematic review approach to analyse 485 Scopus-indexed articles through citation, keyword co-occurrence, bibliographic coupling, and publication analyses and delve into the depth of crash risk literature.
Findings
This bibliometric review reveals not only a surge in crash risk publications over the last decade but also delineates several emerging thematic threads within this domain. We identify seven distinct themes that have gained prominence in recent literature: bad news hoarding, board characteristics, capital market factors, corporate policies, ownership impact, corporate governance, and external environmental influences on crash risk. This thematic analysis provides a comprehensive overview of the evolving landscape of crash risk research and underscores the multifaceted nature of factors contributing to market instability.
Practical implications
This study makes a substantial contribution by furnishing a thorough examination of existing studies, pinpointing areas where knowledge is lacking, and shedding light on emerging trends and debates within the crash risk literature.
Originality/value
This study identifies current research trajectories and propels future exploration into agency perspectives, audit quality, and corporate disclosures within crash risk literature.
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Robert W. McGee and Xiaoli Yuan
Timeliness of financial reporting is one of the attributes of good corporate governance identified by the OECD and World Bank. Shareholders and other stakeholders need information…
Abstract
Purpose
Timeliness of financial reporting is one of the attributes of good corporate governance identified by the OECD and World Bank. Shareholders and other stakeholders need information while it is still fresh and the more time that passes between year‐end and disclosure, the more stale the information becomes and the less value it has. This paper aims to examine the timeliness of financial reporting in the People's Republic of China and to compare it to timeliness in the USA and the European Union (EU).
Design/methodology/approach
The timeliness of financial reporting was measured by counting the number of days that elapsed between year‐end and the date of the independent auditor's report for Chinese companies listed on the Shanghai Stock Exchange and a selection of public companies in the USA and EU. Results were then compared to determine whether there was a significant difference. This study also compares timeliness data on the basis of audit firm to determine whether companies audited by one of the Big‐4 firms are more timely in their financial reporting than are companies audited by Chinese audit firms.
Findings
The paper finds that Chinese companies took significantly longer to report financial results than either the EU or US companies. EU companies took significantly longer to report financial results than US companies. The vast majority of Chinese company audits were not conducted by the Big‐4 accounting firms.
Practical implications
Companies that are not timely in their financial reporting practices find it more difficult to attract capital. Their corporate governance practices are also seen as less than ideal, which has a negative effect on a company's reputation within the financial community. Thus, Chinese companies that are slow in reporting their financial results may suffer negative consequences in terms of reputation and ability to raise capital, all other things being equal.
Originality/value
This paper is the first to compare the timeliness of financial reporting for the People's Republic of China, the USA and the European Union.
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This paper aims to investigate the changes in the properties of accounting income published by French listed companies during the 1990s. It also analyzes the impact of certain…
Abstract
Purpose
This paper aims to investigate the changes in the properties of accounting income published by French listed companies during the 1990s. It also analyzes the impact of certain corporate characteristics such as size, international financing, and audit firm, on such changes.
Design/methodology/approach
Multivariate regression is used.
Findings
In French companies, good news has a delayed impact on earnings, as accountants only allow the effect of such news to be recognized gradually in the earnings measure. Conversely, bad news is reflected rapidly in earnings. The results confirm a general upward trend in the degree of conservatism of accounting earnings over the period as a whole. However, except for firm size, none of the corporate characteristics examined can predict a company's accounting earnings properties.
Research limitations/implications
In future studies, it will be interesting to develop and test other possible corporate and/or institutional factors relating to accounting earnings properties.
Practical implications
The paper provides an insight analysis on the evolution of institutional environment in France and its impact on accounting.
Originality/value
First study on properties of accounting income in France.
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Quyen Le, Alireza Vafaei, Kamran Ahmed and Shawgat Kutubi
This paper aims to examine the association between busy directors on corporate boards and accounting conservatism.
Abstract
Purpose
This paper aims to examine the association between busy directors on corporate boards and accounting conservatism.
Design/methodology/approach
The authors use a sample of 500 firms listed on the Australian Security Exchange from 2004 to 2019. The busyness of non-executive directors is proxied by three indicators. For accounting conservatism, the authors use both conditional and unconditional accounting conservatism via asymmetric timeliness of earnings, accrual-based loss recognition, cumulative total accruals and book-to-market ratio. The authors cluster the standard errors at the firm level to compensate for potential residuals’ dependency and heteroscedasticity, in addition to analysing the main models using year and industry fixed effects (Petersen, 2009). Separately, the authors look at the impact of female busy directors on firms’ adoption of conservative accounting methods. Both propensity score matching analyses and Heckman (1979) two-stage approach systematically address endogeneity issues.
Findings
The presence of busy directors on boards leads to greater unconditional conservatism and less conditional conservatism. The relationships between busy female directors with both conditional and unconditional conservatism remain consistent with the main findings.
Practical implications
This paper provides useful insights for shareholders, regulators and accounting standards setters to better evaluate busy directors’ effectiveness in monitoring firms’ financial reporting quality. Directors and the companies themselves can refer to the authors’ findings to decide the best structure for their boards and committees, considering their specific monitoring requirements. Given that no mandatory restriction has been legislated, improved policies or new ones will ensure that busy directors can effectively fulfil their duties.
Originality/value
This research contributes to the broader research theme by examining the influence of directors’ quality on financial reporting conservatism. It also contributes to the ongoing debate in the corporate finance literature regarding the experience and busyness hypotheses of directors with multiple directorships. Additionally, this research adds value to gender diversity research by finding evidence that female busy directors follow the same pattern of reporting conservatism as male busy directors.
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