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The purpose of this paper is to examine the association between national societal values and corporate governance in emerging markets.

The sample is comprised of 511 firm-year observations representing firms from 22 emerging markets. The authors regress sample firms’ corporate governance ratings, reported by Credit Lyonnais Securities Asia (CLSA), on national societal value scores (Hofstede, 1980 variables for primary analysis and Schwartz, 1994 variables for sensitivity tests) and firm-level and country-level control variables.

The authors find that national societal values are associated with corporate governance in emerging markets. Corporate governance is strong in firms from individualistic societies, and weak in firms from uncertainty avoiding and masculine cultures.

The authors extend the stream of literature that has established the link between formal institutions and corporate governance. The authors also extend the literature that examines how societal values influence corporate practices in emerging markets.

The results suggest that informal institutions, in addition to formal ones, shape corporate governance in emerging markets. Corporate stakeholders need to be aware of the different societal values of each market and develop specific strategic plans that best suit both formal and informal institutions.

The findings suggest that national societal values need to be considered in cross-country research on corporate governance. The results should also be of interest to policy makers advocating for or against global governance standards.

The purpose of this paper is to examine how a firm’s investment behavior relates to its subsequent bank loan contracting.

Using a sample of US firms during the period 1992-2011, the authors examine the association between overinvestment (underinvestment) and three characteristics of bank loan contracts: loan spread, collateral requirement, and loan maturity.

The authors find that overinvesting firms obtain loans with higher loan spreads. Additional tests show that the effect of overinvestment on loan spreads is generally more pronounced in firms with lower reputation, weaker shareholder rights, and lower institutional ownership. The effect of overinvestment on collateral requirement is mixed, and investment efficiency has no significant relation to loan maturity.

The results are subject to the following caveats. First, while the study provides empirical evidence that investment efficiency affects bank loan contracting terms, especially the cost of bank loans, the underlying theory is not well-developed. The authors leave it up to future research to provide a theoretical framework to clearly distinguish the cash flow and credit risk effects of past investment behavior from those of existing agency conflicts. Second, due to data limitation, the sample size is small, especially when the authors control for corporate governance measured by G-index and institutional ownership.

The finding that overinvestment is costly to corporations suggests that managers should consider the potential trade-offs from such investment decisions carefully. The evidence also alerts shareholders and board members to the importance of monitoring management investment decisions. In addition, the authors find that corporate governance moderates the relationship between investment decisions and cost of bank loans, suggesting that it would be beneficial to design effective governance mechanisms to prevent management from empire building and motivate managers to pursue efficient investment strategies.

First, the findings enhance understanding of the potential economic consequences of overinvestment decisions in the context of a firm’s private debt contracting. The evidence suggests that lenders perceive higher credit risk from overinvestment than from underinvestment, likely because firms squander cash in the current period by investing in (negative net present value) projects that are likely to result in future cash flow problems. Second, the study contributes to the literature on the determinants of bank loans by identifying an observable empirical proxy for uncertainty in future cash flows that increases credit risk.

Accounting accruals are at the heart of most accounting systems. A basic premise of accrual accounting is that it provides a more timely and relevant performance measure than cash flows through a better matching of revenues and expenses. While some prior studies suggest that managers use individual accrual‐related disclosure items in an opportunistic manner, hindering market participants’ ability to predict future firm performance, the market’s expectation about future firm performance will become more accurate and consistent under accrual accounting if the market properly uses such information to set expectations about future firm performance. Consistent with this idea, our evidence shows that the frequency of accrual‐related disclosure is positively (negatively) associated with analysts’ forecast accuracy (dispersion). We interpret this finding as the presence of more detailed accrual‐related disclosure requirements enhancing the market participants’ ability to predict earnings.

In this study, we rely on the profitability of EP (earnings‐to‐price ratio) trading rules to infer the quality of earnings. Under the extrapolation hypothesis (Lakonishok, Shleifer, and Vishney 1994), the profitability of an EP trading rule that is based on higher quality earnings (i.e., earnings that are more representative of the fundamental profit generating power of the firm), should have higher return predictability. Among the four specifications of the EP ratio examined, i.e., the conventional earnings‐to‐price, core earnings‐to‐price, gross margin‐to‐price, and ex‐ante earnings‐to‐price, we find that core earnings‐to‐price and gross margin‐to‐price significantly outperform the other two in predicting returns. This result suggests that investors view the earnings components that reflect the fundamental operation of the firm, such as sales, to be of higher quality than the rest. Further, the evidence indicates that an EP trading rule based on gross margin‐to‐price generates an abnormal return not fully explained by the market, size, and book‐to‐market.

Anecdotal evidence suggests that emerging economy enterprises face higher uncertainty in business operations compared to their counterparts in more developed economies. However, there is little empirical evidence on this issue. The objective of this study is to fill this void in the literature and examine whether there is an association between the level of development of home country economy of a multinational corporation and uncertainty about future earnings measured by dispersion in analysts' earnings forecasts. After controlling for various firm‐ and country‐level factors, I find that the forecast dispersion tends to be larger for emerging economy enterprises (i.e., non‐U.S. firms cross‐listed in the U.S. whose home country economy is better characterized as emerging) than for developed economy enterprises (i.e., non‐U.S. firms cross‐listed in the U.S. whose home country economy is better characterized as developed), despite the fact that the emerging economy enterprises tend to be more heavily followed by analysts. Overall, the evidence supports the view that business uncertainty tends to be higher in emerging economies and highlights inherent difficulties associated with predicting future firm performance of the emerging economy enterprises.

Extending prior studies which suggest that the disclosure practice of developed economy entities tends to be more transparent than that of emerging economy entities, this study investigates whether such differences in the degree of disclosure transparency translate into different levels of value‐relevance of their accounting summary measures (i.e., book values and earnings). Consistent with theories that link disclosure quality with the impact of disclosure on investors' decisions, the evidence indicates that the accounting summary measures of developed economy entities are more value‐relevant than those of emerging economy entities in the U.S. stock market. This finding has some implications for the current policy debate in IASB regarding accounting for emerging economy entities.

The purpose of this paper is to investigate international variability in the pricing of accounting information using ex ante cost of equity capital estimates. Prior literature shows that financial statement amounts are relevant for investor decisions only when there is appropriate economic and legal infrastructure (Ball, 2001).

Accrual quality and accounting loss are focussed upon as indicators of firm risk in financial statements.

The evidence suggests that accounting information is factored into ex ante cost of equity capital in countries with strong economic and legal infrastructures but not in those with weak infrastructures. Findings support Ball’s notion that the role financial reporting plays in a capital market depends on the strength of economic and legal infrastructure.

Findings support Ball’s notion that the role financial reporting plays in a capital market depends on the strength of economic and legal infrastructure.

This study aims to investigate the impact of audit partners’ narcissism on the readability of audit reports for companies listed on the Tehran Stock Exchange (TSE). It examines the effects of narcissism among both lead and review audit partners on the clarity of audit reports, considering the regulatory requirements and auditing practices within the Iranian financial reporting context.

This paper analyzed 2,691 firm-year observations from TSE-listed companies spanning 2011–2023, using ordinary least squares regression. Readability of audit reports was assessed using the FOG index, with the size of partners’ signatures serving as a proxy for narcissism.

The findings indicate a significant negative relationship between increased narcissism and audit report readability; higher levels of narcissism correspond with elevated FOG index scores. Narcissism in lead partners notably diminishes readability more than that of review partners. This pattern holds across various robustness checks, including alternative readability metrics, variations in auditor engagement complexity, auditor specialization, subsets of qualified audit reports and considerations for endogeneity. Audit reports for economically significant clients tend to be clearer, suggesting a preference for reputation management over yielding to client pressure. Although no direct link was established between partners’ quality and readability, a positive relationship exists between audit firm rank and partners’ narcissism. Furthermore, interactions between auditor and CEO narcissism increase report complexity, especially in contentious negotiation scenarios. Despite regulatory advancements such as International Auditing Standard 701, its moderating effects were found to be inconsequential, highlighting the persistent influence of narcissism on audit report outcomes.

This research expands the understanding of how auditor personality traits, particularly narcissism, affect audit outcomes. By exploring the influence of narcissism on report readability within the Iranian context, this study fills a notable gap in the literature on emerging markets and non-Western reporting environments, providing valuable insights into global audit practices.

Brand stories are often created around the company’s humble beginnings as an underdog. The authors explore the effects of who is telling the underdog story and thus draw attention to the nature of the brand source by differentiating between family and non-family firms. The authors expect that who is telling the underdog story impacts consumers’ attitude toward the brand in terms of brand authenticity and trustworthiness perceptions.

The authors conducted an online experiment with a 2 × 2 between-subject design and an overall sample size of 314 respondents.

Most importantly, the authors find that the family-firm nature of the brand storyteller significantly impacts the underdog effect. The positive effects of underdog biographies on brand attitude in terms of authenticity and trustworthiness loom significantly larger for family firms compared with non-family firms.

The authors find that the underdog effect is significantly stronger for family firms that tell the underdog story. Managers of family firms with underdog roots should take advantage of this finding by integrating underdog stories into their marketing concepts. The findings of this study show that the communication of a company’s roots can serve as a valuable tool to build and maintain a positive brand image and help to increase purchase intentions, which is particularly true for firms capitalizing on their family nature when telling the underdog story.

The authors combine research on brand stories using the underdog effect with research on the consumer’s perception of family firms, further exploring the role of the brand storyteller in underdog narratives, resulting in important theoretical as well as practical implications.