Narrative Disclosure and Earnings Performance: Evidence from R&D Disclosures

2013 ◽  
Vol 89 (2) ◽  
pp. 725-757 ◽  
Author(s):  
Kenneth J. Merkley
Keyword(s):  
Financial Statements ◽  
Relevant Information ◽  
Data Availability ◽  
Market Participants ◽  
Analyst Behavior ◽  
Disclosure Decisions ◽  
Narrative Disclosure ◽  
Unique Nature ◽  
Earnings Performance

ABSTRACT This paper examines how earnings performance relates to firms' narrative R&D disclosure decisions. The unique nature of R&D investments and financial statements' limited ability to communicate the value of such investments highlight the role of narrative disclosure as a supplement to the financial statements. I predict and find that current earnings performance (adjusted for R&D expense) is negatively related to the quantity of narrative R&D disclosure. Conducting a content analysis of the detail, tone, and readability of narrative R&D disclosures, I find that managers adjust R&D disclosures based on earnings performance to provide relevant information rather than to obfuscate performance. Finally, I provide evidence that market participants find narrative R&D disclosure informative because it significantly affects sell-side analyst behavior, disclosure information content, and information asymmetry. Data Availability: Data are available from sources identified in the text.

Why do Restatements Decrease in a Clawback Environment? An Investigation into Financial Reporting Executives' Decision-Making during the Restatement Process

2015 ◽  
Vol 90 (6) ◽  
pp. 2515-2536 ◽  
Author(s):  
Jonathan S. Pyzoha
Keyword(s):  
Decision Making ◽  
Executive Compensation ◽  
Financial Reporting ◽  
Financial Statements ◽  
Data Availability ◽  
Archival Studies ◽  
Key Factors ◽  
Ex Post ◽  
Auditor Quality

ABSTRACT Prior archival studies find that firms that voluntarily adopted clawback policies have experienced a reduction in restatements. I experimentally examine this outcome by investigating the influence of two key factors (i.e., executive compensation structure and auditor quality) on financial reporting executives' (hereafter, “executives”) decision-making regarding a proposed restatement that will lead to a clawback of their incentives. I find that executives (i.e., CFOs, controllers, and treasurers) facing a lower quality auditor are less likely to agree with amending prior financial statements when a higher proportion of their pay is incentive-based. However, this tendency is reduced when executives face a higher quality auditor, indicating that higher quality auditors can act as effective monitors. My results identify an ex post unintended consequence of clawback regulation that could at least partially offset the benefits of the ex ante deterrent effects of clawbacks, and that could contribute to findings of less frequent restatements when clawback policies are in place. I discuss potential implications regarding the role of executives during restatement decisions and auditors' risk assessments in a clawback environment. Data Availability: Data are available from the author upon request.

The Role of Newswires in Screening and Disseminating Value-Relevant Information in Periodic SEC Reports

2011 ◽  
Vol 86 (2) ◽  
pp. 669-701 ◽  
Author(s):  
Edward Xuejun Li ◽  
K. Ramesh ◽  
Min Shen
Keyword(s):  
Capital Market ◽  
Relevant Information ◽  
Equity Capital ◽  
Similar Reaction ◽  
Audit Opinion ◽  
Market Participants ◽  
Major Market ◽  
Using Data ◽  
Key Events

ABSTRACT: We examine the role of newswires in identifying and conveying market-moving information in periodic SEC reports to capital market participants. Using data on Dow Jones Newswires, we find that newswires are more likely to send alerts on firms that do not release preliminary earnings, have credit ratings, are included in major market indices, have litigation exposure, or report losses. Reflective of the market’s focus on certain key events, firms with a nonstandard audit opinion, in the process of delisting, reporting unusual accounting items, or raising equity capital also receive alerts. Moreover, not only do we find significant price and volume reactions to the alerts at the daily level, but also we document immediate intra-day market activity triggered by the alerts, whereas we detect no similar reaction for SEC filings that trigger the alerts. Additional analysis suggests that the intra-day reaction is not driven by noise trading.

scholarly journals Specialists accounting in audit committees and their role in corporate governance

2018 ◽  
Vol 48 (3) ◽  
pp. 23-30
Author(s):  
Halina Buk
Keyword(s):  
Internal Control ◽  
Audit Committee ◽  
Financial Statements ◽  
Audit Committees ◽  
Audit Process ◽  
Audit Firm ◽  
Market Participants ◽  
Financial Audit ◽  
Public Oversight

The new act on statutory auditors, audit forms and public oversight, which came into force in the first half of 2017, introduced important changes related to activities of audit com-mittees supervisor board in public-interest entities. The implemented regulations strengthened the role of audit committees in monitoring of financial statements, audit process and internal control, and choice of audit firm. The Act clearly defined the profes-sional competencies that are needed by the members of an audit committee. One of them should have knowledge of the branch, and at least one should have knowledge in ac-counting or in financial audit. This requirement will make substantive supervision better, and the financial market participants will trust published information more. The aim of the article is to present the role of accounting specialists, when they are the members of an audit committee. The article refers to the kinds of activities, with widely understood interest of the company and shareholders.

The Role of Main Microeconomic Factors on the Stock Prices of Selected Swiss Companies

e-Finanse ◽  
2020 ◽  
Vol 16 (1) ◽  
pp. 67-74
Author(s):  
Tomáš Pražák
Keyword(s):  
Stock Prices ◽  
Generalized Method Of Moments ◽  
Financial Statements ◽  
Efficient Market Hypothesis ◽  
Relevant Information ◽  
Annual Data ◽  
Theoretical Approaches ◽  
The Individual ◽  
The Relationship

AbstractThis paper examines the role of main microeconomic factors on the stock prices of selected Swiss companies listed on the Six Swiss Exchange. Two basic theoretical approaches and interpretations of this relationship are frequently used. The efficient market hypothesis (Fama, 1970) assumes that stock prices already contain all the relevant information and the theory of arbitration (Ross, 1976, or Chen et al., 1986). The microeconomic factors are based on the financial situation in companies. Financial ratios, taken from the financial statements of the individual companies, are used for the analysis. In general, the study confirmed that profitability and debt ratios are the most important business factors from the prospective of impact on stock prices. The relationship between the observed variables is explored using panel regression analysis. The generalized method of moments for constructing a regression model is used. The sample period of the dataset is composed of annual data from 2006 to 2015.

The Impact of SEC Disclosure Monitoring on the Uncertainty of Fair Value Estimates

2015 ◽  
Vol 91 (2) ◽  
pp. 349-375 ◽  
Author(s):  
Daniel A. Bens ◽  
Mei Cheng ◽  
Monica Neamtiu
Keyword(s):  
Fair Value ◽  
Securities And Exchange Commission ◽  
Data Availability ◽  
Market Uncertainty ◽  
Market Participants ◽  
Comment Letters ◽  
Value Reporting ◽  
The Impact ◽  
Level 2

ABSTRACT We investigate the role played by the Securities and Exchange Commission (SEC) in monitoring fair value disclosures in regulatory filings. Specifically, we assess whether SEC action via the issuance of fair value comment letters to registrants is followed by reductions in uncertainty about the firms' fair value estimates. We hypothesize that registrants that receive a comment letter focusing on their fair value disclosure policies experience reductions in investor uncertainty regarding their fair value estimates in the post-letter period, compared to the pre-letter period. Supporting this prediction, we find that for the periods after the fair value comment letters, the associations between Level 2 and 3 fair value assets and our measures of uncertainty are significantly reduced. These findings are robust to a series of tests designed to ensure that we do not simply capture general changes in market uncertainty levels for firms investing in these types of assets. Our study contributes to the further understanding of market participants' perception of fair value disclosures by investigating the role of SEC enforcement. This finding is important given recent criticisms of fair value reporting emanating from the highest levels of government and industry. Data Availability: Data are available from public sources identified in the paper.

The Role of Human Resource Accounting in the Business Environment

2022 ◽  
pp. 619-635
Author(s):  
Ahmet Özcan
Keyword(s):  
Human Capital ◽  
Content Analysis ◽  
Human Resources ◽  
Financial Market ◽  
Financial Statements ◽  
Business Environment ◽  
Market Participants ◽  
Human Resource Accounting ◽  
Resource Accounting

In this chapter, human resources accounting is comprehensively analyzed. Human capital has been often neglected or inaccurately reported in the financial statements due to its nature. In the new economy, financial market participants such as investors, creditors, and shareholders would like to get information about the firm's investment in human capital. Over the last decades, some accounting methods have been developed for human capital. In this chapter, the methods used in the accounting treatment of human capital are analyzed, and a total of 288 operating reports of banks listed on Borsa Istanbul for the period between 2010 and 2017 are examined through content analysis. The results of content analysis indicate that there is a growing trend in human capital disclosure by banks listed on Borsa Istanbul between the period of 2010 and 2017, implying that banks listed on Borsa Istanbul have become more aware of the importance of human capital.

The Role of Human Resource Accounting in the Business Environment

2018 ◽  
pp. 99-120
Author(s):  
Ahmet Özcan
Keyword(s):  
Human Capital ◽  
Content Analysis ◽  
Human Resources ◽  
Financial Market ◽  
Financial Statements ◽  
Business Environment ◽  
Market Participants ◽  
Human Resource Accounting ◽  
Resource Accounting

In this chapter, human resources accounting is comprehensively analyzed. Human capital has been often neglected or inaccurately reported in the financial statements due to its nature. In the new economy, financial market participants such as investors, creditors, and shareholders would like to get information about the firm's investment in human capital. Over the last decades, some accounting methods have been developed for human capital. In this chapter, the methods used in the accounting treatment of human capital are analyzed, and a total of 288 operating reports of banks listed on Borsa Istanbul for the period between 2010 and 2017 are examined through content analysis. The results of content analysis indicate that there is a growing trend in human capital disclosure by banks listed on Borsa Istanbul between the period of 2010 and 2017, implying that banks listed on Borsa Istanbul have become more aware of the importance of human capital.

scholarly journals Comments of the Auditing Standards Committee of the Auditing Section of the American Accounting Association on International Auditing and Assurance Standards Board Exposure Draft, Proposed International Standard on Auditing 220 (Revised): Quality Management for an Audit of Financial Statements

2019 ◽  
Vol 13 (2) ◽  
pp. C10-C19 ◽  
Author(s):  
Veena L. Brown ◽  
Sean Dennis ◽  
Denise Dickins ◽  
Julia L. Higgs ◽  
Tammie J. Schaefer
Keyword(s):  
Quality Management ◽  
Financial Statements ◽  
Data Availability ◽  
Firm Level ◽  
Audit Firm ◽  
International Standard ◽  
Policies And Procedures ◽  
Auditing Standards ◽  
Draft International Standard

SUMMARY In February 2019, the International Auditing and Assurance Standards Board (the Board or IAASB) issued a request for comment on its Exposure Draft, Proposed International Standard on Auditing 220 (Revised): Quality Management for an Audit of Financial Statements (ED-220). ED-220 explicitly requires the engagement partner to demonstrate sufficient and appropriate involvement in all phases of the audit, it describes certain activities that must be performed by the audit engagement partner, and it explicitly acknowledges the role of audit firm-level policies and procedures and the changing complexity of audit engagement teams. The comment period ended on July 1, 2019. This commentary summarizes the participating committee members' views on selected questions posed by the IAASB. Data Availability: ED-220, including questions for respondents, is available at: https://www.ifac.org/publications-resources/exposure-draft-international-standard-auditing-220-revised-quality-management.

Market Response to Audited Internal Control Weakness Disclosures

2020 ◽  
Vol 5 (1) ◽  
pp. 2-20
Author(s):  
Subash Adhikari ◽  
Binod Guragai ◽  
Ananth Seetharaman
Keyword(s):  
Financial Reporting ◽  
Internal Control ◽  
Market Reaction ◽  
Financial Statements ◽  
Data Availability ◽  
Market Response ◽  
Market Participants ◽  
Sarbanes Oxley ◽  
Time Periods ◽  
First Time

ABSTRACT To help guard against weaknesses in internal control over financial reporting (ICFR), the Sarbanes-Oxley Act of 2002 requires certain filers to have their ICFR assertions audited. Beneish et al. (2008) show that market participants fail to react negatively to adverse ICFR audit opinions. This is puzzling because weak ICFR heightens the risk of fraud or materially misstated financial statements. Our study reexamines this issue for the time periods covered by Auditing Standard No. 2 (AS2) and Auditing Standard No. 5 (AS5). We too find no significant negative market reaction to the disclosure of adverse ICFR audits in the AS2 era. However, we show that markets react negatively for first-time disclosures of adverse ICFR audits after the adoption of AS5. Furthermore, in the AS5 regime, markets seem to differentiate between entity-wide versus account-specific ICFR weaknesses. We also show that correcting previous ineffective ICFR results in a positive market reaction. Data Availability: Data are available from sources cited in the text.

The Role of Dissemination in Market Liquidity: Evidence from Firms' Use of Twitter™

2013 ◽  
Vol 89 (1) ◽  
pp. 79-112 ◽  
Author(s):  
Elizabeth Blankespoor ◽  
Gregory S. Miller ◽  
Hal D. White
Keyword(s):  
Information Asymmetry ◽  
Market Liquidity ◽  
Data Availability ◽  
Market Participants ◽  
Technology Firms ◽  
The Press ◽  
The Impact ◽  
To Receive ◽  
Bid Ask Spreads

ABSTRACT Firm disclosures often reach only a portion of investors, which results in information asymmetry among investors and, therefore, lower market liquidity. This issue is particularly salient for firms that are not highly visible, as they tend not to receive broad news dissemination via traditional intermediaries, such as the press. This paper examines whether firms can reduce information asymmetry by more broadly disseminating their news. To isolate the impact of dissemination, we focus our analysis on firms' use of Twitter and exploit the 140-character message restriction. Specifically, using a sample of technology firms, we examine the impact of using Twitter to send market participants links to press releases that are provided via traditional disclosure methods. We find this additional dissemination of firm-initiated news via Twitter is associated with lower abnormal bid-ask spreads and greater abnormal depths, consistent with a reduction in information asymmetry. Moreover, this result holds mainly for firms that are not highly visible, consistent with them being in greater need of this additional dissemination channel. We also examine the impact of dissemination on a volume-based measure of liquidity, and find that dissemination is positively associated with liquidity. Data Availability: All data are publicly available from the sources indicated in the paper.

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