We examine how corporate social media affects the capital market consequences of firms' disclosure in the context of consumer product recalls. Product recalls constitute a "product crisis" exposing ...the firm to reputational damage, loss of future sales, and legal liability. During such a crisis it is crucial for the firm to quickly and directly communicate its intended message to a wide network of stakeholders, which, in turn, renders corporate social media a potentially useful channel of disclosure. While we document that corporate social media, on average, attenuates the negative price reaction to recall announcements, the attenuation benefits of corporate social media vary with the level of control the firm has over its social media content. In particular, with the arrival of Facebook and Twitter, firms relinquished complete control over their social media content, and the attenuation benefits of corporate social media, while still significant, lessened. Detailed Twitter analysis confirms that the moderating effect of social media varies with the level of firm involvement and with the amount of control exerted by other users: the negative price reaction to a recall is attenuated by the frequency of tweets by the firm, while exacerbated by the frequency of tweets by other users.
Detecting Earnings Management: A New Approach DECHOW, PATRICIA M.; HUTTON, AMY P.; KIM, JUNG HOON ...
Journal of accounting research,
20/May , Letnik:
50, Številka:
2
Journal Article
Recenzirano
This paper provides a new approach to test for accrual-based earnings management. Our approach exploits the inherent property of accrual accounting that any accrual-based earnings management in one ...period must reverse in another period. If the researcher has priors concerning the timing of the reversal, incorporating these priors can significantly improve the power and specification of tests for earnings management. Our results indicate that tests incorporating reversals increase test power by around 40% and provide a robust solution for mitigating model misspecification arising from correlated omitted variables.
We examine the relative accuracy of management and analyst forecasts of annual EPS. We predict and find that analysts' information advantage resides at the macroeconomic level. They provide more ...accurate earnings forecasts than management when a firm's fortunes move in concert with macroeconomic factors such as Gross Domestic Product and energy costs. In contrast, we predict and find that management's information advantage resides at the firm level. Their forecasts are more accurate than analysts' when management's actions, which affect reported earnings, are difficult to anticipate by outsiders, such as when the firm's inventories are abnormally high or the firm has excess capacity or is experiencing a loss. Although analysts are commonly viewed as industry specialists, we fail to find evidence that analysts have an information advantage over managers at the industry level. The two have comparable abilities to forecast earnings for firms with revenues or earnings that are more synchronous with their industries.
ABSTRACT
We examine the properties of firms' forecasting records and whether the accuracy of their prior earnings forecasts affects investor response to their subsequent forecasts.Within the context ...of a Bayesian model of investor learning, we find that the stock price response to management forecast news is increasing in prior forecast accuracy and also in the length of a firm's forecasting record. Further, we document that investors are more responsive to extreme good and bad news forecasts when a firm has an established forecasting record. Overall, these results suggest that a firm's prior forecasting behavior allows it to establish a forecasting reputation, and that market forces encourage accurate forecasting as firms benefit from having a reputation for forecasting accurately.
Data Availability: Data are available from public sources cited in the text.
JEL Classifications: G19; G39; D89; M40.
Burger and Curtis (2017) is an empirical investigation of whether aggregate margin debt correlates with aggregate stock prices and aggregate accounting‐based fundamentals. While the paper ...convincingly documents a significant relation: aggregate margin debt is higher when aggregate fundamentals‐to‐price ratios are low, it fails to document why. The documented relation could exist because margin traders are the overly exuberant noise traders that push stock prices higher away from fundamental values; or the documented relation could be spurious, and exist because aggregate margin debt rises with aggregate price levels simply because margin loan capacity increases as aggregate price levels increase. With insufficiently granular data (aggregate margin debt measured monthly), the authors are not able to sort out why the relation exists. Thus, interpretation of the findings documented in this paper is difficult.
Analyse critique d’ « Ensemble des emprunts sur marge et divergence entre les cours et les paramètres comptables fondamentaux »
Dans leur étude empirique, Burger et Curtis (2017) se demandent si l'ensemble des emprunts sur marge est en corrélation avec l'ensemble des cours des actions et l'ensemble des paramètres comptables fondamentaux. Bien qu'ils parviennent à démontrer de manière convaincante l'existence d'un lien significatif, l'ensemble des emprunts sur marge étant plus élevé lorsque les ratios agrégés des paramètres fondamentaux par rapport aux cours sont faibles, ils n'en expliquent pas les raisons. La relation documentée pourrait être attribuable au fait que les investisseurs sur marge sont des investisseurs non informés trop exubérants qui entraînent à la hausse le cours des actions et l’éloignent des valeurs fondamentales; elle pourrait par ailleurs être factice et s'expliquer par le fait que l'ensemble des emprunts sur marge augmente avec le niveau des cours agrégés simplement parce que la capacité en matière de prêts sur marge croît avec l'augmentation du niveau des cours agrégés. Les données granulaires étant insuffisantes (ensemble des emprunts sur marge mesuré à intervalle mensuel), les auteurs ne sont pas en mesure de comprendre les origines de cette relation. Il est donc difficile d'interpréter les résultats de l’étude.
Firms with low ratios of fundamentals (such as earning and book values) to market values are known to have systematically lower future stock returns. We document that short-sellers position ...themselves in the stock of such firms, and then cover their positions as the ratios mean-revert. We also show that short-sellers refine their trading strategies to minimize transactions costs and maximize their investment returns. Our evidence is consistent with short-sellers using information in these ratios to take positions in stocks with lower expected future returns.
We investigate managers' decisions to supplement their firms' management earnings forecasts. We classify these supplementary disclosures as qualitative "soft talk" disclosures or verifiable ...forward-looking statements. We find that managers provide soft talk disclosures with similar frequency for good and bad news forecasts but are more likely to supplement good news forecasts with verifiable forward-looking statements. We examine the market response to these forecasts and find that bad news earnings forecasts are always informative but that good news forecasts are informative only when supplemented by verifiable forward-looking statements, supporting our argument that these statements bolster the credibility of good news forecasts.
This paper investigates whether firms benefit from expanded voluntary disclosure by examining changes in capital market factors associated with increases in analyst disclosure ratings for 97 firms. ...The disclosure rating increases are accompanied by increases in sample firms' stock returns, institutional ownership, analyst following, and stock liquidity. These findings persist after controlling for contemporaneous earnings performance and other potentially influential variables, such as risk, growth, and firm size. While it is difficult to draw unambiguous causal conclusions, these results are consistent with disclosure model predictions that expanded disclosure leads investors to revise upward valuations of the sample firms' stocks, increases stock liquidity, and creates additional institutional and analyst interest in the stocks.
We investigate the relation between the transparency of financial statements and the distribution of stock returns. Using earnings management as a measure of opacity, we find that opacity is ...associated with higher
R
2s, indicating less revelation of firm-specific information. Moreover, opaque firms are more prone to stock price crashes, consistent with the prediction of the Jin and Myers 2006.
R
2 around the world: new theory and new tests. Journal of Financial Economics 79, 257–292 model. However, these relations seem to have dissipated since the passage of the Sarbanes-Oxley Act, suggesting that earnings management has decreased or that firms can hide less information in the new regulatory environment.
Using a unique empirical setting, family firms in the S&P 500, Ali et al. Ali, A., Chen, T.-Y., Radhakrishnan, S., 2007. Corporate disclosures by family firms. Journal of Accounting and Economics,
...doi:10.1016/j.jacceco.2007.01.006 contribute to a growing body of research on the relation between corporate governance and corporate disclosure quality. Using an indicator variable for sub-sample membership as an instrument for differing agency costs, the authors interpret their findings as consistent with family firms facing lower overall agency costs and providing higher quality corporate disclosures. However, their empirical findings are open to alternative interpretations and in totality present relatively weak, indirect evidence of a relation between corporate governance and the quality of corporate disclosure.
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