ABSTRACT Using a Supreme Court ruling that rejected the use of “bright-line” rules previously relied upon in evaluating materiality claims, this study examines how heightened materiality uncertainty ...impacts audit pricing. We expect the heightened uncertainty to make it more difficult for auditors and clients to assess materiality and to reach a consensus on materiality assessment, which increases audit effort and engagement risk, leading to higher audit fees. Consistent with this prediction, we find that after the ruling, audit fees increase significantly for treatment firms in the circuits using bright-line rules in the pre-ruling period, relative to control firms not affected by the ruling. This effect is stronger when auditors have lower quality or lower industry expertise, and when investors have more diverse opinions. We also find that for firms audited by low-expertise auditors, auditor turnover due to auditor-client disagreement on materiality-related issues increases significantly for treatment firms relative to control firms. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: K2; M41; M42.
ABSTRACT This paper examines whether analysts and investors efficiently incorporate the informational signals from managerial linguistic complexity (e.g., Fog) into their forecasts and trading ...decisions. We predict that a manager’s Fog during a conference call provides a signal of their private information through their willingness to engage with analyst questions. We find that informative (obfuscatory) managerial Fog provides a positive (negative) signal of future earnings growth. We also find that analysts efficiently revise their forecasts to both positive and negative signals, whereas investors only correctly interpret obfuscation during the call; there is a delayed price reaction to informative Fog. However, when buy-side investors ask questions during a call, we find an efficient price reaction to informative Fog. Our findings highlight an important benefit of two-way interactive disclosures and underline the importance of active call participation for efficiently incorporating linguistic signals of managers’ private information. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: D82; G14; G20; M41.
ABSTRACT I use a novel decomposition to estimate information and bias components from the returns implied by analyst price targets and provide evidence that prices simultaneously under-react to ...information and over-react to bias. Price reactions to information are permanent, and prices drift in the direction of their initial reaction for up to 12 months. Price reactions to bias are transitory, and prices reverse their initial reaction after about three months. Price reactions are relatively efficient. Approximately 85 percent of the total price reaction to information occurs during price target announcement months. Market participants are able to mostly (but not fully) debias analyst-expected returns before incorporating them into prices, with the announcement-month reaction to bias being relatively weak at about 15 percent of its reaction to information. A trading strategy analysis implies that mispricing induced by bias is only about one-third of that implied by prior research. JEL Classifications: G12; G14; G40.
ABSTRACT We examine the relation between political uncertainty and narrative disclosure complexity in conference calls. Using firm-level political uncertainty, we find that political uncertainty is ...positively associated with firms’ disclosures complexity as measured by the Fog index. Decomposing complexity into two latent components—information and obfuscation—we show that political uncertainty significantly increases the obfuscation but has no impact on the information. Further analysis reveals that complex disclosure is motivated by expected poor future performance amid political uncertainty. We also show that, during periods of heightened political uncertainty, obfuscated disclosure is associated with reduced earnings informativeness, increased dispersion in analyst forecasts, and higher volatility in forecast revisions. These findings are robust to including and excluding sentences containing complex political bigrams when calculating Fog. Further evidence shows that, during periods of political uncertainty, managers tend to use a more ambiguous tone and provide scripted and shorter (longer) responses to analysts’ questions (presentations).
The number of online experiments conducted with subjects recruited via online platforms has grown considerably in the recent past. While one commercial crowdworking platform – Amazon’s Mechanical ...Turk – basically has established and since dominated this field, new alternatives offer services explicitly targeted at researchers. In this article, we present www.prolific.ac and lay out its suitability for recruiting subjects for social and economic science experiments. After briefly discussing key advantages and challenges of online experiments relative to lab experiments, we trace the platform’s historical development, present its features, and contrast them with requirements for different types of social and economic experiments.
This work aims to identify innovations, technological advances, and best practices to migrate towards a circular economy in air transport. The relevance of the research lies in the contribution to ...the generation of circular economy knowledge in the field of administration with application in the aeronautical industry. By analyzing literature and best practices, the circular economy could be a viable solution to reduce the use of natural resources in aircraft manufacturing and airport operations. Among the main findings are innovations and technological developments in new materials, fuels, building methods, and best practices implemented at airports to obtain energy and generate less waste. It has also been identified that applying circular economy principles in this mode of transport would contribute to sustainability efforts and increase the competitiveness of organizations in the sector.
This study examines the relationship between business adaptability and superior performance. The researchers used Exploratory Factor Analysis and Kruskal-Wallis statistics to analyze data from a ...survey of 227 companies associated with a University Center. The study found that the Triad Model of Dynamic Capabilities, which includes Sense, Seize, and Transform components, explained 78.38% of the variance in business adaptability. The findings confirm the importance of Sense, Seize, and Transform capabilities in sustaining competitive advantage, as demonstrated by the observed superior performance of the organizations. The originality of the paper lies in identifying higher-order capabilities associated with business adaptability in organizations across different sectors.
ABSTRACT Research documents price co‐movements, or “spillovers,” between focal firms and their peers at focal firms’ earnings announcements. We find that both signed and absolute co‐movements between ...focal‐ and peer‐firm returns are significantly lower at earnings‐announcement dates compared to other dates. Analytically, we demonstrate that co‐movements do not necessarily indicate common information; instead, co‐movements measure the relative proportion of focal firm‐specific information to common information in focal‐firm earnings announcements. We study three settings where information transfers might be higher: when focal firms report significant earnings surprises, are industry leaders, or share correlated earnings patterns with peer firms. We continue to find lower return correlations during focal‐firm earnings announcements. We conduct two alternative tests but fail to find evidence that common information released during focal‐firm earnings announcements is significantly greater than on other days. These results raise doubt about the extent of the information externality attributable to financial‐report releases.
This paper highlights the enormous economic and social impact of COVID-19 with respect to articles that have either prognosticated such a large-scale event, and its economic consequences, or have ...assessed the impacts of other epidemics and pandemics. A consideration of possible impacts of COVID-19 on financial markets and institutions, either directly or indirectly, is briefly outlined by drawing on a variety of literatures. A consideration of the characteristics of COVID-19, along with what research suggests have been the impacts of other past events that in some ways roughly parallel COVID-19, points toward avenues of future investigation.
•Increase in COVID-19 cases/deaths increase stock market volaility and illiquidity.•Lockdowns/Reduced Mobility increase stock market volatility and illiquidity.•Negative sentiments from Coronavirus ...related news deteriorate stock market liquidity and stability.
This study investigates the impact of COVID-19 pandemic on the microstructure of US equity markets. In particular, we explain the liquidity and volatility dynamics via indexes that capture multiple dimensions of the pandemic. Our results suggest that increases in confirmed cases and deaths due to coronavirus are associated with a significant increase in market illiquidity and volatility. Similarly, declining sentiment and the implementations of restrictions and lockdowns contribute to the deterioration of liquidity and stability of markets.
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