Accounting & Information Assurance Theses and Dissertations

Permanent URI for this collectionhttp://hdl.handle.net/1903/2736

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End date: 2019

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    Matchmaking or Information Leakage? Disclosure Benefits and Constraints of Corporate Job Advertisement Specificity
    (2018) Cao, Yi; Cheng, Shijun; Business and Management: Accounting & Information Assurance; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
    This study examines the benefits and constraints of a special form of corporate voluntary disclosure—job advertisements. Using a novel dataset of over 8 million recruiting advertisements posted by public companies, I follow taxonomy theories and create a continuous measure of information specificity, based upon the level of descriptive detail of skill requirements in job advertisements. Consistent with the theory that labor market disclosure mitigates search frictions, I find job advertisement specificity positively predicts employee satisfaction, productivity, and corporate accounting performance and negatively predicts employee turnover rate. My results further suggest that job advertisement specificity provides incremental information about human capital intangibles and improves the value-relevance of accounting numbers. I also show that the information specificity is constrained by product market competition. Together, my results suggest job advertisement is an important voluntary disclosure channel and that the content of job advertisements is informative to capital- and product-market participants.
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    Do State Taxes Play a Role in Corporate Investment Decisions? Evidence from Interstate Investment
    (2018) Kim, Heedong; Hann, Rebecca N; Business and Management: Accounting & Information Assurance; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
    Using a novel data set of state-specific investments at the project level and staggered changes in state corporate income taxes, I examine whether corporate income taxes affect firms’ investment location decisions in the U.S. In contrast to recent studies that document an insignificant effect on firm-level investments, I find that changes in state taxes have a significant effect on project-level investments—firms locate their investment projects in states that cut their corporate taxes. This effect is stronger for projects that are less geographically constrained and for projects that create more jobs. Additional analysis shows that state taxes are particularly relevant for firms’ investment location decisions among competing states. Taken together, this study offers new evidence that state corporate income taxes play an important role in firms’ interstate investment location decisions.
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    Strategic Shareholders and IPO Disclosure: Evidence from Corporate Venture Capital
    (2017) Zheng, Yue; Hann, Rebecca N.; Business and Management: Accounting & Information Assurance; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
    This paper exploits the recent rise in corporate venture capitalists (CVC) to examine the effect of shareholders’ strategic incentives on firms’ IPO disclosure. CVCs’ investments are often driven by both financial and strategic incentives. I argue that, due to their strategic incentives, CVCs may influence their portfolio firms’ disclosure choices to protect proprietary information and avoid competitive harm not only to the portfolio firm but also to the CVC parent. Using a sample of venture capital (VC)-backed IPO firms from 1996 to 2014, I find that CVC-backed firms are more likely to redact material information in IPO prospectuses through confidential treatment orders than firms not backed by CVCs—the likelihood of redaction is 16% higher when a CVC is present. This result is robust to using propensity score matching and an instrumental variables approach. Furthermore, the disclosure effect is more pronounced for CVCs in the same industry as the portfolio firm, CVCs with a formal strategic partnership with the portfolio firm, and CVCs with fewer portfolio firms. These findings suggest that CVCs’ strategic incentives play an important role in their portfolio firms’ disclosure choices. CVC-backed firms are also more likely to redact information contained in agreements with collaborative partners, customers, or suppliers and in agreements associated with the CVC parents, which tend to contain proprietary information about the CVC. Taken together, this study offers new insights on how a previously unexplored factor—large shareholders’ strategic incentives—affects corporate disclosure decisions.
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    Non-Investor Stakeholders and Earnings Benchmarks
    (2017) Wei, Sijing; Kimbrough, Michael D.; Business and Management: Accounting & Information Assurance; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
    ABSTRACT A firm has numerous non-investor stakeholders, such as customers, employees, and potential business partners, who provide needed monetary and nonmonetary support to the firm. In Essay One, I provide empirical evidence on the previously untested theoretical prediction that these stakeholders’ views of a firm depend on its ability to meet relevant earnings benchmarks. Using published and proprietary reputation scores to capture stakeholder perceptions, I find in both levels and changes analyses that non-investor stakeholder perceptions are positively associated with a firm’s ability to beat relevant earnings benchmarks and that the relevant earnings benchmark for each stakeholder group varies based on the nature of its claim. Specifically, customer perceptions are positively associated with a firm’s ability to meet the profit benchmark. Potential business partner perceptions are positively associated with a firm’s ability to meet both the analyst forecast benchmark and the earnings growth benchmark. Employee perceptions are positively associated with a firm’s ability to meet the earnings growth benchmark. These findings highlight broader uses of and broader audiences for accounting information than previously documented. In Essay Two, I examine whether and how firms consider their non-investor stakeholders when prioritizing which earnings benchmarks to meet or beat. Using a sample of publicly traded firms from 1990 to 2015, I identify which non-investor stakeholder group (i.e. consumers, employees, or potential business partners) is most critical to a firm based on a stakeholder dependency score, which measures the extent to which a firm relies on a particular stakeholder group. I find that, regardless of which non-investor stakeholder group is most critical to the firm, firms beat the analyst forecast benchmark several times more frequently than they beat other benchmarks. Because the analyst forecast is the most important benchmark to the capital market, this finding indicates that managers place greater weight on investors’ preferences than on the preferences of their non-investor stakeholders when deciding which earnings benchmarks to meet or beat. Thus, capital market pressure appears to dominate the pressure from non-investor stakeholders. However, I also find that consumer-focused (employee-focused) firms meet or beat the profit benchmark (the increase benchmark) more often than non-consumer-focused firms (non-employee-focused firms) when the profit benchmark (the increase benchmark) is the most difficult to beat or when pre-managed earnings falls short of the associated benchmark. These results indicate that firms are more likely to meet or beat the specific earnings benchmark that is most relevant to a particular non-investor stakeholder group when that non-investor stakeholder group is most critical to the firm. These findings contribute to a better understanding of how managers incorporate non-investor stakeholders’ preferences in their decisions about which earnings benchmarks to meet or beat.
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    Industry Linkages and Audit Firms' Industry Portfolio Choice: Evidence from Product Language
    (2016) Wang, Wenfeng; Hann, Rebecca; Business and Management: Accounting & Information Assurance; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
    Audit firms are organized along industry lines and industry specialization is a prominent feature of the audit market. Yet, we know little about how audit firms make their industry portfolio decisions, i.e., how audit firms decide which set of industries to specialize in. In this study, I examine how the linkages between industries in the product space affect audit firms’ industry portfolio choice. Using text-based product space measures to capture these industry linkages, I find that both Big 4 and small audit firms tend to specialize in industry-pairs that 1) are close to each other in the product space (i.e., have more similar product language) and 2) have a greater number of “between-industries” in the product space (i.e., have a greater number of industries with product language that is similar to both industries in the pair). Consistent with the basic tradeoff between specialization and coordination, these results suggest that specializing in industries that have more similar product language and more linkages to other industries in the product space allow audit firms greater flexibility to transfer industry-specific expertise across industries as well as greater mobility in the product space, hence enhancing its competitive advantage. Additional analysis using the collapse of Arthur Andersen as an exogenous supply shock in the audit market finds consistent results. Taken together, the findings suggest that industry linkages in the product space play an important role in shaping the audit market structure.
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    NONDISCLOSURE – A GOOD NEWS SIGNAL?
    (2016) Lee, Kyungran; Kimbrough, Michael D; Business and Management: Accounting & Information Assurance; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
    I examine the implications of nondisclosure in a setting where there is a credible signal as to the proprietary nature of the undisclosed information. Specifically, I investigate the market and analysts' response to firms’ application to the Securities and Exchange Commission (SEC) for a confidential treatment order (CTO), which allows firms to redact required disclosures from SEC filings when the redacted information is proprietary. I find that the market and analysts react favorably to the voluntary nondisclosure of proprietary information using the SEC confidential treatment process. Market and analysts reactions are more favorable to the redaction of information that is more likely to have proprietary value, such as information related to research and development. In addition, I show that the redacting firms experience superior accounting performance compared to their peers in the years following the redaction, consistent with the market and analysts’ response to the redaction. However, I find that analysts engage in more intense private information search in response to a CTO redaction. This finding suggests that, although a CTO redaction can signal the nature of undisclosed information, analysts believe that the signal is not fully revealing of the economic magnitude of the undisclosed information. Overall, this study’s findings indicate that a firm's willingness to submit to the CTO approval process serves as a credible signal of the proprietary nature of the withheld information. The results of this study suggest a possible role for a credible signaling channel to facilitate communication between insiders and outsiders regarding the nature of withheld information.
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    An Integrated Analysis of the Corporate General Counsel's Impact on Accounting Choices and Legal Risk
    (2015) Ham, Charles; Kimbrough, Michael; Business and Management: Accounting & Information Assurance; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
    Companies are increasingly relying on highly paid corporate general counsels (GCs) to help manage the risks of costly regulatory sanctions and shareholder lawsuits associated with their firms' accounting and overall business practices. While recent research documents the role of the GC on specific decisions in isolation, whether and how GCs fulfill their intended role of managing their firms' expected legal costs remains an open question. I document several ways in which GCs affect the expected legal costs associated with their firms' accounting choices. The analysis is based on the insight that the expected legal costs associated with the firm's accounting choices depend on three factors: (1) the extent to which the firm undertakes legally risky accounting practices, (2) the likelihood that such practices are detected by outsiders, and (3) the severity of penalties outsiders impose on the firm upon detection. Managers can affect the first factor by taking the external legal environment as given and altering their internal decisions accordingly, whereas managers can affect the latter two factors by altering the firm's external legal environment through their influence on the intensity of outside monitoring and enforcement. I provide evidence that the GC decreases the firm's expected legal costs via all three factors. First, firms with an influential GC (GC firms) display a preference for real earnings management relative to accrual earnings management and GC firms accelerate the recognition of losses in earnings, both of which entail less legal risk. Second, firms that make aggressive accounting choices are less likely to be targeted by SEC enforcement actions in the presence of an influential GC. This finding indicates that GCs are able to advise their firms about how to use accounting discretion in a way that avoids unwanted regulatory scrutiny. Third, GC firms are less likely to be sued following a restatement announcement. When their firms are sued, the lawsuits are more likely to be dismissed and the settlement amounts are lower. These findings indicate that the GC's advocacy is associated with a reduction in the severity of penalties outsiders impose on the firm when improper accounting choices are discovered. The analyses culminate with an examination of the GC's effect on the firm's overall corporate risk and the market's assessment of the GC's contribution to the firm. I find that GC firms are associated with lower corporate risk as measured by the volatility of future stock returns and lower levels of future risky investments in the form of capital expenditures and research and development expenditures. Finally, the market responds favorably in years that firms appoint a GC to the top management team, consistent with the market perceiving the net impact of GCs' activities to be value enhancing.
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    THE HIDDEN FACE OF THE MEDIA: HOW FINANCIAL JOURNALISTS PRODUCE INFORMATION
    (2015) Li, Congcong; Hann, Rebecca; Business and Management: Accounting & Information Assurance; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
    This study investigates how the media produces information. Using a sample of 296,497 Wall Street Journal news articles, I find that news articles written by experienced and reputable financial journalists are more informative about future earnings. I then examine the source of such information advantage by studying the detailed quotes from news articles. I further find that these journalists rely more heavily on first-hand access to management, institutional investors, and other external experts, an important channel through which they produce informative news. Interestingly, however, this information advantage is present only when the experienced and reputable journalists remain independent -- for those journalists that repeatedly cover the same firm or rely primarily on information from management, the networking information advantage is completely muted. Further, I perform two additional tests. In the first test, I employ news articles about firm fundamentals, and in the second I use a revised measure of information content by including Dow Jones Business News. I continue to find that the information advantage of experienced and reputable journalists obtains only when these journalists remain independent. These results suggest that the quality of the media as an information intermediary depends critically on individual journalists' ability to access information from industry networks and provide unbiased news.
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    The more we know about fundamentals the less we agree on price? Evidence from earnings announcements.
    (2014) Gallo, Lindsey; Hann, Rebecca; Business and Management: Accounting & Information Assurance; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
    This study investigates whether an earnings announcement that decreases disagreement about fundamentals can simultaneously increase disagreement about price. Kondor (2012) develops a rational expectations model in which the presence of short-horizon investors can lead to a polarization of higher-order beliefs about price (i.e., beliefs regarding the opinions of other investors), even as a public announcement reduces disagreement about fundamentals. I empirically investigate this theoretical finding using analyst forecast dispersion and implied volatility to proxy for differences of opinion about fundamentals and price, respectively. I predict and find a positive association between the presence of short-horizon traders and both the likelihood and extent of divergence between changes in price disagreement and earnings disagreement around earnings announcements characterized by decreasing forecast dispersion (i.e. earnings announcements that decrease disagreement about fundamentals). Further, I document that the association is stronger following good news announcements than following bad news announcements consistent with more precise public signals triggering higher-order disagreement. In additional analysis, I employ abnormal announcement period volume to measure disagreement about price. Using this alternative measure, I continue to document a positive association between short-horizon ownership and the extent of divergence. Taken together, these findings suggest that higher-order beliefs play an important role in the way market participants react to public announcements.
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    When do targets' past financial results matter most to acquirers? The role of disruption of targets' existing operations
    (2014) Rabier, MaryJane Raffaella; Kimbrough, Michael D; Business and Management: Accounting & Information Assurance; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
    A target's past earnings and past earnings quality are informative about the performance of its stand-alone operations while its book value is informative about its adaptation value, which is the potential value from alternative uses of its resources. The information in past earnings and past earnings quality about a target's stand-alone operations is likely to be more important to acquirers that intend to keep the target's operations intact post-merger while the information in book value about its adaptation value is likely to be more important to acquirers that anticipate significant disruption of the target's operations. Using acquirer industry classification and a self-constructed index as alternative approaches to measuring anticipated disruption of target operations, I find evidence consistent with these predictions. Specifically, I find that acquirers assign greater discounts to targets' pre-merger earnings performance and pre-merger earnings quality in setting their bids as anticipated disruption of targets' operations increases. In addition, acquirers place greater weight on targets' pre-merger book values in setting their bids as anticipated disruption increases. These findings provide important insights into the conditions under which particular types of accounting information are most useful in the merger context.