09 Financial: Manager Ability / Financial Analysts / Disclosure (FAR1)

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Chair: Bok Baik
Professor, Seoul National University, South Korea


Recent Submissions

Now showing 1 - 5 of 12
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    Managerial Perceived Competition and Acquisitions
    ( 2017-09-01) Tran, Nam ; Peterson, Kyle
    We examine the relations between managerial perceived competition, firms’ tendency to engage in acquisitions, and acquisition gains. We find that firms with higher managerial perceived competition are more likely to acquire other firms. Acquirers with higher perceived competition offer higher acquisition premium to their targets. High perceived competition does not lead acquirers to engage in less profitable acquisitions. To the contrary, we find that acquirers’ perceived competition is positively associated with both total acquisitions gains and gains to acquirer shareholders as measured by abnormal stock returns around the acquisition announcement. Finally, we find no significant association between acquirers’ perceived competition and the improvement in abnormal operating performance for the merged firm after the acquisition.
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    A Theory of Classification Shifting
    ( 2017-09-01) Penno, Mark ; Stecher, Jack
    This article demonstrates that managers can influence the market by classifying some items as core earnings and others as non-core. Investors react to classifications because managers have incomplete discretion over how to classify results. Managers optimally use their discretion to pool good news with items mandatorily classified as core earnings and bad news with items mandatorily classified as non-core. Aggregation reduces this temptation to classify strategically, provided managers also have incomplete discretion over how to aggregate. That is, managers can use aggregation to separate from strategic classifiers. Our results provide empirical implications for the cross-sectional properties of financial reports.
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    Firm-Manager Matching and the Tradeoffs of CFO Accounting Expertise
    ( 2017-08-31) Bernard, Darren ; Ge, Weili ; Matsumoto, Dawn ; Toynbee, Sara
    We examine the tradeoffs of CFO accounting expertise and their role in firm-manager matching decisions. Although prior work examines the positive effects of accounting expertise on several financial reporting outcomes, there is little evidence on the tradeoffs this expertise entails, much less how firms compensate for these tradeoffs. We conjecture that acquiring accounting expertise requires costly tradeoffs in terms of acquiring other skills, including operational knowledge and strategic expertise. We find that these tradeoffs are reflected in firms’ hiring decisions ex ante and affect several ex post employment decisions. Collectively, the results suggest accounting expertise is a carefully weighed attribute of CFO hires that shapes and is shaped by the composition of the top management team.
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    Discretionary Disclosure on Twitter
    ( 2017-08-31) Crowley, Richard ; Huang, Wenli ; Lu, Hai
    Using a sample of 12.8 million tweets from S&P1500 firms with active Twitter accounts from 2012 to 2016, we show that firms selectively disclose corporate events on Twitter and choose to post financial disclosures on Twitter more frequently around earnings announcements, accounting filings, and firm-specific news events. Financial disclosures on Twitter are more likely to contain media (image or video) and links around these events. Consistent with predictions from disclosure theory, both effects are strong when the sign of the news is clearly negative or positive. The above patterns of timing and usage of media and links are robust in intraday analysis. We also find that firms with lower institutional ownership are more likely to exercise discretion. These findings suggest that firms choose events, format, and timing discretionarily when disclosing news on social media.
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    Does Risk Disclosure Signal Risk Management Outcome? An Examination of the SEC FRR No. 48 Disclosure’s Relation with Cash Flow Volatility
    ( 2017-08-31) Lobo, Gerald ; Siqueira, Wei ; Tam, Kinsun ; Zhou, Jian
    We hypothesize that the quality of market risk disclosure mandated by the U.S. Securities and Exchange Commission Financial Reporting Release No. 48 (FRR No. 48) provides useful signals for predicting risk management outcome. Measuring risk disclosure quality as the degree of modification, we find that higher-than-expected disclosure modification is associated with lower future cash flow volatility. On average, an increase in risk disclosure modification from the lowest to the highest decile is associated with a 4.4 percent decrease in cash flow volatility. We further document that this association is moderated by managers’ intention to manage risk. The market generally understands the implications of disclosure modification with respect to cash flow volatility, but its understanding has limitations. Our results should be of interest to those who seek to assess how a firm’s cash flows will fluctuate in the future.