10 Financial Accounting 3: Determinants and consequences of financial reporting attributes
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ItemShall We Talk? The Role of Interactive Platforms in Corporate Communication( 2020-08-16)We examine the causes and consequences of a new form of interactive corporate communication. Between 2010 and 2017, Chinese investors used an online platform to ask corporate managers over 2.5 million questions, the vast majority of which received a reply within two weeks. Our analyses show that: (a) most investor questions reflect difficulties in integrating information that is already in the public domain; (b) the level of platform activity varies by market condition and company performance; and (c) higher activity levels are associated with decreases in cost-of-capital and increases in market liquidity. Collectively, our results suggest interactive platforms can reduce information processing costs and improve market price formation.
ItemCapitalization versus Disclosure: The Balance Sheet Effects of Capitalization on Operating Lease Activity( 2020-08-15)Beginning in 2019, U.S. public companies are required to capitalize operating leases under the new accounting lease standard, ASC 842. While the standard changes the accounting for operating leases on balance sheets, it maintains the accounting in income statements. Using this unique feature of the standard, I identify the balance sheet effects of the capitalization of operating leases and study how they affect managerial decisions. I find a significant decrease in operating lease activity upon the adoption of ASC 842. The decline is driven by the firms that benefited the most from the off-balance-sheet treatment of operating leases in the pre-ASC 842 periods and by short- and mid-term leases (i.e., remaining lease term less than or equal to three years). I also document a significant increase in capital expenditures around the adoption, suggesting that ASC 842 affects firms' lease-versus-buy decisions.
ItemAre hurricanes extraordinary or simply special? Determinants of reporting nonrecurring items in the government setting( 2020-08-14)We explore determinants and implications of reporting nonrecurring gains and losses — that is, extraordinary and special items — in the governmental setting. Common events triggering nonrecurring items include natural disasters, legal settlements, and asset sales. Primary results show that nonrecurring items systematically predict future net surplus and hence are not entirely transitory, which suggests that reporting choices are at least partially driven by managerial discretion. Evidence exploring implications of reporting nonrecurring items suggests they are used to reduce both surpluses and deficits. The results are stronger when state laws allow voters to directly place initiatives on the ballot or mandate balanced budgets, and preceding new public bond issuances. Corroborating analysis finds that nonrecurring items are strategically reported surrounding an exogenous shock of a presidentially declared disaster. Overall, we conclude that local governments strategically report extraordinary and special items.
ItemThe Real Consequence of Information Bundling: Evidence from Takeovers( 2020-07-11)Firms often bundle announcements of corporate events, such as dividend changes and repurchase programs, together with quarterly earnings announcements. Despite the popularity of this disclosure practice, its real consequences have not been examined. This study bridges this gap by providing evidence from the market for corporate control. I find firms that bundle repurchase announcements together with earnings news are 40% more likely to become takeover targets. To alleviate the omitted variable concern, I implement a difference-in-differences experiment exploiting short seller behavior around repurchase announcements. I also use an instrumental variable approach to alleviate self-selection concerns. Finally, a two-stage local treatment effect estimation suggests increased investor attention is a channel for this effect.
ItemThe Real Effects of Modern Information Technologies( 2020-07-11)Modern information technologies have greatly facilitated timely dissemination of information to a broad base of investors at low costs. To examine their effects on the real economy, we exploit the staggered implementation of the EDGAR system from 1993 to 1996 as a shock to information dissemination technologies. We find that the EDGAR implementation leads to an increase in the level of corporate investment but a decrease in the investment-to-price sensitivity. We provide evidence that improved equity financing and reduced managerial learning from prices are the underlying mechanisms that explain these real effects, respectively. In addition, we show that the EDGAR implementation leads to an improvement in performance in value firms but a decline in performance in high-growth firms where learning from the market is particularly important.