17 Other Research Topics (OTHERS)

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Chair: Hamid Pourjalali
Professor, Shidler College of Business, University of Hawai’i-Mānoa, United States


Recent Submissions

Now showing 1 - 10 of 11
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    A Tale of Two Courts: Determinants and Consequences of the SEC’s Choice of Enforcement Venue After the Dodd-Frank Act
    ( 2017) Zheng, Xin
    The Dodd-Frank Act allows the SEC to choose either an internal administrative proceeding or federal district court as an enforcement venue for resolving alleged violations of federal securities laws, granting both venues equal civil enforcement power. I examine the determinants and consequences of the SEC’s choice of enforcement venue after the Dodd-Frank Act. Additionally, I develop a new proxy for political connectedness to measure the frequency and length of meetings between the defendants’ congressional representatives and the SEC chair, using data from the SEC chair’s daily calendars obtained via the Freedom of Information Act. Results show that (1) more material cases are about 30% more likely to be assigned to federal courts than to administrative proceedings, (2) politically connected defendants are about 9% more likely to be routed to administrative proceedings, and (3) defendants are more likely to be routed to administrative proceedings when the SEC’s budgetary constraint is more binding. Moreover, compared to defendants in federal courts, defendants in administrative proceedings are associated with lower monetary penalties. One additional meeting between the defendant’s congressional representatives and the SEC chair corresponds to a 50% decrease in additional monetary penalties imposed on defendants in administrative proceedings. Importantly, administrative proceedings are resolved 17 times faster than federal court cases. This study has at least two implications. First, the SEC’s private incentives affect its enforcement venue selection and possibly enforcement outcomes. When the political and economic costs (benefits) are greater, the SEC is more likely to route cases to administrative proceedings (federal courts). Second, SEC administrative proceedings impose lower litigation costs on both the SEC and the defendants, in comparison to federal courts.
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    The Market Pricing of the Timeliness of Bank Loan Loss Recognition
    ( 2017) Kim, Young Jun
    This study examines how the stock market prices US banks timeliness of loan loss recognition. Our findings are summarized as follows. First, we find that the market overprices banks with less timely loan loss recognition, whereas it underprices banks with more timely loan loss recognitioin. Second, the magnitude of such mispricing is more pronounced during economic recessions. Our findings indicate that variations in the timeliness of banks' loan loss recognition make it diffidcult for investors to value bank stocks, in particular during recissions.
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    ( 2017) Guo, Ying ; Yang, David ; Kim, Youngbin
    The objective of this paper is to serve as a decision aid in assisting CFOs prepare sustainability accounting reports by examining the development of sustainability accounting reporting and assurance in practice, and observing the reporting pattern and guidelines followed, through a survey on reporting and assurance frameworks of U.S. large companies (the Dow-Jones 30 U.S. companies). This paper first reviews and summarizes the recent literature in sustainability accounting research, especially in sustainability accounting reporting. Further, the paper provides a survey on sustainability accounting reporting and assurance frameworks of the Dow-Jones 30 U.S. companies. The findings in this study confirm the increasing trend of sustainability reporting and its assurance among large publicly traded firms, which is suggested by prior accounting research. Important factors to be considered by CFOs to prepare sustainability accounting reporting are presented in this study.
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    The Joint Effect of Presentation Format and Disclosure Balance on Investors’ Reactions to Sensitivity Disclosures of Hedging Instruments
    ( 2017) Liu, Wenhuan ; Tan, Hun-Tong ; Xu, Tu ; Zhang, Jixun
    Derivative-related risk disclosure has been a key issue in accounting regulations and research. In this paper, we examine how investors react to two features of the most popular form of mandatory quantitative risk disclosure-sensitivity analysis. Specifically, we experimentally test how the presentation format of market risk impact and disclosure balance (i.e., showing either potential losses only or both potential losses and potential gains) interact to change investors’ reactions to sensitivity disclosures of hedging instruments. We find that investors judge a firm that provides an SEC FRR No. 48-minimum disclosure to be as unfavorable as an otherwise equivalent firm that leaves its risk exposure unhedged. We further find that a presentation format that shows the market risk impact after hedging improves investors’ judgments when the disclosure is onesided loss-only but not when it is two-sided. A mediation analysis shows that the enhanced presentation format alters investors’ judgments by reducing their worry about unfavorable changes in market conditions. We contribute to the literature by showing that the presentation format of sensitivity disclosures matters and by identifying a moderator to the effect of disclosure balance. Our results have important implications for investors, managers, and regulators.
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    The Evolution of Double-Entry Bookkeeping
    ( 2017) Basu, Sudipta ; Waymire, Greg
    We present an evolutionary theory of double-entry bookkeeping (DEB). We hypothesize that DEB produces more timely and accurate information on transaction-specific profits than the single-entry bookkeeping (SEB) it gradually displaced. The new DEBITS=CREDITS constraint unique to DEB alters transaction analysis to emphasize wealth changes, profit measurement, and the identification of contingencies that complicate profit measurement. Repeated use of DEB-based historical transaction analysis engenders a mental model of economic exchange that helps better evaluate future exchange opportunities. Early adopters could internalize DEB-based mental models because widely-accepted Bourgeois virtues encouraged the diligence needed to implement DEB, and the evolved human brain is extraordinarily able to learn from individual experience. DEB functions like eyeglasses that let an entrepreneur distinguish ex ante between transactions that generate small profits versus those that yield small losses, while these categories were fuzzier under SEB. This small improvement can become economically profound when a single organization like Amazon or Walmart consummates billions of transactions every year. This improved insight could explain the hypothesis of Werner Sombart and others that DEB was necessary (but not sufficient) for the emergence of capitalism. More fundamentally, DEB may play an important but unrecognized role as a finger of Adam Smith’s “invisible hand” that guides market activity.
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    Shocks to Product Networks and Post-Earnings Announcement Drift
    ( 2017-08-31) Baik, Bok ; Hoberg, Gerard ; Kim, Jungbae ; Oh, Peter
    This paper examines whether shocks to less visible product market peers are an important determinant of industry level post-earnings announcement drift (IPEAD) (Ayers and Freeman 1997; Hui et al. 2016). On the real-side, we find that a focal firm’s earnings are persistently related to the earnings surprises of its peers. On the financial-side, IPEAD arises only when these peers are less visible and when shocks are driven by persistent supply-side shocks to expenses, and not by demand-side shocks to sales. Text-based measures of disclosure opacity show that IPEAD is also stronger when firms provide less informative 10-K disclosures regarding their expenses. Collectively, our results suggest that inattention to less visible peers and a poor informational environment surrounding supply-side shocks are likely channels that generate IPEAD. IPEAD returns are economically large in subsamples motivated by this explanation.
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    Acquisitions, Earnouts and Financial Constraints: Evidence from SFAS 141 and SFAS141(R)
    ( 2017-08-31) Wright, Danika ; Chen, Xianzhen ; Svec, Jiri
    This paper studies the acquisition strategies of firms in response to different financial reporting incentives. We focus on the use of earnouts following changes to the accounting treatment of contingent consideration following the 2008 introduction of SFAS 141(R). The revised standards require earnout fair value to be recorded at acquisition date, while earnouts under the previous standards were only reported if, and when, they were paid. Our results indicate that earnout usage decreases in response to increased financial reporting costs of contingent liabilities. This decrease is strongest among financially constrained bidders, who are also observed to decrease participation in M&A markets. A Heckman probit model is employed to correct for sample selection bias. The implications of these findings for deal design and success are discussed.
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    Patterns of Insider Trading
    ( 2017-08-29) Azmi, Mehrzad ; Sarath, Bharat ; Cao, Min
    Both regulatory restrictions and voluntary corporate restrictions on insider trading around earnings announcements are based on a presumption of low information asymmetry periods (“white windows”) as contrasted with high information asymmetry periods (“black windows”). We first, document that a large proportion of trading in the US takes place in the black window where trading is explicitly banned in the UK and implicitly banned by corporate policies. Second, we show that trading in the white period exhibits a strong self-selection bias where trade takes place only in white window periods of high return. We also show that the excess returns earned by “black” period trades vanish if postponed to the next white period following the earnings announcement. Lastly, we show that a large proportion of pre-specified trading under SEC sponsored 10b5-1 plans are filed for black window periods and that these plans generate higher abnormal returns than white window 10b5-1 plans.
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    Redundant Information and Predictable Returns
    ( 2017-08-26) Carniol, Michael
    How well do investors distinguish information that already is priced from genuinely novel and exclusive private information? This paper examines whether investors misweight information that already is in stock prices (“redundant information”) in making their trading decisions. I extend the Kyle (1985) model to allow for non-Bayesian updating and transaction costs. The model predicts that price changes exhibit a state space process, in which the parameter for investors' non-Bayesian weighting of redundant information is estimable distinctly from information asymmetry, transaction costs, and serial correlation in liquidity trader demand. Using this model, I estimate a firm-quarter measure of investors' misweighting of redundant information. I find that, on average, investors behave as if over 47 percent of the information content in the immediately prior price change is private information. Overall, these results suggest one way that momentum and mean reversion in stock price returns could result from investors' misuse of information.
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    ( 2017-07-14) Benković, Slađana ; Joksimović, Nevenka Žarkić ; Rakočević, Slađana Barjaktarović ; Drakulić, Mirjana ; Starčević, Dušan
    Sound and efficient public administration is a foundation for the functioning of the state, as it contributes to its ability to ensure high quality public services while strengthening competitiveness and progress. This means that a sound public administration is characterized by reliability, accountability and transparency, as well as the level of technical and organizational capacities that ensures financial sustainability and standardized service. The aim of this paper is to present the findings of a research conducted in spring 2017 involving executive officials in the public administration of Serbia. The purpose of the research was to map the existing capacities of the Serbian public administration, in order to lay the groundwork for the strengthening of those capacities in the period ahead and for reaching the SIGMA principles of public administration applied among EU member states, especially in financial management segment. The findings of the research presented in this paper are part of the primary research findings collected within ERASMUS+ project conducted on the sample of 240 examinees. The authors of this paper participated in the project implementation.