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ItemDelayed Foreign Filings and Investor Attention: Evidence from Form 20-F Reconciliation Elimination( 2019-08-20)We argue that the 2007 SEC elimination of the U.S. GAAP reconciliation requirement for IFRS-reporting cross-listed firms increased disclosure redundancy across home country and U.S. ADR markets, affecting U.S. market investors' information acquisition behavior. First, we document a decreased yet significant delay between information release dates in the two countries following reconciliation elimination. Furthermore, greater delay in IFRS firms' unreconciled Form 20-F filings decreases 20-F download activity and reverses potential liquidity benefits of timely disclosure. We also document an increase in return co-movement across the home country and the U.S., suggesting increased market integration. Furthermore, there are increased return and volume reactions to home country earnings announcements in the ADR market post-SEC deregulation. Our results bring novel insights regarding the important implications of timeliness of Form 20-F filings in conjunction with the reconciliation elimination's effects on information integration across the two markets on investor information acquisition behavior.
ItemMiFID II Unbundling and Sell Side Analyst Research( 2019-08-20)We examine the effect of MiFID II, which mandated the unbundling and separate pricing of analyst research in Europe beginning in 2018. We find that the requirements of MiFID II were associated with a reduction in analyst following for European firms relative to US firms, with decreases in coverage greatest for firms that were larger, older and less volatile, and had greater coverage and more accurate consensus forecasts. Remaining analysts follow fewer firms and issue fewer forecasts, consistent with increased focus, and appear to increase their efforts on the firms they continue to cover. In particular, forecasts become more accurate, are more likely to be disaggregated and include recommendations, and are accompanied by larger stock price reactions. Consistent with increased effort to curry favor with management, analysts issue more optimistic recommendations and beatable earnings forecasts. While individual forecasts are more informative, the overall information environment for the average firm tends to deteriorate, with less aggregate information conveyed by analyst forecasts, a greater proportion of information delayed to earnings announcements and higher average bid-ask spreads. Taken as a whole, results are consistent with a reduction in analyst following mitigated by an increase in focus and effort by remaining analysts, but with an overall negative effect on the information environment.
ItemCorporate Governance Reforms Around the World: The Effect on Corporate Social Responsibility( 2019-08-14)This study examines the effect of major corporate governance reforms on corporate social responsibility (CSR) in countries around the world. Using a difference-in-differences design, we find robust evidence that worldwide corporate governance reforms result in an increase in CSR performance in both the environmental and social dimensions. Relative to countries with comply-or-explain reforms, countries with rule-based reforms tend to experience a greater increase in CSR performance post-reform. In addition, the effect of reforms on CSR performance is more pronounced for firms with higher levels of institutional ownership or lower levels of insider ownership and in countries with weaker CSR awareness and a more stringent legal and regulatory environment. Further analyses show that the reforms strengthen the relation between CSR and future financial performance. Collectively, our evidence suggests that increases in substantive CSR investment represent a potential channel through which corporate governance reforms can increase shareholder value and that the effectiveness of reforms varies with both firm- and country-level characteristics related to the relative influence of external shareholders.