Accounting Publications

Implications of Non-GAAP earnings for real activities and accounting choices

Anonymous — Tue, 27 Apr 2021 14:28:29 +0000

Implications of Non-GAAP earnings for real activities and accounting choices Anonymous (not verified) Tue, 04/27/2021 - 08:28

Managers almost always define non-GAAP earnings to exclude the effects of acquisition and restructuring expenses, the amortization of intangibles, and impairments. I find that managers with a history of reporting non-GAAP earnings act as if they place lower weight on these excluded expenses when making real activities and accounting choices. They pursue more and larger acquisitions, have higher total capital investment, are more likely to restructure, and are more likely to recognize discretionary impairments. In a difference-in-differences setting, I find that non-GAAP reporting firms are less likely to alter their restructuring activities following a significant change in accounting rules for restructuring expense recognition. Finally, in supplementary analyses, I find that non-GAAP-reporting firms tend to repeat these real activities and accounting choices year-after-year, resulting in more persistent special-item expenses.

Laurion, H. (2020). Implications of non-GAAP earnings for real activities and accounting choices. Journal of Accounting & Economics, 70(1), 101333. https://doi.org/10.1016/j.jacceco.2020.101333

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A Growing Disparity in Earnings Disclosure Mechanisms

Anonymous — Wed, 29 Apr 2020 20:19:12 +0000

A Growing Disparity in Earnings Disclosure Mechanisms Anonymous (not verified) Wed, 04/29/2020 - 14:19

We document a growing disparity in earnings disclosure mechanisms. Firms are increasingly disclosing earnings announcements (EA) concurrently with the 10-K filing instead of first issuing a ‘stand-alone’ EA. Firm adoption of concurrent EA/10-Ks is associated with lower investor sophistication, greater impediments to producing timely and reliable earnings information, and greater industry-level concurrent reporting. Concurrent EA/10-Ks differ from stand-alone EAs in that investors anticipate more information in the EA, disclosures are preempted by industry peer EAs, the market reaction is muted even when controlling for EA timing, and post-earnings-announcement drift is greater.

Accounting: Arif, S., Marshall, N. T., Schroeder, J. H., & Yohn, T. L. (2019). A growing disparity in earnings disclosure mechanisms: The rise of concurrently released earnings announcements and 10-Ks. Journal of Accounting & Economics.

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Arif, S., Marshall, N. T., Schroeder, J. H., & Yohn, T. L. (2019).

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Understanding Uncontested Director Elections

Anonymous — Thu, 15 Aug 2019 03:11:52 +0000

Understanding Uncontested Director Elections Anonymous (not verified) Wed, 08/14/2019 - 21:11

We examine the determinants and consequences of voting outcomes in uncontested director elections. Exploiting a unique hand-collected data set of the rationale behind proxy advisors’ recommendations—the primary driver of voting outcomes—we document the director and board characteristics on which voting shareholders focus (as well as those that they neglect), their evolution over time, and their relative importance. Absent a negative recommendation, high votes withheld are infrequent, highlighting the agenda-setting role of proxy advisors. While high votes withheld rarely result in director turnover, our analyses show that firms often respond to an adverse vote by explicitly addressing the underlying concern. Overall, it appears that shareholders use their votes in uncontested director elections to get directors to address specific problems, rather than to vote them onto or off of the board, but they do so only on matters highlighted by the proxy advisors.

Ertimur, Y., Ferri, F., & Oesch, D. (2018). Understanding uncontested director elections. Management Science, 64(7), 3400-3420. doi:10.1287/mnsc.2017.2760

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Ertimur, Y., Ferri, F., & Oesch, D. (2018).

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Do Director Networks Matter for Financial Reporting Quality? Evidence from Audit Committee Connectedness and Restatements

Anonymous — Thu, 15 Aug 2019 03:02:01 +0000

Do Director Networks Matter for Financial Reporting Quality? Evidence from Audit Committee Connectedness and Restatements Anonymous (not verified) Wed, 08/14/2019 - 21:02

This study examines the effect of audit committee connectedness through director networks on financial reporting quality, specifically the misstatement of annual financial statements. Using network analysis, we examine multiple dimensions of connectedness and find that, after controlling for operating performance and corporate governance characteristics, firms with well-connected audit committees are less likely to misstate annual financial statements. In addition, our study demonstrates that audit committee connectedness through director networks moderates the negative effect of board interlocks to misstating firms on financial reporting quality. We conduct several tests to address identification concerns and find similar results. Our findings suggest that firms with better-connected audit committees are less likely to adopt reporting practices that reduce financial reporting quality.

Omer, Thomas C. and Shelley, Marjorie and Tice, Frances M., Do Director Networks Matter for Financial Reporting Quality? Evidence from Audit Committee Connectedness and Restatements (September 1, 2018). Forthcoming, Management Science.

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Omer, Thomas C. and Shelley, Marjorie and Tice, Frances M., (2018)

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Bridging the Gap: Evidence from Externally Hired CEOs

Anonymous — Tue, 13 Aug 2019 15:11:36 +0000

Bridging the Gap: Evidence from Externally Hired CEOs Anonymous (not verified) Tue, 08/13/2019 - 09:11

We investigate executive employment gaps (hereafter, gaps) between the appointment of an external CEO at a public firm and the individual’s prior executive position at a public company. These gaps cannot be reliably obtained from common databases. We hand collect data for externally hired CEOs at public companies from 1992-2014. These CEOs represent approximately 40% of the 5,095 CEO successions and have a mean gap of 1.9 years. The gap increases to 3.2 years for the subset of new hires with a gap. We hypothesize that labor market frictions and executive skillsets contribute to the existence and length of these gaps. Using theories from labor economics, we predict (equilibrium) associations between two measures of “fit” (executive compensation and long-term match quality) and gaps (both existence and length). Finally, we provide descriptive evidence on what executives do (e.g., sit on boards, work for private consulting companies, or consume leisure) during their gaps. This project was subject to and published through a registered report process. Any tests that were not included in the accepted proposal are marked as unplanned analyses.

Ertimur, Yonca and Rawson, Caleb and Rogers, Jonathan L. and Zechman, Sarah L. C., (2018). Bridging the gap: Evidence from externally hired CEOs. Journal of Accounting Research, 56(2), 521-579. doi:10.1111/1475-679X.12200

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Ertimur, Yonca and Rawson, Caleb and Rogers, Jonathan L. and Zechman, Sarah L. C., (2018)

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Run EDGAR Run: SEC Dissemination in a High-Frequency World

Anonymous — Sun, 17 Jun 2018 13:50:53 +0000

Run EDGAR Run: SEC Dissemination in a High-Frequency World Anonymous (not verified) Sun, 06/17/2018 - 07:50

Rogers, Jonathan L., Douglas J. Skinner, and Sarah LC Zechman

The US Securities and Exchange Commission has a mission to protect investors – often describing a level-playing field for all as a key objective. In recent years, the SEC and other government agencies have been concerned that certain investors receive unfair timing advantages in a world of high-speed algorithmic trading. This study examines the extent to which the SEC itself provides a level-playing field with fair and equal access to public company filings on the PDS [public dissemination system] of the SEC’s EDGAR site. During the period studied (2012-2013), the SEC provided a small number of paying subscribers advanced access to public company filings. Just over half the filing were received in advance of the public posting, with an average 18 second advantage. This is a substantial timing advantage in the world of high-frequency trading during which prices, trading volume, and spreads all moved, showing an unfair advantage for those paying subscribers. In response to the study, Mary Jo White, the SEC Chair, announced plans on December 19, 2014, to enhance the system to “ensure that EDGAR filings are available to the public on the SEC [EDGAR] website before such filings are made available to PDS subscribers.”

FIG. 3.—Market reactions in “EDGAR Time” based on whether the PDS feeds arrive before

or after the EDGAR posting. The figures plot percent returns for a two-minute window around

the EDGAR posting. One can see that when the PDS feed arrived first before the normal EDGAR feed (solid line), the insiders getting the feed had a substantial advantage in returns compared to what occurred when the EDGAR feed arrived first (dashed line).

ROGERS, J. L., SKINNER, D. J., & ZECHMAN, S. L. C. (2017). Run EDGAR run: SEC dissemination in a High‐Frequency world. Journal of Accounting Research, 55(2), 459-505. doi:10.1111/1475-679X.12167

Read the full article at the Journal of Accounting Research

Rogers, Jonathan L., Douglas J. Skinner, and Sarah LC Zechman (2017) Journal of Accounting Research

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