57 research outputs found
Institutional investors and corporate governance
We provide a comprehensive overview of the role of institutional investors in corporate governance with three main components. First, we establish new stylized facts documenting the evolution and importance of institutional ownership. Second, we provide a detailed characterization of key aspects of the legal and regulatory setting within which institutional investors govern portfolio firms. Third, we synthesize the evolving response of the recent theoretical and empirical academic literature in finance to the emergence of institutional investors in corporate governance. We highlight how the defining aspect of institutional investors ā the fact that they are financial intermediaries ā differentiates them in their governance role from standard principal blockholders. Further, not all institutional investors are identical, and we pay close attention to heterogeneity amongst institutional investors as blockholders
Bidder earnings forecasts in mergers and acquisitions
This study finds that pro-forma earnings forecasts by bidding firms during acquisitions are associated with a higher likelihood of deal completion, expedited deal closing, and with a lower acquisition premium ā but only in stock-financed acquisitions. Analysts also respond to these forecasts by revising their forecasts for the bidder upward. However, the benefits of forecast disclosure only accrue to bidders with a strong forecasting reputation prior to the acquisition. Explaining why not all bidders forecast, we document a higher likelihood of post-merger litigation and CEO turnover for bidders with a weak forecasting reputation and for those that underperform post-merger
Bidder earnings forecasts in mergers and acquisitions
This study finds that pro-forma earnings forecasts by bidding firms during acquisitions are associated with a higher likelihood of deal completion, expedited deal closing, and with a lower acquisition premium ā but only in stock-financed acquisitions. Analysts also respond to these forecasts by revising their forecasts for the bidder upward. However, the benefits of forecast disclosure only accrue to bidders with a strong forecasting reputation prior to the acquisition. Explaining why not all bidders forecast, we document a higher likelihood of post-merger litigation and CEO turnover for bidders with a weak forecasting reputation and for those that underperform post-merger
Auditor reporting to bank regulators: effective regulation or regulatory overreach?
We discuss āEconomic Consequences of Mandatory Auditor Reporting to Bank Regulatorsā by Balakrishnan, De George, Ertan, and Scobie (BDES, in this issue). BDES concludes that a key benefit of mandatory auditor reporting to bank regulators is reduced bank risk, and its costs include reduced profitability from less overall and less risky lending, and higher audit costs. BDES also provides evidence on the channels through which mandatory auditor reporting links to reduced bank risk. We scrutinize BDES's analyses and inferences and suggest additional analyses to improve and deepen them. Most notably, we caution that effective bank regulation entails reducing risk for riskier banks; risk reduction for safer banks suggests regulatory overreach. Our evidence is more indicative of regulatory overreach. Thus, although BDES is an important step forward in understanding the role auditors can and do play in improving information available to key decision-makers other than through auditor reports on financial statements and internal controls, a comprehensive assessment of whether the benefits of mandatory auditor reporting to bank regulators exceed its costs is left for future research. Such an assessment is necessary before concluding whether mandatory auditor reporting leads to more effective bank regulation or regulatory overreach
Creating firm disclosures
Managers expend significant time and effort preparing disclosures about firm performance and strategy. Although prior literature has explored how variation in the style and presentation of disclosures impacts investorsā perceptions of firms, little is known about how firms actually create these disclosures and how this process impacts presentation. Based on field data collected from nearly 200 firms, we show that there is considerable variation in who prepares disclosures, when they are prepared, and the amount of effort expended by different types of managers (e.g. legal, public relations/marketing, finance, investor relations, senior leadership). We find that these differences in organizational processes are associated with differences in the structure, style, and tone of 10-Ks and conference calls. Ultimately, our investigation begins to illuminate how individual managerial efforts vary across firms and contribute to differences in public disclosures
Creating firm disclosures
Managers expend significant time and effort preparing disclosures about firm performance and strategy. Although prior literature has explored how variation in the style and presentation of disclosures impacts investorsā perceptions of firms, little is known about how firms actually create these disclosures and how this process impacts presentation. Based on field data collected from nearly 200 firms, we show that there is considerable variation in who prepares disclosures, when they are prepared, and the amount of effort expended by different types of managers (e.g. legal, public relations/marketing, finance, investor relations, senior leadership). We find that these differences in organizational processes are associated with differences in the structure, style, and tone of 10-Ks and conference calls. Ultimately, our investigation begins to illuminate how individual managerial efforts vary across firms and contribute to differences in public disclosures
Empirical goodwill research: insights, issues, and implications for standard setting and future research
This paper reviews the empirical literature on the determinants and decision usefulness
of goodwill reporting. We structure our discussion around five guiding questions that reflect
longstanding policy issues: recognition, initial and subsequent measurement, disclosure, and the
role of governance and monitoring. In addition to summarizing the findings, we assess the validity
of the evidence. Our review indicates that goodwill amounts, on average, are associated with the
underlying economics of the combining firms but are also shaped by managerial incentives and
institutional context. Empirical research does not allow us to conclude whether current goodwill
accounting rules provide for an optimal degree of discretion. Nonetheless, our analysis yields a
number of policy implications and research suggestions. In addition to pointing out new research
questions that could be addressed by further archival research, we advocate reproduction studies to
test the generalizability of existing findings across contexts, and we encourage standard setters to
initiate quasi-experiments to generate causal evidence and to render policymaking more accountable. We further suggest that researchers make more use of behavioral theories and non-archival
methods to elucidate the motives and interactions of decision makers in goodwill accounting
The contribution of bank regulation and fair value accounting to procyclical leverage
Our analytical description of how banksā responses to asset price changes can result in procyclical leverage reveals that for banks with a binding regulatory leverage constraint, absent differences in regulatory risk weights across assets, procyclical leverage does not occur. For banks without a binding constraint, fair value and bank regulation both can contribute to procyclical leverage. Empirical findings based on a large sample of US commercial banks reveal that bank regulation explains procyclical leverage for banks relatively close to the regulatory leverage constraint and contributes to procyclical leverage for those that are not. We also show that fair value accounting does not contribute to procyclical leverage by finding (i) the portion of comprehensive income attributable to fair value accounting, i.e., fair value comprehensive income, has a negative relation with change in leverage as expected for any increase in equity, (ii) no evidence of a positive relation between fair value comprehensive income and banksā net purchases of assets, and (iii) the relation between change in leverage and fair value comprehensive income is more negative than that between change in leverage and change in equity
Information content of insider filings after stock repurchase and seasoned equity issue announcements
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