The Information Content of 10-K Narratives: Comparing MD&A and Footnotes Disclosures

This paper examines the characteristics and variations within firms’ 10-K filings over a 20 year time period. We find that investors’ reaction to textual characteristics of the MD&A in 10-Ks is much stronger and more timely than their reaction to textual characteristics of the notes to the financial statements. Characteristics of the MD&A and footnotes are also predictive of future returns, volatility, and firm profitability. Our evidence suggests that investor pay limited attention to the footnotes compared to the MD&A and that firms exploit biases in investors’ information processing through their disclosure choices within 10-K filings

Bidder Earnings Forecasts in Mergers and Acquisitions

We provide evidence on the benefits and costs of pro-forma earnings forecasts by bidding firms during acquisitions. We find that these forecasts are associated with a higher likelihood of deal completion, expedited deal closing, and with a lower acquisition premium − but only in stock-financed acquisitions. Our results are most consistent with forecast disclosure positively affecting the value perceptions of target shareholders persuading them to agree to acquisitions with stock. Our findings reveal that the effects of these public disclosures are stronger when private communication with target shareholders is more constrained. However, benefits of forecast disclosure only accrue to bidders that have built a credible forecasting reputation prior to the acquisition. Explaining why not all bidders forecast, we provide evidence on high forecasting costs, namely higher likelihood of post-merger litigation and CEO turnover, particularly for bidders with a weak forecasting reputation and for those that underperform post-merger

Are All Insider Sales Created Equal? Evidence from Form 4 Footnote Disclosures

This paper is the first to examine the information contained in executives’ voluntary supplementary disclosures in footnotes on SEC Form 4 filings that accompany stock sales. Analysing these supplementary disclosures we are able to distinguish between discretionary sales, for which insiders have discretion over the amount and timing of the sale, and nondiscretionary sales. We find that discretionary sales involve significantly larger trades and produce significantly lower abnormal announcement returns than nondiscretionary sales, particularly when internal controls are perceived to be weak. Our findings suggests that discretionary sales reveal negative information to investors who do not seem to fully impound the information into stock prices in a timely manner as these sales are predictive of negative future stock returns. Investigating the type of bad news that these insider sales predict, we find a positive association with the likelihood of future analyst downgrades, negative earnings surprises and future litigation

The Contribution of Bank Regulation and Fair Value Accounting to Procyclical Leverage

Our analytical description of how banks’ 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, leverage is not procyclical. 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. Fair value accounting does not contribute to procyclical leverage

Do U.S. Analysts Improve the Local Information Environment of Cross-Listed Stocks? Evidence from Recommendation Revisions

We investigate the role of U.S. analysts in facilitating home market information transmission for firms from 40 countries cross-listed in the U.S.. Recommendation revisions by U.S. analysts lead to significantly higher (lower) abnormal returns (volumes) in the home market compared to those by local analysts. This U.S.-location premium to information production cannot be explained by a bonding or certification role of U.S. analysts or differences in broker or analyst characteristics. Our results suggest that U.S. analysts facilitate U.S. investors’ access to foreign firms’ home markets and improve the information environment particularly in countries where the local analyst advantage is smaller

Erratum to: The contribution of bank regulation and fair value accounting to procyclical leverage

Abstract Our analysis of how banks’ 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 U.S. 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

Global burden and strength of evidence for 88 risk factors in 204 countries and 811 subnational locations, 1990–2021: a systematic analysis for the Global Burden of Disease Study 2021

Background: Understanding the health consequences associated with exposure to risk factors is necessary to inform public health policy and practice. To systematically quantify the contributions of risk factor exposures to specific health outcomes, the Global Burden of Diseases, Injuries, and Risk Factors Study (GBD) 2021 aims to provide comprehensive estimates of exposure levels, relative health risks, and attributable burden of disease for 88 risk factors in 204 countries and territories and 811 subnational locations, from 1990 to 2021. Methods: The GBD 2021 risk factor analysis used data from 54 561 total distinct sources to produce epidemiological estimates for 88 risk factors and their associated health outcomes for a total of 631 risk–outcome pairs. Pairs were included on the basis of data-driven determination of a risk–outcome association. Age-sex-location-year-specific estimates were generated at global, regional, and national levels. Our approach followed the comparative risk assessment framework predicated on a causal web of hierarchically organised, potentially combinative, modifiable risks. Relative risks (RRs) of a given outcome occurring as a function of risk factor exposure were estimated separately for each risk–outcome pair, and summary exposure values (SEVs), representing risk-weighted exposure prevalence, and theoretical minimum risk exposure levels (TMRELs) were estimated for each risk factor. These estimates were used to calculate the population attributable fraction (PAF; ie, the proportional change in health risk that would occur if exposure to a risk factor were reduced to the TMREL). The product of PAFs and disease burden associated with a given outcome, measured in disability-adjusted life-years (DALYs), yielded measures of attributable burden (ie, the proportion of total disease burden attributable to a particular risk factor or combination of risk factors). Adjustments for mediation were applied to account for relationships involving risk factors that act indirectly on outcomes via intermediate risks. Attributable burden estimates were stratified by Socio-demographic Index (SDI) quintile and presented as counts, age-standardised rates, and rankings. To complement estimates of RR and attributable burden, newly developed burden of proof risk function (BPRF) methods were applied to yield supplementary, conservative interpretations of risk–outcome associations based on the consistency of underlying evidence, accounting for unexplained heterogeneity between input data from different studies. Estimates reported represent the mean value across 500 draws from the estimate's distribution, with 95% uncertainty intervals (UIs) calculated as the 2·5th and 97·5th percentile values across the draws. Findings: Among the specific risk factors analysed for this study, particulate matter air pollution was the leading contributor to the global disease burden in 2021, contributing 8·0% (95% UI 6·7–9·4) of total DALYs, followed by high systolic blood pressure (SBP; 7·8% [6·4–9·2]), smoking (5·7% [4·7–6·8]), low birthweight and short gestation (5·6% [4·8–6·3]), and high fasting plasma glucose (FPG; 5·4% [4·8–6·0]). For younger demographics (ie, those aged 0–4 years and 5–14 years), risks such as low birthweight and short gestation and unsafe water, sanitation, and handwashing (WaSH) were among the leading risk factors, while for older age groups, metabolic risks such as high SBP, high body-mass index (BMI), high FPG, and high LDL cholesterol had a greater impact. From 2000 to 2021, there was an observable shift in global health challenges, marked by a decline in the number of all-age DALYs broadly attributable to behavioural risks (decrease of 20·7% [13·9–27·7]) and environmental and occupational risks (decrease of 22·0% [15·5–28·8]), coupled with a 49·4% (42·3–56·9) increase in DALYs attributable to metabolic risks, all reflecting ageing populations and changing lifestyles on a global scale. Age-standardised global DALY rates attributable to high BMI and high FPG rose considerably (15·7% [9·9–21·7] for high BMI and 7·9% [3·3–12·9] for high FPG) over this period, with exposure to these risks increasing annually at rates of 1·8% (1·6–1·9) for high BMI and 1·3% (1·1–1·5) for high FPG. By contrast, the global risk-attributable burden and exposure to many other risk factors declined, notably for risks such as child growth failure and unsafe water source, with age-standardised attributable DALYs decreasing by 71·5% (64·4–78·8) for child growth failure and 66·3% (60·2–72·0) for unsafe water source. We separated risk factors into three groups according to trajectory over time: those with a decreasing attributable burden, due largely to declining risk exposure (eg, diet high in trans-fat and household air pollution) but also to proportionally smaller child and youth populations (eg, child and maternal malnutrition); those for which the burden increased moderately in spite of declining risk exposure, due largely to population ageing (eg, smoking); and those for which the burden increased considerably due to both increasing risk exposure and population ageing (eg, ambient particulate matter air pollution, high BMI, high FPG, and high SBP). Interpretation: Substantial progress has been made in reducing the global disease burden attributable to a range of risk factors, particularly those related to maternal and child health, WaSH, and household air pollution. Maintaining efforts to minimise the impact of these risk factors, especially in low SDI locations, is necessary to sustain progress. Successes in moderating the smoking-related burden by reducing risk exposure highlight the need to advance policies that reduce exposure to other leading risk factors such as ambient particulate matter air pollution and high SBP. Troubling increases in high FPG, high BMI, and other risk factors related to obesity and metabolic syndrome indicate an urgent need to identify and implement interventions

The Return of the Size Anomaly: Evidence from the German Stock Market

This paper examines the size-effect in the German stock market and intends to address several unanswered issues on this widely known anomaly. Unlike recent evidence of a reversal of the size anomaly we document a conditional relation between size and returns. We also detect strong momentum across size portfolios. Our results indicate that the marginal effect of firm size on stock returns is conditional on the firm’s past performance. We use an instrumental variable estimation to address Berk’s critique of a simultaneity bias in prior studies on the small firm effect and to investigate the economic rationale behind firm size as an explanatory variable for the variation in stock returns. The analysis in this paper indicates that firm size captures firm characteristic components in stock returns and that this regularity cannot be explained by differences in systematic risk

Social Responsibility in Capital Markets: A Review and Framework of Theory and Empirical Evidence

This study consolidates the existing body of knowledge on the theory and empirical evidence of shareholder value effects of social responsibility and the returns to socially responsible investing. In doing so, it draws from the literature in accounting, economics, finance, law and management with evidence from related disciplines. Based on the findings of the prior literature the study proposes a framework that distinguishes between the corporate view (CSR) and the investor view (SRI). In CSR it discriminates between three hypotheses of shareholder value effects of corporate social responsibility: Agency costs, delegated philanthropy and ‘doing well by doing good’. Within the latter it identifies four impact areas and several channels of influence to aid future researchers to answer more targeted research questions on the relationship between CSR and shareholder value. In SRI the study reviews the evidence how social responsibility affects investment returns and how CSR is incorporated into asset prices distinguishing between firm-level and fund-level effects. The study identifies differences by investment strategies and investor characteristics. Based on the proposed framework the study concludes with suggestions for future research