The Impact of Sarbanes-Oxley on Earnings Quality and the Cross-Listing Decision

An expected outcome from the Sarbanes-Oxley Act [SOX, hereafter] was to improve the overall quality of financial reporting in the U.S. However, many believe the increased regulations imposed excessive costs on companies with little improvement in financial reporting quality. SOX may have also imposed costs on U.S. investors by limiting their investment choices in foreign companies listed on U.S. exchanges. SOX applies to all publicly-traded companies, including foreign companies that cross list on U.S. exchanges. Immediately following SOX, the number of companies choosing to cross list in the U.S. declined significantly (Piotroski and Srinivasan 2008), but to the extent that SOX resulted in companies with lower quality earnings choosing to cross list elsewhere, the additional costs to U.S. investors - limiting foreign investment choices - may be worthwhile. Overall, I find SOX had no definitive influence on the earnings quality of cross-listers both in the U.S. and globally. My results indicate that SOX has had a greater influence on domestic U.S. companies' earnings quality compared to cross-listers in the U.S. While I do find earnings quality is higher for cross-listers in the U.S. versus elsewhere, the earnings quality for neither group improved around SOX. Overall, my results suggest the costs from SOX exceed the benefits from improved reporting quality, at least as it relates to cross-listers. Further, my findings are consistent with criticisms of the bonding hypothesis. While some may believe that cross-listed companies are bonding themselves to U.S. regulations and reporting quality, the evidence in this paper suggest that regulations do not equally impact U.S. companies and foreign companies cross listing in the U.S

The Relationship Between Segment-Level Manipulations And Audit Fees

We examine the auditor’ssensitivity to manipulative financial reporting by investigating the relationbetween audit fees and segment-level manipulations.  Segment reporting provides an interestingsetting to examine auditor risk assessments because of the discretion affordedto management under existing regulations.  Segment manipulations, a form of classificationsmoothing, are not in violation of accounting standards; nevertheless, thesemanipulations violate the spirit of faithful representation by distorting theperformance of a subset of the reporting unit at the expense of (or to thebenefit) of another subset.  Because disaggregatedinformation is used by analysts and investors in bottom-upforecasting, these distortions can influence firm value even though they do notaffect bottom-line net income.  Ourmeasure of classification smoothing measurescost shifting between core operating segments and non-core segments to proxyfor segment manipulation.  We find thataudit fees, a proxy for the auditor’s risk assessment, have a positiveassociation with segment-level manipulations.  Subsequent analyses suggest that higher auditfees are also due to the additional effort exerted in the presence of segment-levelmanipulations.  Further, auditors appearjustified in charging higher fees to clients that engage in segmentmanipulations as we document evidence of a positive association betweenrestatements and segment-level manipulations.  Collectively, these results suggest thatauditors are aware of the risk associated with companies that engage in segment-levelmanipulations and auditors respond appropriately by charging higher fees anddoing additional work

Mechanistic Studies of Ethylene Hydrophenylation Catalyzed by Bipyridyl Pt(II) Complexes

This article discusses mechanistic studies of ethylene hydrophenylation catalyzed by bipyridyl Pt(II) complexes

Antiinflammatory Therapy with Canakinumab for Atherosclerotic Disease

Background: Experimental and clinical data suggest that reducing inflammation without affecting lipid levels may reduce the risk of cardiovascular disease. Yet, the inflammatory hypothesis of atherothrombosis has remained unproved. Methods: We conducted a randomized, double-blind trial of canakinumab, a therapeutic monoclonal antibody targeting interleukin-1β, involving 10,061 patients with previous myocardial infarction and a high-sensitivity C-reactive protein level of 2 mg or more per liter. The trial compared three doses of canakinumab (50 mg, 150 mg, and 300 mg, administered subcutaneously every 3 months) with placebo. The primary efficacy end point was nonfatal myocardial infarction, nonfatal stroke, or cardiovascular death. RESULTS: At 48 months, the median reduction from baseline in the high-sensitivity C-reactive protein level was 26 percentage points greater in the group that received the 50-mg dose of canakinumab, 37 percentage points greater in the 150-mg group, and 41 percentage points greater in the 300-mg group than in the placebo group. Canakinumab did not reduce lipid levels from baseline. At a median follow-up of 3.7 years, the incidence rate for the primary end point was 4.50 events per 100 person-years in the placebo group, 4.11 events per 100 person-years in the 50-mg group, 3.86 events per 100 person-years in the 150-mg group, and 3.90 events per 100 person-years in the 300-mg group. The hazard ratios as compared with placebo were as follows: in the 50-mg group, 0.93 (95% confidence interval [CI], 0.80 to 1.07; P = 0.30); in the 150-mg group, 0.85 (95% CI, 0.74 to 0.98; P = 0.021); and in the 300-mg group, 0.86 (95% CI, 0.75 to 0.99; P = 0.031). The 150-mg dose, but not the other doses, met the prespecified multiplicity-adjusted threshold for statistical significance for the primary end point and the secondary end point that additionally included hospitalization for unstable angina that led to urgent revascularization (hazard ratio vs. placebo, 0.83; 95% CI, 0.73 to 0.95; P = 0.005). Canakinumab was associated with a higher incidence of fatal infection than was placebo. There was no significant difference in all-cause mortality (hazard ratio for all canakinumab doses vs. placebo, 0.94; 95% CI, 0.83 to 1.06; P = 0.31). Conclusions: Antiinflammatory therapy targeting the interleukin-1β innate immunity pathway with canakinumab at a dose of 150 mg every 3 months led to a significantly lower rate of recurrent cardiovascular events than placebo, independent of lipid-level lowering. (Funded by Novartis; CANTOS ClinicalTrials.gov number, NCT01327846.

Effects of Anacetrapib in Patients with Atherosclerotic Vascular Disease

BACKGROUND: Patients with atherosclerotic vascular disease remain at high risk for cardiovascular events despite effective statin-based treatment of low-density lipoprotein (LDL) cholesterol levels. The inhibition of cholesteryl ester transfer protein (CETP) by anacetrapib reduces LDL cholesterol levels and increases high-density lipoprotein (HDL) cholesterol levels. However, trials of other CETP inhibitors have shown neutral or adverse effects on cardiovascular outcomes. METHODS: We conducted a randomized, double-blind, placebo-controlled trial involving 30,449 adults with atherosclerotic vascular disease who were receiving intensive atorvastatin therapy and who had a mean LDL cholesterol level of 61 mg per deciliter (1.58 mmol per liter), a mean non-HDL cholesterol level of 92 mg per deciliter (2.38 mmol per liter), and a mean HDL cholesterol level of 40 mg per deciliter (1.03 mmol per liter). The patients were assigned to receive either 100 mg of anacetrapib once daily (15,225 patients) or matching placebo (15,224 patients). The primary outcome was the first major coronary event, a composite of coronary death, myocardial infarction, or coronary revascularization. RESULTS: During the median follow-up period of 4.1 years, the primary outcome occurred in significantly fewer patients in the anacetrapib group than in the placebo group (1640 of 15,225 patients [10.8%] vs. 1803 of 15,224 patients [11.8%]; rate ratio, 0.91; 95% confidence interval, 0.85 to 0.97; P=0.004). The relative difference in risk was similar across multiple prespecified subgroups. At the trial midpoint, the mean level of HDL cholesterol was higher by 43 mg per deciliter (1.12 mmol per liter) in the anacetrapib group than in the placebo group (a relative difference of 104%), and the mean level of non-HDL cholesterol was lower by 17 mg per deciliter (0.44 mmol per liter), a relative difference of -18%. There were no significant between-group differences in the risk of death, cancer, or other serious adverse events. CONCLUSIONS: Among patients with atherosclerotic vascular disease who were receiving intensive statin therapy, the use of anacetrapib resulted in a lower incidence of major coronary events than the use of placebo. (Funded by Merck and others; Current Controlled Trials number, ISRCTN48678192 ; ClinicalTrials.gov number, NCT01252953 ; and EudraCT number, 2010-023467-18 .)

Are Non-professional Investors’ Attitudes toward Earnings Management Consistent with Their Investing Behavior?

Earnings management is a common term in the academic community and is likely understood by managers and professional investors, but how the large community of non-professional investors interprets this term is less clear. We examine non-professional investors’ attitudes toward earnings management and their resulting investing behaviors using a 2 × 2 mixed design. We manipulate investor role (prospective vs current) between participants and the method of earnings management within participants. We believe that different investment goals (prevention vs promotion) between current and prospective investors should lead to different investing behaviors. Consistent with our expectations, we find that current investors are more likely to maintain an equity than prospective investors are to invest in the same opportunity. Further, the consistent link between investors’ attitudes and actual investment behavior is only present for prospective investors. The prevention goal drives the current investors to maintain their investment, while the prospective investors remain more objective and focus on a goal of promotion. Importantly, prior research examining investor attitude toward earnings management has failed to link investors’ attitudes with actual investing decisions; our study attempts to fill this void by examining attitudes toward earnings management as well as subsequent investment behavior