Market Competition, Earnings Management, and Persistence in Accounting Profitability Around the World

We examine how cross-country differences in product, capital, and labor market competition, and earnings management affect mean reversion in accounting return on assets. Using a sample of 48,465 unique firms from 49 countries, we find that accounting returns mean revert faster in countries where there is more product and capital market competition, as predicted by economic theory. Country differences in labor market competition and earnings management are also related to mean reversion in accounting returns—but the relation varies with firm performance. Country labor competition increases mean reversion when unexpected returns are positive, but dampens it when unexpected returns are negative. Accounting returns in countries with higher earnings management mean revert more slowly for profitable firms and more rapidly for loss firms. Thus, earnings management incentives to slow or speed up mean reversion in accounting returns are accentuated in countries where there is a high propensity for earnings management. Overall, these findings suggest that country factors explain mean reversion in accounting returns and are therefore relevant for firm valuation

FIN around the world: the contribution of financing activity to profitability

We study how the availability of domestic credit influences the contribution that financing activities make to a firm’s return on equity (ROE). Using a sample of 51,866 firms from 69 countries, we find that financing activities contribute more to a firm’s ROE in countries with higher domestic credit. The higher contribution of financing activities is not driven by firms taking greater leverage in these countries, but by firms realizing a higher spread (i.e., a greater difference in operating performance and borrowing cost) when more domestic credit is available. Also, we find that firms partially substitute trade credit for financial credit, with large firms exhibiting the greatest rate of substitution. For small firms, the rate of substitution improves with the country’s available domestic credit, while large firms are insensitive to this friction. The findings suggest that both country and firm-level factors have a significant impact on how financing activities contribute to corporate performance

Securities Litigation Risk for Foreign Companies Listed in the U.S.

We study securities litigation risk faced by foreign firms listed on U.S. exchanges. We find that U.S. listed foreign companies experience securities class action lawsuits at about half the rate as do U.S. firms with similar levels of ex ante litigation risk. The lower rate appears to be driven partly by higher transaction costs in uncovering and pursuing litigation against foreign firms. However, once a lawsuit triggering event like an accounting restatement, missing management guidance, or a sharp stock price decline occurs, there is no difference in the litigation rates between a foreign and comparable U.S. firm. This suggests that effective enforcement of securities laws is constrained by transaction costs, and the availability of high quality information that reveals potential misconduct is an important determinant of a well-functioning litigation market for foreign firms listed in the U.S

Causes and consequences of linguistic complexity in non-U.S. firm conference calls

We examine the determinants and capital market consequences of linguistic complexity in conference calls held in English by non-U.S. firms. We find that linguistic complexity is positively associated with the language barrier in the firms’ home country. Also, linguistic complexity in firms’ conference calls affects the extent to which the capital market reacts to the information releases. Firms with more linguistic complexity in their conference calls show less trading volume and price movement following the information releases, after controlling for the actual earnings news. Further, the capital market’s response to linguistic complexity is more pronounced when there is greater implicit (as captured by the presence of foreign investors) or explicit (as captured by how actively analysts ask questions) demand for the English conference calls. This suggests that the form in which financial information is presented can impose additional processing costs by limiting investors’ ability to interpret the reported financials

Accounting for Crises

We provide among the first empirical evidence consistent with recent macro global-game crisis models, which show that the precision of public signals can coordinate crises (e.g., Angeletos and Werning, 2006; Morris and Shin, 2002, 2003). In these models, self-fulfilling crises (independent of poor fundamentals) can occur only when publicly disclosed signals of fundamentals have high precision; poor fundamentals are the sole driver of crises only in low precision settings. We find evidence consistent with this proposition for 68 currency and systemic banking crises in 17 countries from 1983 to 2005. We exploit a key publicly disclosed signal of fundamentals that drives financial markets, namely accounting data, and find that pre-crisis accounting signals of fundamentals are significantly lower only in low precision countries

Admitting Mistakes: Home Country Effect on the Reliability of Restatement Reporting

We study the frequency of restatements by foreign firms listed on U.S. exchanges. We find that the restatement rate of U.S. listed foreign firms is significantly lower than that of comparable U.S. firms and that the difference depends on the firm's home country characteristics. Foreign firms from countries with a weak rule of law are less likely to restate than are firms from strong rule of law countries. While the lower rate of restatements can represent an absence of errors, it can also indicate a lack of detection and disclosure of errors and irregularities. We infer the magnitude of detection and disclosure by associating the frequency of restatements with the quality of the firm's internal reporting system. We find that only U.S. firms and foreign firms from strong rule of law countries show a positive association between restatement frequency and internal control weaknesses. Firms from weak rule of law countries show no significant association. We interpret these findings as home country enforcement affecting firms' likelihood of detecting and reporting existing accounting irregularities. This suggests that for U.S. listed foreign firms, less frequent restatements can be a signal of opportunistic reporting rather than a lack of accounting errors and irregularities

Mott transition in the π\pi-flux SU(44) Hubbard model on a square lattice

We employ the projector quantum Monte Carlo simulations to study the ground-state properties of the square-lattice SU(4) Hubbard model with a $\pi$ flux per plaquette. In the weak coupling regime, its ground state is in the gapless Dirac semi-metal phase. With increasing repulsive interaction, we show that, a Mott transition occurs from the semimetal to the valence bond solid, accompanied by the $Z_4$ discrete symmetry breaking. Our simulations demonstrate the existence of a second-order phase transition, which confirms the Ginzburg-Landau analysis. The phase transition point and the critical exponent $\eta$ are also estimated. To account for the effect of a $\pi$ flux on the ordering in the strong coupling regime, we analytically derive by the perturbation theory the ring-exchange term which describes the leading-order difference between the $\pi$-flux and zero-flux SU(4) Hubbard models.Comment: 8 pages, 9 figure

Survey of the Use of Massage for Children with Cerebral Palsy

Background: Conventional medicine and complementary and alternative medicine (CAM) are merging into the broader field of “integrative medicine.” Massage is no longer considered complementary or alternative in some conventional medical circles today. Purpose: We aimed to determine the prevalence of massage use among children with cerebral palsy (CP) in the Pacific Northwest in the United States, the reasons that massage is being used, and the limits of recruitment for a future randomized controlled trial. Methods: This study, the first step in a three-stage research plan, was conducted at the Neurodevelopmental and Neurology clinics at Seattle Children’s Hospital, a tertiary pediatric hospital that provides service to patients primarily from Washington, Alaska, Montana, and Idaho. As a feasibility study (stage one), it precedes a planned pilot study (stage two), and subsequently, a full-scale randomized controlled trial (stage three) of whether massage can improve the health of children with CP. The study subjects—104 families with a child with CP ranging in age from 17 months to 21 years—were surveyed by the principal investigator and a research assistant in exam rooms at the hospital. Results: In the families surveyed, 80% of the children had received massage at some point. Massage was currently being used in 51%, and trained professionals were providing the massage in 23%. Most families use massage for musculoskeletal relaxation, to improve quality of life, and to help their children sleep. Lower maternal income was associated with relatives as compared with professional massage therapists providing the massage. Massage therapy use by the mother and more severe CP were significantly associated with current use of massage for the child. Conclusions: Most children with CP in the Pacific Northwest have used massage. Most parents surveyed believe that massage is helpful to their child. Additional research is needed to determine whether massage should be routinely recommended for children with CP

The genome of the Hi5 germ cell line from Trichoplusia ni, an agricultural pest and novel model for small RNA biology

We report a draft assembly of the genome of Hi5 cells from the lepidopteran insect pest, Trichoplusia ni, assigning 90.6% of bases to one of 28 chromosomes and predicting 14,037 protein-coding genes. Chemoreception and detoxification gene families reveal T. ni-specific gene expansions that may explain its widespread distribution and rapid adaptation to insecticides. Transcriptome and small RNA data from thorax, ovary, testis, and the germline-derived Hi5 cell line show distinct expression profiles for 295 microRNA- and \u3e 393 piRNA-producing loci, as well as 39 genes encoding small RNA pathway proteins. Nearly all of the W chromosome is devoted to piRNA production, and T. ni siRNAs are not 2 -O-methylated. To enable use of Hi5 cells as a model system, we have established genome editing and single-cell cloning protocols. The T. ni genome provides insights into pest control and allows Hi5 cells to become a new tool for studying small RNAs ex vivo

Managers’ cultural background and disclosure attributes

We examine how a manager’s ethnic cultural background affects managers’ communication with investors. Using a sample of earnings conference calls transcripts with 26,430 executives from 42 countries, we find that managers from ethnic groups that have a more individualistic culture (i) use a more optimistic tone, (ii) exhibit greater self-reference, and (iii) make fewer apologies in their disclosure narratives. Managers’ ethnic culture has a lasting effect on their narratives—the effects persist even for executives who are later exposed to different ethnic cultures through work experience. The effect of ethnic heritage is observed in dialogues that reflect real time interactions (i.e., Q&As) and less pronounced in the scripted, less spontaneous portion of the calls (i.e., management discussion). The capital market responds positively to optimistic tone yet does not distinguish between the optimism in tone of managers from different ethnic backgrounds. The findings suggest that managers’ ethnic backgrounds have a significant effect on how they communicate with the capital markets and how the markets respond to the disclosure event