Auditor Change Disclosures as Signals of Earnings Management and Risk

Auditor resignations are considered more negative signals than auditor dismissals, but firms’ self-reported distinction between the two may not offer a complete or reliable representation of the nature of the auditor change. 8-K regulations require the disclosure of the adjournment of an audit engagement even if a successor auditor has not yet been named. In compliance with this requirement, some firms file two 8-k’s related to the same auditor change. Exploiting these dual 8-K filings, we create a new measure of the nature of auditor changes and show that 1) both self-reported auditor resignations and dual 8-K filings are related to measures of earnings management and risk; and 2) auditor changes identified as both self-reported resignations and dual 8-K filings are associated with the most negative economic implications (as reflected by the likelihood of financial statement manipulation and bankruptcy risk). We suggest that dual 8-K filings and self-reported resignations are complementary negative signals each capturing unique dimensions of the underlying economic factors

Where do firms manage earnings?

Despite decades of research on how, why, and when companies manage earnings, there is a paucity of evidence about the geographic location of earnings management within multinational firms. In this study, we examine where companies manage earnings using a sample of 2,067 U.S. multinational firms from 1994 to 2009. We predict and find that firms with extensive foreign operations in weak rule of law countries have more foreign earnings management than companies with subsidiaries in locations where the rule of law is strong. We also find some evidence that profitable firms with extensive tax haven subsidiaries manage earnings more than other firms and that the earnings management is concentrated in foreign income. Apart from these results, we find that most earnings management takes place in domestic income, not foreign income.Arthur Andersen (Firm) (Arthur Andersen Faculty Fund

Corporate boards and performance pricing in private debt contracts

This paper investigates the effects of corporate governance on the use of performance pricing in debt contracts on a sample of newly syndicated loans in the U.S. private debt market. While cross-sectional results provide no evidence for the predicted relation between corporate governance quality and the likelihood of using performance pricing in debt contracts, there is evidence for the predicted positive relation between corporate governance quality and the use of interest-increasing performance pricing provisions. Evidence also provides support for the predicted negative relation between corporate governance quality and the use of financial ratio as the measure of performance underlying the provisions. Overall, empirical evidence supports the hypothesis that debt-holders perceive aspects of corporate governance to be beneficial and factor them in their contracting decisions

Gerschenkron revisited: The new corporate Russia

© 2015, Journal of Economic Issues / Association for Evolutionary Economics. Our analysis is based on firm-specific data compiled from the Russian Trading System stock exchange and SKRIN (CKP-H in Russian) database. We seek to identify the factors behind Russias dramatically improved corporate sector performance from the beginning of the 2000s to December 2007. We argue that improved long-term corporate performance was a consequence of several policy initiatives associated with the state-dominated banking sector, which enabled statesubsidized investment funds to be channeled from a structurally reengineered energy sector to targeted investment projects located in other industries. We claim that Russias industrial strategy closely conforms to Alexander Gerschenkrons catch-up theory

Director Characteristics and Firm Performance

The traditional methodology examining optimal boards relates a simple board variable (e.g. independence or board demography) to firm performance, however, ig- noring other board characteristics. This paper investigates how the education and business experience of directors affect firm performance. The sample consists of 1,574 directorships from 224 listed firms in Switzerland. Using OLS and including control variables, the results show that graduates of minor Swiss universities are negatively related to Tobin’s Q, and industrial knowledge and Tobin’s Q are nega- tively correlated if the firm has more divisions. In addition, director fixed effects (or unobserved characteristics) are significant, but improve the explanatory power of the models only by 5 percent