86 research outputs found
Fair Value Accounting: Information or Confusion for Financial Markets?
The recent financial crisis has led to a critical evaluation of the role that fair value accounting may have played in undermining the stability of the financial system. Reacting to the pressures of banking regulators and governments, standard-setters have brought forward additional guidance on the application of fair value accounting. This paper examines if and how fair value reporting by U.S. commercial banks during the 1996-2009 period influences the quality of information used by financial analysts. Our results show that, overall, the greater the extent of a bankâs assets and liabilities reported at fair value, the more dispersed are analystsâ earnings forecasts. Moreover, as the proportion of assets measured at fair value increases, properties of analystsâ forecasts become less desirable, showing a decrease in the precision of public or private information. The informational properties of fair value disclosure decrease as we move from level 2 to mark-to-model data (level 3). Nevertheless, additional analyses suggest that the disclosure of levels has been beneficial to investors as it enhanced private information precision resulting in more accurate and less dispersed analystsâ forecasts. Finally, the disclosure about the valuation of assets that are measured at fair value on a non-recurring basis reduces accuracy and public information precision while enhancing dispersion. La rĂ©cente crise financiĂšre a amenĂ© une rĂ©Ă©valuation du rĂŽle que lâutilisation de la comptabilitĂ© Ă la juste valeur peut avoir sur la stabilitĂ© du systĂšme bancaire. Suite Ă lâintervention des organismes de rĂ©glementation des banques et de certains gouvernements, les normalisateurs comptables ont Ă©laborĂ© davantage les paramĂštres de mise en Ćuvre de la comptabilitĂ© Ă la juste valeur. Cette recherche examine si et comment lâutilisation de la comptabilitĂ© Ă la juste valeur par les banques amĂ©ricaines entre 1996 et 2009 a influencĂ© la qualitĂ© de lâinformation accessible aux analystes financiers pour la prĂ©paration de leurs prĂ©visions. Nos rĂ©sultats montrent, quâen gĂ©nĂ©ral, plus grande est la proportion de lâactif et du passif dâune banque qui repose sur la comptabilitĂ© Ă la juste valeur, plus grande est la dispersion des prĂ©visions de bĂ©nĂ©fices effectuĂ©es par les analystes. En outre, une augmentation de la proportion de lâactif mesurĂ© Ă la juste valeur est associĂ©e avec un environnement informationnel moins favorable pour les analystes (diminution dans la prĂ©cision de lâinformation privĂ©e et de lâinformation publique). Cet effet est accentuĂ© pour lâactif ou le passif mesurĂ© de niveau 3 (mesure selon modĂšle). Cependant, la dĂ©cision rĂ©cente de divulguer les niveaux dâĂ©valuation Ă la juste valeur (niveaux 1, 2 et 3) a amĂ©liorĂ© la prĂ©cision et le consensus des prĂ©visions de bĂ©nĂ©fice des analystes. Finalement, la divulgation de lâĂ©valuation dâactifs qui sont mesurĂ©s Ă la juste valeur mais sur une base ponctuelle et non-rĂ©currente semble rĂ©duire la prĂ©cision des prĂ©visions de bĂ©nĂ©fice.Fair value accounting, governance, risk management, earnings forecasts analysts, valuation of assets disclosure, ComptabilitĂ© Ă la juste valeur, gouvernance, prĂ©visions de bĂ©nĂ©fices des analystes, divulgation de lâĂ©valuation dâactifs
Investors' expectations around quantitative easing: does liquidity injection affect European banks equally?
AbstractThe role of liquidity in the banking industry is increasingly under the spotlight since the Global Financial Crisis (GFC) in 2007. Prior evidence offers contrasting findings on the role played by liquidity in banks: whilst it ensures systemic financial stability, at the same time it raises agency costs. Notwithstanding this, European banks benefited from a generous liquidity injection following the launch of the Quantitative Easing (QE) programme by the European Central Bank (ECB) in 2015â2016. We leverage on the release of the QE and investigate whether investors' reactions to the announcements of new liquidity injections vary according to bank-level characteristics of the European banks: namely, their financial soundness, asset portfolio quality and the level of transparency. Our findings document an overall negative market reaction to the QE announcements; at a more fine-grained level of analysis we highlight that banks falling short of the regulatory requirements are not expected to benefit from additional liquidity. This study contributes to the literature on the role of liquidity in banks by showing important boundary conditions to the beneficial role of liquidity in banks, that isâbecause of the regulatory capital requirementsâliquidity is only valuable to investors if it can be reinvested once constraints are overcome
Are All Independent Directors Created Equal? Do Their Professional Backgrounds Influence Firmsâ Financial Disclosures? Evidence From Biotechnology Firms
The empirical evidence on the association between board structure and firmsâ voluntary disclosures is mixed and controversial. We extend the literature by arguing that independent directors do not represent a homogeneous group of people, as previously considered. We hypothesize that the professional backgrounds of independent directors shape their assessments of costs and benefits related to disclosure of information that potentially reduces agency costs but also lessens firmsâ competitive advantages. Using hand-collected data from a sample of biotechnology firms, we find results consistent with this idea. Particularly, firms whose independent directors provide links to the wider social community, but lack functional or business experience, more frequently disclose proprietary information. We find opposite results for the firms whose independent directors possess significant functional expertise. We conclude that all independent directors are not equal in their influence on firmsâ disclosure policies. Our study has several policy implications
When LIBOR becomes LIEBOR : reputational penalties and bank contagion
We study whether commonality of incentives and opportunity to commit fraud trigger reputational contagion from culpable firms to nonculpable firms. Relying on a sample of 30 banks involved in fixing the London Interbank Offered Rate (LIBOR) and a control sample of 30 banks, we find that banks' reputations suffered substantial damage upon the announcement of their involvement in the scandal. We also document reputational contagion spread from banks that manipulated LIBOR to banks that shared the same incentives and opportunity to commit the fraud. The reputational contagion is more pronounced for large derivatives dealers who have had the strongest incentive to commit the fraud
ceo risk incentives and real earnings management
Previous research shows that companies use option compensation to motivate managers to accept risk (Jensen & Meckling, 1976). Indeed, risk adverse CEOs are likely to accept less risk than that accepted by diversified shareholders (Fama & French, 1992). Nonetheless, not all risks produce the expected benefits and risk has an intrinsic cost, such as potential large losses, that cannot be eliminated. Therefore, given CEO risk incentives, real earnings management can be viewed as a mechanism used to avoid the undesirable consequences of risk on reported earnings. However, engaging in real earnings management requires cutting investments, such as R&D, that have a well-documented association with firm's future risk profile (Comin & Philippon, 2005). As a consequence, the use of real earnings management by CEOs with high-risk incentives as a tool for mitigating the intrinsic costs of risk is an empirical question that we tackle in this paper. Using a sample of quarterly observations from US firms over the period 2003-2010, and an instrumental variable approach to overcome endogeneity concerns, we show that CEOs with high risk-related incentives engage less in real activity manipulations that encompass cutting discretionary expenditures than do executives with low incentives. These findings are consistent with the idea that CEOs incentivized on risk avoid engaging in real management activities that can decrease firm's future risk profile.</p
The impact of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 Repo âSafe harborâ provisions on investors
The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 significantly expanded the exemptions from the normal workings of the U.S. Bankruptcy Code. Using a large sample of U.S. banks, we study investorsâ reaction to news about the promulgation of the BAPCPA repo âsafe harborâ provisions and the influence extending such exemptions to repos collateralized by riskier collateral had on equity market information asymmetry. We find a negative market reaction to news events about the promulgation of BAPCPA, which subsequent cross-sectional analysis suggests is at least partly driven by repo exposure. This finding suggests that investors perceived the increase in finance risk from the extension of the âsafe harborâ provisions as dominating the perceived gain from accessing cheaper finance. Further, we find that the promulgation of BAPCPA gave rise to increased information asymmetry for banks with repo exposure
Does branch religiosity influence bank risk taking?
Using branch-level data on public and private US banking institutions, we investigate the importance of branch religiosity in shaping bank risk-taking behavior. Our results show robust evidence that branch religiosity is negatively related to bank risk-taking. This effect persists after controlling for several bank-level and county-level variables that might correlate with religiosity. Moreover, this result is robust to controlling for headquarter religiosity, suggesting that the effect of branch religiosity is additive and not washed out by headquarter religiosity. Overall, our findings document that headquarter religiosity does not capture the full effect of religiosity on bank behavior, as claimed by previous research, but that the religiosity of the geographic area in which the bank operates significantly influences bank behavior
Does social capital constrain firmsâ tax avoidance?
Purpose This paper aims to investigate whether the level of social capital of the region in which a firm is headquartered affects its tax avoidance activities. Social capital can be defined as the mutual trust in society and literature shows that firms headquartered in high social capital regions exhibit higher level of corporate social responsibility. Recent research suggests that some stakeholders consider tax avoidance as a socially irresponsible and illegitimate activity, whereas others deem corporate tax payments as detrimental to social welfare because they hurt economic development. Building on this debate, the relationship between social capital and tax avoidance is empirically investigated. Design/methodology/approach A sample of 52,962 firm-year observations over the period 1990-2014 was used to empirically investigate the relationship between social capital and tax avoidance. Findings Consistent with the idea that managers consider corporate tax payments as a socially responsible action, evidence was found that firms headquartered in areas with high social capital engage significantly less in tax avoidance activities. It was also documented that the negative impact of social capital on tax avoidance is stronger in the presence of high religiosity, high corporate performance and lower sensitivity of CEOâs compensation to stock volatility. Originality/value This paper extends research on social capital and improves the understanding of the effect of the social environment on managerial decision. Importantly, by studying the relationship between social capital and tax avoidance, the authors add to the recent debate on companiesâ perception of the desirability of tax avoidance activities from a social viewpoint
Governo della complessit\ue0 ed informazioni: l'utilizzo delle informazioni contabili a fini gestionali
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