This paper examines the impact of accounting information events (i.e., earnings announcements and analysts’ earnings forecasts) on the profitability of a pairs trading strategy proposed by Gatev et al. (2006). Using a portfolio of U.S. stock pairs between 1981 and 2006, we find that pairs trades are frequently triggered around accounting information events. More importantly, we find that pairs ...

We examine the tradeoff between having affiliated bankers on board and conservative accounting for mitigating debtholder-shareholder conflicts. We argue that affiliated bankers on board provide lenders with private information and control rights, thereby lowering debtcontracting demand for conservatism in public financial reports. We find that firms with affiliated bankers on board have lower c...

SYNOPSIS We examine how internal control effectiveness influences the audit completeness of earnings announcements and consequences on reliability. One intentions Sarbanes-Oxley Act 2002 (SOX) was for controls to improve financial reporting. Although we show that effective directly reduce announcement revisions as SOX would intend, also find evidence it provides management with confidence relea...

SUMMARY This paper examines whether and how firms’ engagement in related-party transactions (RPTs) is shaped by public communication of audit risks as required the expanded report. Using phased regulatory changes China a difference-in-differences design with firm fixed effects matching, we find that firms significantly reduce their RPTs after adoption reports (EARs). To investigate potential me...

ABSTRACT We present theory and empirical evidence that greater financial reporting quality can incentivize myopic investments. In the model, increases investor response to earnings, elevating manager’s incentive invest myopically improve earnings. Using setting of Big N auditors’ acquisitions non-Big Ns, which increased earnings for acquired client firms, we find supporting Specifically, client...

The widespread use of accounting information by investors and financial analysts to help value stocks creates an incentive for managers to manipulate earnings in an attempt to influence short-term stock price performance. This paper examines the role of earnings management in affecting a firm’s cost of capital. Using an agency model with multiple firms whose cash flows are correlated, we demons...

A principal-agent relationship exists among creditors, shareholders and management, and information asymmetry among them leads to asymmetric loss functions, which induces conservative accounting. This paper investigates the determinants of accounting conservatism using accrual-based measures and data from 2001 to 2006 in China. We find that a higher degree of leverage, lower level of control of...

Recent research has begun to question the importance of forecasts to sell-side analysts. Prior research established the co-existence of longer horizon optimism and short-term pessimism in sell-side forecasts. These factors motivate us to explore a new phenomenon – crowdsourcing, as an alternative source of forecasts. We obtain revenue and earnings forecasts from estimize, an entity which crowds...