State ownership and abnormal accruals in highly-valued firms: Evidence from China -- Political influence in hedge fund activism: Causal evidence from U.S. gubernatorial election -- Relative-to-rival corporate philanthropy, product market competitiveness, and stakeholders -- Independent directors’ legal expertise, bank risk-taking and performance -- Does environmental information disclosure mitigate corporate risk? Evidence from China -- Macro disagreement and analyst forecast properties -- The cost-of-equity implications of off-balance sheet pension liabilities -- Joint effect of CEO overconfidence and corporate social responsibility discretion on cost of equity capital -- Managerial ability and accounting conservatism -- Short selling and future cash flow predictability of capital investment: Evidence from Australia.

[Article Title: State ownership and abnormal accruals in highly-valued firms: Evidence from China / Leye Li, Gary S. Monroe, and Jenny Jing Wang ]

Abstract: We examine how state ownership affects Chinese firms’ abnormal accruals during a period of high valuation. We find the magnitude of abnormal accruals first increases for up to three years of high valuation, and then reduces after the fourth year. We also find that managers turn to using abnormal real transactions after four consecutive years of high valuation. Next, we examine whether the degree of abnormal accruals in highly-valued firms differs between state-owned enterprises (SOEs) and non-NSOEs. Supporting the view that SOE managers have less incentive to sustain high stock prices, we find evidence that highly-valued SOEs have significantly lower levels of abnormal accruals than highly-valued NSOEs during the period of high valuation. Our findings contribute to the literature on the cross-sectional variation in the relation between managers’ pressure to sustain high stock prices and their accounting choices in firms with different ownership structures.

Link: https://doi.org/10.1016/j.jcae.2020.100223

[Article Title: Political influence in hedge fund activism: Causal evidence from U.S. gubernatorial election / Ran An and Lawrence (Hong) Huang]

Abstract: This study examines the causal impacts of political influence on hedge fund activism in an exogenous setting of U.S. gubernatorial election. Local incumbent politicians have incentives to protect local inefficient firms from being targeted by activists because activism could lead to divestment and local worker layoffs. And such incentives can become weaker in election years because political competition increases the incumbent politician’s accountability to broader groups of stakeholders. Consistent with this prediction, the likelihood of local firms being targeted by activists is shown to be significantly higher during election years. Moreover, the firm’s political connections mitigate the effects of election, suggesting that politicians still maintain protection to connected firms.

Link: https://doi.org/10.1016/j.jcae.2020.100236

[Article Title: Relative-to-rival corporate philanthropy, product market competitiveness, and stakeholders / Jun Hu and three others]

Abstract: Unlike most of the literature that examines the relationship between corporate philanthropy and financial performance, this study investigates the mechanisms through which corporate socially responsible behaviors produce financial outcomes. We propose that corporate philanthropy improves corporate competitiveness by eliciting positive responses from stakeholders, who assess a firm’s philanthropic contribution in relation to its rivals to determine what level of support they wish to provide to the firm.

Link: https://doi.org/10.1016/j.jcae.2020.100237

[Article Title: Independent directors’ legal expertise, bank risk-taking and performance / Guoping Liu and Jerry Sun]

Abstract: This study examines whether independent directors’ legal expertise affects bank risk-taking and performance. Using a sample of U.S. banks, we document that the proportion of legal experts among independent directors is negatively related to total risk and systematic risk, suggesting that legal experts are more effective in constraining bank risk-taking activities than other independent directors. In addition, this effect of legal expertise is more pronounced for banks with high CEO risk-taking incentives. We also find that independent directors’ legal expertise is negatively associated with Tobin’s q, in contrast to the notion that legal expertise can enhance bank performance.

Link: https://doi.org/10.1016/j.jcae.2020.100240

[Article Title: Does environmental information disclosure mitigate corporate risk? Evidence from China
Author links open overlay panel / Yingying Chang, Xingqiang Du and Quan Zeng]

Abstract: This study is an examination of effects of environmental information disclosure on corporate risk. A study of Chinese listed firms operating from 2009 to 2015 shows that environmental information disclosure reduces firm-investor information asymmetry, decreases uncertainties about assets pricing, and thus significantly decreases corporate risk.

Link: https://doi.org/10.1016/j.jcae.2020.100239

[Article Title: Macro disagreement and analyst forecast properties / Rajesh Kumar Sinha]

Abstract: In this study, I examine whether macro disagreement, a higher-order uncertainty, affects the accuracy and informativeness of analysts’ earnings forecasts. Using macroeconomic dispersion measures from the Survey of Professional Forecasters database as a proxy for macro disagreement, I find that macro disagreement reduces forecast accuracy. I further explore this association for firms that are high in cyclicality and for analysts who enjoy more brokerage resources.

Link: https://doi.org/10.1016/j.jcae.2020.100235

[Article Title: The cost-of-equity implications of off-balance sheet pension liabilities / Su-Jane Hsieh and Shuming Liu]

Abstract: We use ex ante measures of cost of equity to examine: 1) whether the market assimilates off-balance sheet pension liabilities in assessing cost of equity, 2) whether off-balance sheet pension liabilities explain cost of equity in a similar manner as those reported on the balance sheet, and 3) the incremental explanatory power of Statement of Financial Accounting Standards (SFAS) 158 (FASB 2006) on cost of equity.

https://doi.org/10.1016/j.jcae.2020.100238

[Article Title: Joint effect of CEO overconfidence and corporate social responsibility discretion on cost of equity capital / Chih-Yang Tseng and Sebahattin Demirkan]

Abstract: The study investigates the joint impact of chief executive officer (CEO) overconfidence and corporate social responsibility (CSR) discretion on firms’ cost of equity capital (CoE). Overconfidence can cause CEOs to underestimate risks and to shift resources from CSR to risky projects. Such a concern could be relieved if investors were to observe the CSR efforts made by overconfident CEOs. This conjecture is empirically supported by the negative CoE effect jointly by CSR scores and CEO overconfidence. The joint effect is distinctive from the negative CoE effect introduced by CSR alone. Further evidence reveals that, for the firms operated by CEOs with greater overconfidence, investors charge lower CoE if CSR activities involve less managerial discretions.

Link: https://doi.org/10.1016/j.jcae.2020.100241

[Article Title: Managerial ability and accounting conservatism / Imran Haider, Harjinder Singh and Nigar Sultana]

Abstract: Since accounting conservatism is a measure of biased reporting which may or may not reflect high quality earnings, the relation between managerial ability and accounting conservatism is unclear ex ante. High-ability managers may report conservatively to improve the efficiency of contracts, avoid agency conflicts by the timely reporting of future losses, and build reputations for conservative reporting. Conversely, they may not report conservatively to the extent that conservatism reflects biased, and consequently, low-quality earnings.

Link: https://doi.org/10.1016/j.jcae.2020.100242

[Article Title: Short selling and future cash flow predictability of capital investment: Evidence from Australia / Haiyan Jiang and Jing Jia]

Abstract: This study investigates whether short selling, as a market mechanism, has a disciplining function for firms’ investment efficiency, measured through the association between capital investment and future cash flows. Using a sample of large Australian listed firms, we find that short-selling activities improve the positive relationship between capital investment and future cash flow and that this effect is mainly driven by firms with a risk management committee (RMC). Additional analyses show that the disciplining function of short selling for firms’ investment efficiency varies with (i) the level of firms’ financial constraints, (ii) firms’ life cycle or (iii) CEO share incentives. The main results are robust to a batch of endogeneity tests to address the potential self-selection bias and the concern about reverse causality.

Link: https://doi.org/10.1016/j.jcae.2020.100224