Haidan Li

Bio: Haidan Li is an academic researcher from Santa Clara University. The author has contributed to research in topics: Earnings management & Earnings. The author has an hindex of 16, co-authored 19 publications receiving 2324 citations.

Corporate Social Responsibility and Stock Price Crash Risk

Abstract: This study investigates whether corporate social responsibility (CSR) mitigates or contributes to stock price crash risk. Crash risk, defined as the conditional skewness of return distribution, captures asymmetry in risk and is important for investment decisions and risk management. If socially responsible firms commit to a high standard of transparency and engage in less bad news hoarding, they would have lower crash risk. However, if managers engage in CSR to cover up bad news and divert shareholder scrutiny, CSR would be associated with higher crash risk. Our findings support the mitigating effect of CSR on crash risk. We find that firms' CSR performance is negatively associated with future crash risk after controlling for other predictors of crash risk. The result holds after we account for potential endogeneity. Moreover, the mitigating effect of CSR on crash risk is more pronounced when firms have less effective corporate governance or a lower level of institutional ownership. The results are consistent with the notion that firms that actively engage in CSR also refrain from bad news hoarding behavior and thus reducing crash risk. This role of CSR is particularly important when governance mechanisms, such as monitoring by boards or institutional investors, are weak.

Corporate social responsibility and stock price crash risk

Abstract: This study investigates whether corporate social responsibility (CSR) mitigates or contributes to stock price crash risk. Crash risk, defined as the conditional skewness of return distribution, captures asymmetry in risk and is important for investment decisions and risk management. If socially responsible firms commit to a high standard of transparency and engage in less bad news hoarding, they would have lower crash risk. However, if managers engage in CSR to cover up bad news and divert shareholder scrutiny, CSR would be associated with higher crash risk. Our findings support the mitigating effect of CSR on crash risk. We find that firms’ CSR performance is negatively associated with future crash risk after controlling for other predictors of crash risk. The result holds after we account for potential endogeneity. Moreover, the mitigating effect of CSR on crash risk is more pronounced when firms have less effective corporate governance or a lower level of institutional ownership. The results are consistent with the notion that firms that actively engage in CSR also refrain from bad news hoarding behavior, thus reducing crash risk. This role of CSR is particularly important when governance mechanisms, such as monitoring by boards or institutional investors, are weak.

Market Reaction to Events Surrounding the Sarbanes-Oxley Act of 2002 and Earnings Management

Abstract: The Sarbanes-Oxley Act of 2002 (SOX) is the most important legislation affecting corporate financial reporting enacted in the United States since the 1930s. Its purpose is to improve the accuracy and reliability of accounting information reported to investors. We examine stock price reactions to legislative events surrounding SOX, and focus on whether such stock price effects are related cross-sectionally to the extent firms had managed their earnings. Our univariate results indicate significantly positive abnormal stock returns associated with SOX events, and our primary analyses reveal considerable evidence of a positive relation between SOX event stock returns and extent of earnings management. These results are consistent with investors anticipating that SOX would constrain earnings management and enhance the quality of financial statement information more, the more firms had managed their earnings.

Market Reaction to Events Surrounding the Sarbanes‐Oxley Act of 2002 and Earnings Management

Abstract: The Sarbanes‐Oxley Act (SOX) of 2002 is the most important legislation affecting corporate financial reporting enacted in the United States since the 1930s. Its purpose is to improve the accuracy and reliability of accounting information that is reported to investors. We examine stock price reactions to legislative events surrounding SOX and focus on whether such stock price effects are related cross‐sectionally to the extent firms had managed their earnings. Our univariate results suggest that significantly positive abnormal stock returns are associated with SOX events, and our primary analyses reveal considerable evidence of a positive relationship between SOX event stock returns and the extent of earnings management. These results are consistent with investors anticipating that the more extensively firms had managed their earnings, the more SOX would constrain earnings management and enhance the quality of financial statement information.

Market Reaction to Events Surrounding the Sarbanes-Oxley Act of 2002

Abstract: The Sarbanes-Oxley Act seeks to improve the accuracy and reliability of financial reports. However, questions have been raised as to the extent of substantive reform in the Act. We investigate the extent of substantive reform by conducting an event study of the Act to infer its expected impact. In univariate analysis, we find significantly positive stock returns associated with events that resolved uncertainty about the Act’s final provisions or were informative about its enforcement. Results from cross-sectional analysis suggest a positive relation between stock returns and the extent of earnings management and a negative relation between stock returns and the proportion of non-independent audit committee members and the extent of non-audit services performed by external auditors. Overall, the results are consistent with investors expecting the Act to have a net beneficial effect of improving the accuracy and reliability of financial reports by constraining earnings management and enhancing corporate governance.

The Financial Reporting Environment: Review of the Recent Literature

Abstract: The corporate information environment develops endogenously as a consequence of information asymmetries and agency problems between investors, entrepreneurs, and managers. We provide a framework for analyzing the three main decisions that shape the corporate information environment in a capital markets setting: (1) managers’ voluntary reporting and disclosure decisions, (2) reporting and disclosures mandated by regulators, and (3) reporting decisions by third-party intermediaries (analysts). We review current research on disclosure regulation, information intermediaries, and the determinants and economic consequences of corporate disclosure and financial reporting decisions. We conclude that in the last ten years, research has generated a number of useful insights. Despite this progress, we call for researchers to consider interdependencies between the various decisions that shape the corporate information environment and highlight changes in the economic financial environment that raise new and interesting issues for researchers to address.

A Review of Archival Auditing Research

Abstract: We define higher audit quality as greater assurance of high financial reporting quality. Researchers use many proxies for audit quality, with little guidance on choosing among them. We provide a framework for systematically evaluating their unique strengths and weaknesses. Because it is inextricably intertwined with financial reporting quality, audit quality also depends on firms’ innate characteristics and financial reporting systems. Our review of the models commonly used to disentangle these constructs suggests the need for better conceptual guidance. Finally, we urge more research on the role of auditor and client competency in driving audit quality.