Corporate disclosure is critical for the functioning of an efficient capital market. Firms provide disclosure through regulated financial reports, including the financial statements, footnotes, management discussion and analysis, and other regulatory filings. In addition, some firms engage in voluntary communication, such as management forecasts, analysts? presentations and conference calls, press releases, internet sites, and other corporate reports. Finally, there are disclosures about firms by information intermediaries, such as financial analysts, industry experts, and the financial press.

Information Asymmetry, Corporate Disclosure and the Capital Markets: A Review of the Empirical Disclosure Literature

http://lib.cufe.edu.cn/upload_files/other/4_20140516025625_19.pdf

Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature $

https://faculty.fuqua.duke.edu/~charvey/Research/Working_Papers/W73_The_economic_implications.pdf

The economic implications of corporate financial reporting

. This study investigates firms subject to accounting enforcement actions by the Securities and Exchange Commission for alleged violations of Generally Accepted Accounting Principles. We investigate: (i) the extent to which the alleged earnings manipulations can be explained by extant earnings management hypotheses; (ii) the relation between earnings manipulations and weaknesses in firms' internal governance structures; and (iii) the capital market consequences experienced by firms when the alleged earnings manipulations are made public. We find that an important motivation for earnings manipulation is the desire to attract external financing at low cost. We show that this motivation remains significant after controlling for contracting motives proposed in the academic literature. We also find that firms manipulating earnings are: (i) more likely to have boards of directors dominated by management; (ii) more likely to have a Chief Executive Officer who simultaneously serves as Chairman of the Board; (iii) more likely to have a Chief Executive Officer who is also the firm's founder, (iv) less likely to have an audit committee; and (v) less likely to have an outside blockholder. Finally, we document that firms manipulating earnings experience significant increases in their costs of capital when the manipulations are made public.

Resume. Les auteurs analysent les entreprises assujetties aux mesures d'execution prises par la Securities and Exchange Commission dans les cas de presomption de transgression des principes comptables generalement reconnus. Ils s'interessent aux aspects suivants de la question: i) la mesure dans laquelle les presomptions de manipulations des benefices peuvent etre expliquees par les hypotheses existantes de gestion des benefices; ii) la relation entre les manipulations de benefices et les faiblesses des structures de regie interne des entreprises; et iii) la reaction du marche financier a l'endroit des entreprises au sujet desquelles les presomptions de manipulation des benefices sont rendues publiques. Les auteurs constatent qu'un incitatif majeur a la manipulation des benefices est le desir d'obtenir du financement externe a moindre cout. Ils demontrent que cet incitatif demeure important meme apres le controle des motifs contractuels que mettent de l'avant les travaux theoriques. Ils constatent egalement que les entreprises qui manipulent les benefices sont: i) davantage susceptibles d'avoir des conseils d'administration domines par la direction; ii) davantage susceptibles d'avoir un chef de la direction qui joue simultanement le role de president du conseil; iii) davantage susceptibles d'avoir un chef de la direction qui est egalement le fondateur de l'entreprise; iv) moins susceptibles d'avoir un comite de verification; et v) moins susceptibles d'avoir un bloc de titres detenus par un actionnaire exterieur. Enfin, les auteurs etablissent le fait que le cout du capital, pour les entreprises qui manipulent les benefices, enregistre des hausses appreciables lorsque ces manipulations sont rendues publiques.

/pdf/causes-and-consequences-of-earnings-manipulation-an-analysis-356ezw8q95.pdf

Causes and Consequences of Earnings Manipulation: An Analysis of Firms Subject to Enforcement Actions by the SEC*

Earnings management and investor protection: an international comparison

We examine cross-country differences in the valuation and time series characteristics of earnings to assess whether there have been systematic changes over time. Our results suggest that earnings multiples have become more similar, although systematic differences remain. Potential economic determinants (e.g., growth rates, interest rates, and returns) do not exhibit similar convergence and do not appear to explain the changes. The convergence is robust to controls for cash flow multiples and is apparent in the valuation of accruals. Accrual/cash flow correlations have also become more similar and generally less negative, suggesting a reduction in earnings smoothing. Overall, our evidence suggests convergence in accounting practice.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID233602_code000620309.pdf?abstractid=233602&mirid=1

Empirical Evidence on the Evolution of International Earnings

This paper provides evidence on the association between quarterly changes in institutional holdings and firm performance. Specifically, this study examines the association between institutional trades and firm performance, to better understand institutional behavior and its potential effect on share prices and corporate management. Our analysis contributes to the literature in three ways. Most importantly, we examine the relation between changes in institutional holdings and earnings, whereas previous research has focused on returns. The link between earnings and changes in institutional holdings is important because an association between institutional trade and returns does not necessarily provide an incentive to manage earnings. Prior research suggests, for example, that the market ?sees through?; the expensing of research and development and does not penalize market price for the reduction in earnings. Our results suggest earnings are significant in explaining changes in institutional holdings, and that earnings are incrementally significant after controlling for returns. We also provide evidence of a positive association between changes in institutional holdings and lagged values of returns and earnings after controlling for the concurrent relations, suggesting that the relation between changes in holdings and performance is not limited to current performance. These findings suggest that institutional trade is responsive to earnings, and that such trade may provide management with additional incentives to focus on earnings results. Second, we consider the trading behavior of a different and broader set of institutional investors, which includes banks, colleges and universities, insurance companies, investment advisors, private foundations and private and public pensions. Jacobs [1992], O'Barr and Conley [1992] and Black [1992], among others, suggest that the trading behavior of pension funds differs from other institutions because of the relatively longer-term horizon of the pension beneficiaries. Differences in trading patterns between pensions and other institutions may also stem from tax incentives for trading on returns performance which is limited for pension funds relative to those for other types of institutions. Our findings indicate that the relation between trading and returns for institutions as a whole is positive, stronger and more pervasive than that documented by Lakonishok, Shleifer, Thaler and Vishny (1991) and Lakonishok, Shleifer and Vishny (1992) for their sample of externally-managed pension funds. Third, we provide evidence of differences in trading behavior across the major categories of institutions (banks, colleges and universities, insurance companies, investment advisers, investment companies, private foundations, and private and public pensions). In addition to examining each class of institutions individually, we classify institutions into two primary groups: (1) those which we argue have potentially stronger incentives to trade on performance (banks, insurance companies, investment advisers and investment companies) and (2) those with potentially weaker incentives (colleges and universities, private foundation and private and public pension funds). Our results suggest that there are important differences in trading behavior across types of institutions. There is a significant positive relation between returns and changes in holdings for institutions with potentially stronger incentives to trade on performance and a significant negative relation for institutions with weaker incentives. The correlation between changes in holdings and earnings, on the other hand, is generally positive for both groups of institutions.

Institutional Trading and Corporate Earnings and Returns

Criteria for assessing the quality of an accounting standard

Response to the FASB invitation to comment, "recommendations of the AICPA special committee on financial reporting and the association for investment management and research"

This study addresses whether voluntary IFRS adoption is associated with increased comparability of accounting amounts and capital market benefits. We find that after firms voluntarily adop...

Mark H. Lang

Papers

Empirical Evidence on the Evolution of International Earnings

Institutional Trading and Corporate Earnings and Returns

Criteria for assessing the quality of an accounting standard

Response to the FASB invitation to comment, "recommendations of the AICPA special committee on financial reporting and the association for investment management and research"

Effects on Comparability and Capital Market Benefits of Voluntary IFRS Adoption