Stock Price Synchronicity, Crash Risk, and Institutional Investors
TL;DR: This paper found that stock price synchronicity and crash risk are negatively related to the firm's ownership by dedicated institutional investors, which have strong incentive to monitor due to their large stake holdings and long investment horizons.
About: This article is published in Journal of Corporate Finance.The article was published on 2013-06-01. It has received 415 citations till now. The article focuses on the topics: Institutional investor & Cash flow.
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TL;DR: Wang et al. as mentioned in this paper investigated the effect of retail investor attention on stock price crash risk in China, and found that firms with higher investor attention tend to have a lower future stock prices crash risk.
215 citations
Cites background from "Stock Price Synchronicity, Crash Ri..."
...…economic consequences on the financial market, from the viewpoints of agents’ heterogeneous beliefs (Hong and Stein, 2003), institutional ownership (An and Zhang, 2013; Callen and Fang, 2013), investor preferences (Liu et al., 2016), and short-sale constraints (Yin and Tian, 2017). respectively…...
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...2 The existing literature analyzes the relationship between investor behavior and crash risk as well as the economic consequences on the financial market, from the viewpoints of agents’ heterogeneous beliefs (Hong and Stein, 2003), institutional ownership (An and Zhang, 2013; Callen and Fang, 2013), investor preferences (Liu et al....
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TL;DR: In this article, the authors investigated the impact of a firm's annual report readability and ambiguous tone on its borrowing costs and found that firms with larger file sizes and a higher proportion of uncertain and weak modal words in 10-Ks have stricter loan contract terms and greater future stock price crash risk.
Abstract: This paper investigates the impact of a firm’s annual report readability and ambiguous tone on its borrowing costs. We find that firms with larger 10-K file sizes and a higher proportion of uncertain and weak modal words in 10-Ks have stricter loan contract terms and greater future stock price crash risk. Our results suggest that the readability and tone ambiguity of a firm’s financial disclosures are related to managerial information hoarding. Shareholders of firms with less readable and more ambiguous annual reports not only suffer from less transparent information disclosure but also bear the increased cost of external financing.
199 citations
TL;DR: In this paper, the authors investigate the impact of directors' and officers' insurance and the negative relationship between D&O insurance and crash risk is not driven by the eyeball effect.
160 citations
TL;DR: Li et al. as discussed by the authors investigated whether and how institutional investors' site visits affect corporate innovation, and they found that institutional investor's site visits significantly enhance corporate innovation and this effect is more pronounced for firms with a lower-quality information environment and poor corporate governance.
148 citations
TL;DR: In this article, the authors investigated the impact of a firm's annual report readability and ambiguous tone on its borrowing costs and found that firms with larger file sizes and a higher proportion of uncertain and weak modal words in 10-Ks have stricter loan contract terms and greater future stock price crash risk.
Abstract: This paper investigates the impact of a firm’s annual report readability and ambiguous tone on its borrowing costs. We find that firms with larger 10-K file sizes and a higher proportion of uncertain and weak modal words in 10-Ks have stricter loan contract terms and greater future stock price crash risk. Our results suggest that readability and tone ambiguity of a firm’s financial disclosures are related to managerial information hoarding. Shareholders of firms with less readable and more ambiguous annual reports not only suffer from less transparent information disclosure but also bear the increased cost of external financing.
143 citations
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TL;DR: In this article, the authors explore a model in which the presence of a large minority shareholder provides a partial solution to the free-rider problem in a corporation with many small owners, where the corporation may not pay any one of them to monitor the performance of the management.
Abstract: In a corporation with many small owners, it may not pay any one of them to monitor the performance of the management We explore a model in which the presence of a large minority shareholder provides a partial solution to this free-rider problem The model sheds light on the following questions: Under what circumstances will we observe a tender offer as opposed to a proxy fight or an internal management shake-up? How strong are the forces pushing toward increasing concentration of ownership of a diffusely held firm? Why do corporate and personal investors commonly hold stock in the same firm, despite their disparate tax preferences?
7,929 citations
Posted Content•
TL;DR: In this paper, the authors evaluate alternative models for detecting earnings management by comparing the specification and power of commonly used test statistics across the measures of discretionary accruals generated by each model.
Abstract: This paper evaluates alternative models for detecting earnings management. The paper restricts itself to models that assume the construct being managed is discretionary accruals, since such models are commonly used in the extant accounting literature. Existing models range from simple models in which discretionary accruals are measured as total accruals, to more sophisticated models that separate total accruals into a discretionary and a non-discretionary component. Prior to this paper, there had been no systematic evidence bearing on the relative performance of these alternative models at detecting earnings management. This paper evaluates the relative performance of the competing models by comparing the specification and power of commonly used test statistics across the measures of discretionary accruals generated by each model. The specification of the test statistics is evaluated by examining the frequency with which they generate type I errors for a random sample of firm-years and for samples of firm-years with extreme financial performance. We focus on samples with extreme financial performance because the stimuli investigated in previous research are frequently correlated with financial performance. The first sample of firms are targeted by the Securities and Exchange Commission for allegedly overstating annual earnings and the second sample is created by artificially introducing earnings management into a random sample of firms.
6,217 citations
Journal Article•
TL;DR: In this paper, the authors evaluate alternative accrual-based models for detecting earnings management and find that they appear well specified when applied to a random sample of firm-years.
Abstract: This paper evaluates alternative accrual-based models for detecting earnings management. The evaluation compares the specification and power of commonly used test statistics across the measures of discretionary accruals generated by the models and provides the following major insights. First, all of the models appear well specified when applied to a random sample of firm-years. Second, the models all generate tests of low power for earnings management of economically plausible magnitudes (e.g., one to five percent of total assets). Third, all models reject the null hypothesis of no earnings management at rates exceeding the specified test-levels when applied to samples of firms with extreme financial performance. This result highlights the importance of controlling for financial performance when investigating earnings management stimuli that are correlated with financial performance. Finally, a modified version of the model developed by Jones (1991) exhibits the most power in detecting earnings management.
4,088 citations
TL;DR: This paper found that stock prices move together more in poor economies than in rich economies, and this "nding is not due to market size and is only partially explained by higher fundamentals".
2,122 citations
Posted Content•
TL;DR: The authors examines whether institutional investors create or reduce incentives for corporate managers to reduce investment in research and development (RD otherwise, institutional ownership serves to reduce pressures on managers for myopic investment behavior).
Abstract: This paper examines whether institutional investors create or reduce incentives for corporate managers to reduce investment in research and development (RD otherwise, institutional ownership serves to reduce pressures on managers for myopic investment behavior.
1,805 citations