Search

SYNOPSIS Conservative analysts react more to negative news than positive news, and the market response is greater for forecast revisions from conservative analysts (Hugon and Muslu 2010; Keskek and Tse 2018). Little is known about how firms and managers respond to a lower benchmark resulting from having a more conservative analyst following. We examine the effect of analyst conservatism on firms just meeting or beating the benchmark via accrual-based earnings management. We find that firms with a more conservative analyst following have lower earnings benchmarks and are more likely to just meet or beat the consensus. Additionally, these firms meet the lower benchmark with lower levels of earnings management, with this effect being strongest in poor information environments. Collectively, our results suggest that management’s benchmark meeting behavior is impacted by the conservatism of the firm’s analyst following. JEL Classifications: G14; G24; M40; M41.

Prior studies provide extensive evidence that unionized firms tend to have more negative disclosure than non-unionized firms do. These studies interpret this behavior as managers of unionized firms manipulating disclosure to gain an advantage in collective bargaining but do not directly test this assumption. An alternative explanation is that unionized firms disclose truthfully on their union-deflated prospects. Using measures that are specifically designed to capture deceptive behaviors, we find that (1) managers of unionized firms tend to script their answers in conference calls to a greater extent when union-related proprietary costs are higher, (2) unionized firm managers actively cast earnings calls with unfavorable analysts before labor negotiations, (3) when union-related proprietary costs are higher, a larger share of managers’ negative language occurs in sentences with linguistic cues of deception, (4) when the firms have weak unions and operate in states with Right-to-Work laws, managers tend to be “truth-tellers,” and (5) managers of unionized firms use scripting and deceptively negative language, but not casting, more often than managers of non-unionized firms. Our findings provide confirmatory evidence that unionized firms manipulate disclosure to mitigate union-related proprietary costs. However, we also find that there are subsets of unionized firms that disclose truthfully.

This study examines how investors respond to firms’ disclosure practices that deviate from the majority of industry peers (i.e., industry norms). The SEC has made repeated calls for the disclosure of foreign cash in order for investors to have more information in determining firms’ liquidity positions. We examine the association between firm value and the non-disclosure of foreign cash in industries where the majority of firms choose to disclose foreign cash. We define partial disclosure as disclosing permanently reinvested earnings (PRE), but withholding the disclosure of foreign cash, and find that when the majority of industry peers disclose foreign cash, investors discount the firm-specific partial disclosure of foreign operations. This finding suggests that investors have similar information demands as the SEC, and that withholding foreign cash results in a valuation discount. We also find that this discount is more pronounced for firms predicted to have higher levels of foreign cash and higher levels of PRE. The discount in firm value is also concentrated among firms with managers who have more career concerns, suggesting that managers shift the cost of partial disclosure to shareholders instead of bearing the personal reputational cost of full disclosure. Our results are robust to multiple matched samples and entropy balancing. While previous literature has considered the valuation implications of foreign cash disclosures, we reveal the consequences of opting to withhold the disclosure of foreign cash. Our findings should be of interest to both managers and policy-setters in forming their disclosure protocols.

This study investigates how religiosity (i.e., the strength of religion) differences across countries influence an important characteristic of financial reporting, accounting conservatism. Prior literature suggests that religious individuals are more risk averse and have higher ethical standards, while accounting conservatism has been shown to reduce various risks to the firm (e.g., bankruptcy and stock price crashes) at the expense of higher reported earnings. We find that managers in more religious societies report more conservatively. Specifically, our cross-country analysis reveals that firms headquartered in countries with higher levels of religiosity exhibit, on average, higher accounting conservatism in financial reporting. This positive association is stronger in countries following IFRS or U.S. GAAP, and weaker in countries with a high degree of uncertainty avoidance, strong legal enforcement, and countries with greater numbers of religions. JEL Classifications: G34; M41; Z12. Data Availability: Data are available from the public sources cited in the text.

This study examines the incentives and consequences of inconsistent corporate disclosures about foreign operations. We provide evidence that firms with a foreign subsidiary in a tax haven country are more likely to either disclose foreign cash and withhold the disclosure of permanently reinvested earnings, or vice versa. In other words, there is a positive association between tax haven investments and the likelihood of inconsistent financial reporting disclosures. Equity market participants consider these inconsistent foreign disclosure choices when determining the value of corporate tax avoidance. We find that the inconsistent financial disclosures about foreign operations attenuate the positive association between tax avoidance and firm value. These results should be of interest to the Securities and Exchange Commission as it continues to monitor the transparency of firms’ foreign operations disclosures.