Is Real Earnings Smoothing Harmful Evidence From Firm Specific Stock Price Crash Risk

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Is Real Earnings Smoothing Harmful? Evidence from Firm-Specific Stock Price Crash Risk

Author : Inder K. Khurana
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Is Real Earnings Smoothing Harmful? Evidence from Firm-Specific Stock Price Crash Risk by : Inder K. Khurana

Download or read book Is Real Earnings Smoothing Harmful? Evidence from Firm-Specific Stock Price Crash Risk written by Inder K. Khurana and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines whether and when real earnings smoothing influences firm-specific stock price crash risk. Using a sample of U.S. public firms for the years 1993 through 2014, we find real earnings smoothing to be positively associated with firm-specific stock price crash risk. This finding is consistent with the view that real earnings smoothing helps managers withhold bad news, keep poor-performing projects, conceal resource diversion, and engage in ineffective risk management, which increases crash risk. Further, we find a stronger relation between crash risk and real earnings smoothing when firm uncertainty is higher, product market competition is lower, and balance sheet constraint is higher. Overall, our study suggests that real earnings smoothing destroys shareholder value in that it increases stock price crash risk.

Firms' Real Earnings Management and Subsequent Stock Price Crash Risk

Author : Lingxiang Li
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (137 download)

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Book Synopsis Firms' Real Earnings Management and Subsequent Stock Price Crash Risk by : Lingxiang Li

Download or read book Firms' Real Earnings Management and Subsequent Stock Price Crash Risk written by Lingxiang Li and published by . This book was released on 2011 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using a large sample of U.S. firms for the period from 1994 to 2009, we find that firms' prior real earnings management (RM) is positively associated with their stock price crash. These results are robust to firm-fixed effects analysis, different crash likelihood measurements, and suspect-firm analysis. On the other hand, RM does not show any predicting power on positive jumps, which supports the argument that insiders use real activities to hide bad but not good information. We find that the predicting power of RM on crash risks after SOX 2002 is much stronger, with the marginal impact being nearly three times as it is in pre-SOX period. By contrast, and consistent with the finding by Hutton et al. (2009), the marginal impact of accrual-based earnings management on crash risks drops by about half after SOX.

Overevaluation and Stock Price Crashes

Author : Qunfeng Liao
Publisher :
ISBN 13 :
Total Pages : 107 pages
Book Rating : 4.:/5 (881 download)

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Book Synopsis Overevaluation and Stock Price Crashes by : Qunfeng Liao

Download or read book Overevaluation and Stock Price Crashes written by Qunfeng Liao and published by . This book was released on 2014 with total page 107 pages. Available in PDF, EPUB and Kindle. Book excerpt: Prior literature has shown that managers have incentives to opportunistically and selectively withhold bad news from investors because of career concerns, compensation contracts, litigation risks, earnings targets, and empire building. In their 2006 paper, Jin and Myers develop the "Bad News Hoarding" theory which suggests that when managers conceal bad news for extended periods of time, negative information is likely to get stockpiled within the firm. When managers' incentives for hiding bad news collapse or when the accumulation of bad news reaches a critical threshold level, all of the hitherto undisclosed negative firm-specific shocks become public at once, resulting in an abrupt decline in stock prices. Earnings management (EM) has been identified as the primary means employed by managers to conceal bad news. Earlier studies have shown separately that overvalued firms and firms characterized by high EM are associated with a greater risk of future stock price crash risk. In this thesis, I investigate the joint effect of extreme overvaluation and high EM on future stock price crash risk. It is shown that there is a robust positive relationship between extreme overvaluation accompanied by high EM and one-year ahead stock price crashes for a sample of U.S. public firms during the years 1995-2011. This result is consistent with Jensen's (2004, 2005) argument that when a firm becomes extremely overvalued it sets up organizational forces and incentives that are likely to impair the value of the firm. However, I also find that extremely overvalued firms that are not accompanied by high EM as well as firms with high EM that are not extremely overvalued do not exhibit greater crash risk. The results are robust to alternative proxies of crash risk and EM and hold after controlling for endogeneity. The effects are more pronounced in the post-SOX period and for firms that engage in real earnings management (REM), are small size, or have low analyst coverage. In addition, I find that accrual earnings management (AEM) is positively associated with future stock price crash risk in the early stages of overvaluation whereas REM is positively associated with future stock price crash risk in the late stages of overvaluation. Finally, I find that extreme overvaluation with high EM is negatively associated with future stock price jumps. I interpret these results as suggesting that the incentives to conceal bad news through EM do not necessarily arise in all cases of overvaluation and that both extreme overvaluation and high EM should co-exist for the crash risk to increase. In this way, my results fine tune Jensen's conjecture regarding overvalued firms.

Abnormal Real Operations, Real Earnings Management, and Subsequent Crashes in Stock Prices

Author : Bill B. Francis
Publisher :
ISBN 13 :
Total Pages : 54 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Abnormal Real Operations, Real Earnings Management, and Subsequent Crashes in Stock Prices by : Bill B. Francis

Download or read book Abnormal Real Operations, Real Earnings Management, and Subsequent Crashes in Stock Prices written by Bill B. Francis and published by . This book was released on 2017 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the impact of firms' abnormal business operations on their future crash risk in stock prices. Computed based on real earnings management (REM) models, firms' deviation in real operations from industry norms (DRO) is shown to be positively associated with their future crash risk. This association is incremental to that between discretionary accruals (DA) and crash risk found by prior studies. Moreover, after Sarbanes-Oxley Act (SOX) of 2002, DRO's predictive power for crash risk strengthens substantially, while DA's predictive power essentially dissipates. These results are consistent with the prior finding that managers shift from accrual earnings management (AEM) to REM after SOX. We further develop a suspect-firm approach to capture firms' use of DRO for REM purposes. This analysis shows that REM-firms experience a significant increase in crash risk in the following year. These findings suggest that the impact of DRO on crash risk is at least partially through REM.

Proceedings of the 2022 International Conference on Bigdata Blockchain and Economy Management (ICBBEM 2022)

Author : Daowen Qiu
Publisher : Springer Nature
ISBN 13 : 9464630302
Total Pages : 1730 pages
Book Rating : 4.4/5 (646 download)

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Book Synopsis Proceedings of the 2022 International Conference on Bigdata Blockchain and Economy Management (ICBBEM 2022) by : Daowen Qiu

Download or read book Proceedings of the 2022 International Conference on Bigdata Blockchain and Economy Management (ICBBEM 2022) written by Daowen Qiu and published by Springer Nature. This book was released on 2022-12-28 with total page 1730 pages. Available in PDF, EPUB and Kindle. Book excerpt: This is an open access book. As a leading role in the global megatrend of scientific innovation, China has been creating a more and more open environment for scientific innovation, increasing the depth and breadth of academic cooperation, and building a community of innovation that benefits all. These endeavors have made new contribution to globalization and creating a community of shared future. With the rapid development of modern economic society, in the process of economic management, informatization has become the mainstream of economic development in the future. At the same time, with the emergence of advanced management technologies such as blockchain technology and big data technology, real market information can be quickly obtained in the process of economic management, which greatly reduces the operating costs of the market economy and effectively enhances the management level of operators, thus contributing to the sustained, rapid and healthy development of the market economy. Under the new situation, the innovative application of economic management research is of great practical significance. 2022 International Conference on Bigdata, Blockchain and Economic Management (ICBBEM 2022) will be held on March 25–27, 2022 in Wuhan, China. ICBBEM 2022 will focus on the latest fields of Bigdata, Blockchain and Economic Management to provide an international platform for experts, professors, scholars and engineers from universities, scientific institutes, enterprises and government-affiliated institutions at home and abroad to share experiences, to expand professional fields, to exchange new ideas face to face, to present research results, and to discuss the key challenging issues and research directions facing the development of this field, with a view to promoting the development and application of theories and technologies in universities and enterprises.

Stock Price Crash Risk

Author : Ahsan Habib
Publisher :
ISBN 13 :
Total Pages : 59 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Stock Price Crash Risk by : Ahsan Habib

Download or read book Stock Price Crash Risk written by Ahsan Habib and published by . This book was released on 2017 with total page 59 pages. Available in PDF, EPUB and Kindle. Book excerpt: We survey the burgeoning literature on the determinants of future stock price crash risk in the US, as well as in countries outside the US. Stock price crash risk, a manifestation of extreme negative values in the distribution of firm-specific returns, has attracted considerable research interests. According to Jin and Myers (2006), when cash flow is lower than investors expect, managers hide the bad news in an effort to protect their jobs. However, when the accumulated bad news finally crosses a tipping point, managers release all the bad news at once, which then results in a stock price crash. We synthesize a vast body of literature on the determinants of crash risk, identify weaknesses, and offer future research opportunities. We categorize the determinants into: (i) financial reporting and corporate disclosures, (ii) managerial incentives and managerial characteristics, (iii) capital market transactions, (iv) corporate governance mechanisms, and (v) informal institutional mechanisms. Despite a large body of research into the determinants of crash risk, very little research attention has been directed towards understanding the consequences of stock price crash.

The Impact of Information Technology on Stock Price Crash Risk

Author : Feng Guo
Publisher :
ISBN 13 :
Total Pages : 47 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis The Impact of Information Technology on Stock Price Crash Risk by : Feng Guo

Download or read book The Impact of Information Technology on Stock Price Crash Risk written by Feng Guo and published by . This book was released on 2019 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the effect of information technologies on stock price crash risk. Information technology advancements change the way firm-specific information is disseminated and acquired, providing significant benefits to investors. We use the required staggered implementation of the SEC's Electronic Data Gathering and Analysis Retrieval system (EDGAR) to examine the impact of information technologies on stock price crash risk. We find that the implementation of EDGAR is associated with a decrease in stock price crash risk and this effect is more pronounced for firms with greater information asymmetry. Additionally, we provide evidence that conservatism increases following the EDGAR implementation, suggesting that more timely recognition of bad news is a channel through which stock price crash risk decreases following the implementation. Our results suggest that information technologies that strengthen the monitoring ability of investors limit managers' ability to conceal and hoard bad news, which ultimately reduces stock price crash risk.

Religion and Stock Price Crash Risk

Author : Jeffrey L. Callen
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Religion and Stock Price Crash Risk by : Jeffrey L. Callen

Download or read book Religion and Stock Price Crash Risk written by Jeffrey L. Callen and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines whether religiosity at the county level is associated with future stock price crash risk. We find robust evidence that firms headquartered in counties with higher levels of religiosity exhibit lower levels of future stock price crash risk. This finding is consistent with the view that religion, as a set of social norms, helps to curb bad news hoarding activities by managers. Our evidence further shows that the negative relation between religiosity and future crash risk is stronger for riskier firms and for firms with weaker governance mechanisms measured by shareholder takeover rights and dedicated institutional ownership. To ensure that the stock price crashes are a consequence of bad news hoarding, we show that firms that restated accounting data and suffered a resulting stock price crash experience significantly larger income decreases and are less likely to be from a religious milieu by comparison to matched samples including firms that restated but did not suffer a stock price crash.

Management Forecasts and Bad News Hoarding

Author : Sophia Hamm
Publisher :
ISBN 13 :
Total Pages : 63 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Management Forecasts and Bad News Hoarding by : Sophia Hamm

Download or read book Management Forecasts and Bad News Hoarding written by Sophia Hamm and published by . This book was released on 2018 with total page 63 pages. Available in PDF, EPUB and Kindle. Book excerpt: Many recent studies explore how earnings properties such as opacity, conservatism, and comparability relate to stock price crash risk. Motivated by the importance of earnings guidance as a voluntary disclosure mechanism that directly provides new information to the market, we investigate how guidance and the bias therein are linked to crash risk. Our initial analysis shows that on average, more guidance is associated with a higher crash risk. After an in-depth investigation, we find that this positive relation is driven by guidance optimism that the market does not instantly detect. This finding is consistent with optimistic guidance temporarily disguising bad news until its future revelation. Overall, our finding highlights that bias in earnings guidance can expose equity investors to significant downside risk.

Analyst Coverage and Stock Price Crash Risk

Author : Yvonne I-Fang Lee
Publisher :
ISBN 13 :
Total Pages : 60 pages
Book Rating : 4.:/5 (973 download)

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Book Synopsis Analyst Coverage and Stock Price Crash Risk by : Yvonne I-Fang Lee

Download or read book Analyst Coverage and Stock Price Crash Risk written by Yvonne I-Fang Lee and published by . This book was released on 2016 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this study, I investigate the impact of analyst coverage changes on firms' subsequent firm-specific crash risk. Using a sample of 24,228 firm-year observations from 2000 to 2013, I show that changes in analyst coverage are negatively associated with changes in one-year-ahead crash risk. This result is consistent with analysts' information gathering activities and analyses limiting bad news hoarding behavior, and is generally inconsistent with analyst pressure leading to more bad news hoarding by managers. Moreover, I find the negative association between coverage changes and changes in subsequent crash risk to be more pronounced when the coverage change is attributable to Institutional Investor All-Star analysts. This supports my conjecture that a combination of skills, information acquisition advantages, and reputation allows star analysts to more efficiently disseminate information to the market and reduce the likelihood of future crashes for the firms they cover than their non-star counterparts. My findings are robust to the use of alternative measures of crash risk and after controlling for potential endogeneity. Finally, consistent with the argument that both the investors' demands for analyst coverage and the value analysts can provide through their information acquisition should increase with firm-specific risk, I document a positive association between prior firm-specific crash risk and analyst coverage for the firms. My findings also suggest that star and non-star analysts have distinct decision models and choose what firms to cover based on different factors.

The Disclosure of Other Comprehensive Income and Stock Price Crash Risk

Author : Wu Keping
Publisher :
ISBN 13 :
Total Pages : 1 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis The Disclosure of Other Comprehensive Income and Stock Price Crash Risk by : Wu Keping

Download or read book The Disclosure of Other Comprehensive Income and Stock Price Crash Risk written by Wu Keping and published by . This book was released on 2018 with total page 1 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines the impact of other comprehensive income (OCI) on stock price crash risk. We find that the disclosure of OCI can reduce stock price crash risk. This association is robust to a series of robustness checks, including the use of different measures of crash risk, firm fixed effects model, propensity score matching model (PSM),difference-in-differences model(DID), change analysis. Moreover, we find that the predictive power of OCI with respect to future crash risk is more pronounced for firms with higher information asymmetry. The results still hold after controlling for corporate information opaqueness and governance effect. Our findings suggest that comprehensive disclosure of accounting information is important in reducing stock price crash risk.

Advances in Financial Planning and Forecasting (New Series) Vol．9

Author : Cheng F. Lee
Publisher : Center for PBBEFR & Ainosco Press
ISBN 13 : 9866286746
Total Pages : pages
Book Rating : 4.8/5 (662 download)

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Book Synopsis Advances in Financial Planning and Forecasting (New Series) Vol．9 by : Cheng F. Lee

Download or read book Advances in Financial Planning and Forecasting (New Series) Vol．9 written by Cheng F. Lee and published by Center for PBBEFR & Ainosco Press. This book was released on 2018-01-01 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Advances in Financial Planning and Froecasting (New Series) is an annual publication designed to disseminate developments in the area of financial analysis, planning, and forecasting. The publication is a froum for statistical, quantitative, and accounting analyses of issues in financial analysis and planning in terms of finance, accounting, and economic data.

Analyst Coverage and Future Stock Price Crash Risk

Author : Guanming He
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Analyst Coverage and Future Stock Price Crash Risk by : Guanming He

Download or read book Analyst Coverage and Future Stock Price Crash Risk written by Guanming He and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Whether financial analysts play an effective role as information intermediaries and monitors has triggered a wide spread of debate among academics and practitioners to date. We complement this debate by investigating the association between analyst coverage and firm-specific future stock price crash risk. Using a large sample of U.S. public firms and the crash risk measure of Hutton et al. (2009), we find strong and robust evidence that a high level of analyst coverage is associated with lower future stock price crash risk, which offers support for the view that analysts serve positive roles as information intermediaries and monitors in the stock markets. We also find that the negative association between analyst coverage and stock price crash risk is stronger for firms that have high financial opacity. Additional analysis reveals that analyst forecast pessimism is negatively associated with future crash risk. Our study is thus of interest to investors who seek analyst reports for their investment decision-making. Also, our findings have some other important implications for practitioners, given the economic and welfare consequences of stock price crashes. Specifically, market participants can use analyst coverage as an indicator to assess future stock price crash risk, as well as the likelihood and extent of insiders' bad news hoarding that results in crash risk; this is particularly relevant to investors for their portfolio investment decisions and to suppliers and creditors who monitor their clients' creditworthiness.

Behavioral Corporate Finance

Author : Hersh Shefrin
Publisher : College Ie Overruns
ISBN 13 : 9781259254864
Total Pages : 300 pages
Book Rating : 4.2/5 (548 download)

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Book Synopsis Behavioral Corporate Finance by : Hersh Shefrin

Download or read book Behavioral Corporate Finance written by Hersh Shefrin and published by College Ie Overruns. This book was released on 2017-04-16 with total page 300 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Stock Price Crash Risk on International Stock Markets

Author : Dominick Franzi
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (816 download)

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Book Synopsis Stock Price Crash Risk on International Stock Markets by : Dominick Franzi

Download or read book Stock Price Crash Risk on International Stock Markets written by Dominick Franzi and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines the relationship between opacity in financial reporting and the distribution of stock returns. The performance of stocks in the Swiss stock market is analyzed in a sample period from 1985 till 2010 with regard to the level of firms' opaqueness in financial statements. Using earnings management as a measure for opacity, it is shown that opacity is associated with stock price crash risk. Opaque firms are more susceptible to stock price crashes, but not more prone to explore positive jump events than firms with high transparency in financial reporting.

Multichannel Integrations of Nonverbal Behavior

Author : Aron Wolfe Siegman
Publisher : Psychology Press
ISBN 13 : 1317768140
Total Pages : 310 pages
Book Rating : 4.3/5 (177 download)

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Book Synopsis Multichannel Integrations of Nonverbal Behavior by : Aron Wolfe Siegman

Download or read book Multichannel Integrations of Nonverbal Behavior written by Aron Wolfe Siegman and published by Psychology Press. This book was released on 2014-04-04 with total page 310 pages. Available in PDF, EPUB and Kindle. Book excerpt: First published in 1985. This book takes a multichannel perspective. The first three chapters are written from a distinctly functional perspective: the function of nonverbal behavior on interpersonal attraction, in the expression of emotions and in the control of conversations. They are followed by two topically organized chapters, namely, the role of nonverbal behavior in interpersonal expectancies and deceptive communications. They, in turn, are followed by a process-oriented discussion of the nature of nonverbal behavior. The book concludes with two contributions concerned with the demography of nonverbal behavior: the role of gender, class, and ethnicity (with the latter viewed from a cultural perspective). In each case, however, the chapter is organized, to the extent possible, from a multichannel perspective.

Accounting discretion of banks during a financial crisis

Author : Mr.Luc Laeven
Publisher : International Monetary Fund
ISBN 13 : 1451873549
Total Pages : 43 pages
Book Rating : 4.4/5 (518 download)

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Book Synopsis Accounting discretion of banks during a financial crisis by : Mr.Luc Laeven

Download or read book Accounting discretion of banks during a financial crisis written by Mr.Luc Laeven and published by International Monetary Fund. This book was released on 2009-09-01 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper shows that banks use accounting discretion to overstate the value of distressed assets. Banks' balance sheets overvalue real estate-related assets compared to the market value of these assets, especially during the U.S. mortgage crisis. Share prices of banks with large exposure to mortgage-backed securities also react favorably to recent changes in accounting rules that relax fair-value accounting, and these banks provision less for bad loans. Furthermore, distressed banks use discretion in the classification of mortgage-backed securities to inflate their books. Our results indicate that banks' balance sheets offer a distorted view of the financial health of the banks.