2014 - Reprints: Finance, Accounting and Insurance
Ownership structure and performance: Evidence from the public float in IPOs, Journal of Banking & Finance, 40, 54-61, 2014.
A. Michel, J. Oded and I. Shaked
(Reprint No. 280)
We investigate whether the post-IPO market performance of IPO stocks is related to the percentage of shares issued to the public, namely, the public float. We demonstrate that a non-linear relation exists between the public float and post-IPO returns. Specifically, as public float increases, long-run returns decrease for low levels of public float and increase for high levels of public float. This relation persists even after controlling for various firm characteristics. The best long-term performers are firms that sell either very little or sell most of their stock in the IPO. We suggest that the choice of public float level creates a trade-off between incentives to insiders and power granted to outsiders. This trade-off determines the non-linear relation found between the public float and long-run returns.
The role of accounting disaggregation in detecting and mitigating earnings management, Review of Accounting Studies, 19:43-68, 2014; DOI 10.1007/s11142-012-9220-9
E. Amir, E. Einhorn and I. Kama
(Reprint No. 282)
Though ample empirical evidence alludes to the importance of disaggregated accounting data in the context of earnings management, extant theory considers biases in reporting mostly at the aggregated level of the accounting report. By introducing accounting disaggregation into the conventional theoretical framework of earnings management, this study highlights the essential role that disaggregated accounting data play in detecting and mitigating reporting manipulations. Disaggregated reports are shown to be especially effective when they consist of accounting items that are tightly interrelated by their fundamental economic nature, differ considerably in their sensitivity to reporting manipulations, and vary in their signs.
The association between individual audit partners’ risk preferences and the composition of their client portfolios, Review of Accounting Studies, 19(1), 103-133, 2014; DOI 10.1007/s11142-013-9245-8
E. Amir, J.-P. Kallunki and H. Nilsson
(Reprint No. 283)
We explore whether audit partners’ attitude towards risk, as measured by their personal criminal convictions, are reflected in the composition of their client portfolios. Analyzing a unique dataset of Swedish audit partners’ criminal convictions, we find that the clients of audit partners with criminal convictions are characterized by greater financial, governance, and reporting risk than those of audit partners without criminal convictions. Also, clients of audit partners with criminal convictions pay larger audit fees, on average, than those of auditors without criminal convictions.
Cash flow hedging and liquidity choices, Review of Finance, 18(2), 715-748, 2014; doi:10.1093/rof/rft006
D. Disatnik, R. Duchin and B. Schmidt
(Reprint No. 288)
This article studies the interaction between corporate hedging and liquidity policies. We present a theoretical model that shows how corporate hedging facilitates greater reliance on cost-effective, externally provided liquidity in lieu of internal resources. We test the model’s predictions by employing a new empirical approach that separates cash flow hedging from other hedging instruments. Using detailed, hand-collected data, we find that cash flow hedging reduces the firm’s precautionary demand for cash and allows it to rely more on bank lines of credit. Furthermore, we find a significant positive effect of cash flow hedging on firm value, where prior evidence is mixed.
P. Kumar and N. Langberg
(Reprint No. 298)
We examine information aggregation regarding industry capital productivity from privately informed managers in a dynamic model with optimal incentive contracts. Information cascades always occur if managers enjoy limited liability: when beliefs regarding productivity become endogenously extreme (optimistic or pessimistic), learning stops. There is no learning if initial beliefs are extreme, or if agency conflicts are severe. In contrast to the literature, cascades occur even when signals have unbounded precision or when there are rich action spaces. Relaxing limited liability constraints is not sufficient to avoid cascades; we provide sufficient conditions for efficient information aggregation through incentive contracts. (JEL G32, D23)
