This paper investigates the relationship between managerial tone in management discussion and analysis (MD&A) disclosures and stock price crash risk. We make a distinction between two types of tone—concave and convex—based on how managers’ tone changes according to whether performance is good or bad. Tone is classified as ‘concave’ (‘convex’) when managers overstate (understate) bad news and understate (overstate) good news. Using data on Chinese listed firms from 2013 to 2018, we find that convex tone is positively associated with stock price crash risk, and negatively associated with future performance. The positive relationship between convex tone and stock price crash risk is more pronounced for firms with high free cash flow, opaque financial reporting, and non-stated-owned enterprises. These results suggest that the use of a convex tone in MD&A may have a negative impact on the capital market.

We provide novel evidence on the value of combined CEO and board chair positions (CEO duality) for firms during the COVID-19 pandemic in 2020. Based on 4,840 firm-quarter observations from 1,210 unique firms in the US, we show that CEO duality firms outperformed non-duality firms by a 0.58% margin in quarterly return on assets in 2020, which is equivalent to an incremental annual net profit of US$164 million. A difference-in-difference estimation confirms that the benefit of CEO duality is observed only in the COVID-19 crisis period. Our main finding is robust to potential endogeneity concerns and alternative performance measures. Additional analyses show that the positive impact of CEO duality stems from the mechanisms of operating cost savings and working capital optimization during the crisis. Our finding underscores the benefit of CEO duality when economic uncertainty is high and a speedy decision is important.

This paper investigates whether and how organizational climate (OC) in brokerage firms affects analyst turnover and performance. We find that firms with a lower-rated OC have a higher likelihood of analyst turnover. Also, when analysts leave and switch brokerage firms, they are more likely to move to a firm with a higher-rated OC and will deliver more accurate forecasts after switching firms. However, the performance improvements in better-rated OC firms are significant only for the initial years of the analysts’ employment in the new firms. We also show that OC-related analyst turnover negatively affects the performance of incumbent analysts, especially for those non-All-Star incumbent analysts, while these adverse performance effects are also transitory and last for two years only. Thus, our findings indicate that OC only has a short-lived effect on the behaviour of both leaving and remaining analysts, which challenges the long-held assumption that investments in a positive OC will always be associated with lower employee turnover and higher individual performance. We explain our results as arising from the high levels of labour mobility within the brokerage industry and the transparency of analyst forecasts as a public performance measure.

This study investigates the valuation usefulness of fair values and related information disclosure in China and examines how regional-level market institutions influence the valuation usefulness of fair value information. Based on a sample of Chinese listed companies during 2007 to 2016, the empirical results show a negative association between overall fair values and analyst forecast accuracy. Further analyses suggest that the negative association is likely driven by biases and/or errors in fair value estimates. Using a difference-in-difference research design, the study also documents that the implementation of ASBE 39 in 2014 has improved the valuation usefulness of fair values. There is evidence that different aspects of market institutions—including the extent of government intervention in the market and the legal environment—influence analysts’ use of fair value information. This study contributes to the literature by providing new and different evidence on the usefulness of fair values to financial analysts outside developed countries. Moreover, by taking advantage of the uneven institutional development across China, the study shows that different aspects of market institutions influence the valuation usefulness of fair value information.

A fundamental flaw in the methods that academics and practitioner bodies have proposed to account for price changes is that they assume the real and monetary sectors are independent. This is the logic of classical macroeconomics pre-Keynes/Friedman, which long since has been discredited by theory and evidence. Both economy-wide and idiosyncratic shocks to firms’ factor prices are unlikely to be positively correlated with their financial strengths, as assumed by the price adjustment methods that have been proposed. This helps explain the historical reluctance of governments and regulatory bodies to embrace proposed accounting standards that require firms to adjust their financial statements for either general or firm-specific price changes. For example, firms then would tend to report stronger balance sheets at a time of weakened financial positions.

Considerable research has evaluated the role of accruals in determining informative earnings, with an accrual–cash flow relation at the centre of the investigation. However, much of the research is based on a misunderstanding. First, accruals are identified as the numbers that reconcile earnings to cash flows in the cash flow statement. But these are not the non-cash accruals applied in determining earnings in the accrual accounting system; rather, they are changes in balance sheet items, most of which are the relevant accruals reduced by cash flow. Thus, they are in part determined by cash flows. Second, accruals are characterized as an adjustment to cash flows, to reduce volatility of cash flows. Consequently, a negative correlation between accruals and cash flow—the accruals–cash flow relation—has been taken as the criterion for quality accruals. However, the correlation with cash flows is spurious, for the so-called accruals are determined in part by cash flows. This paper presents a corrective analysis under which non-cash accruals are identified as the components of earnings that do not involve cash flows. With this correction, the paper then conducts empirical tests that re-examine hypotheses about accruals tested in previous research, reporting contrasting results.

We investigate whether social capital and trust provide a form of liquidity/trading resilience, more specifically, whether social capital and trust played a role in the speed of stock recovery following activation of the market-wide circuit breaker (MWCB) that occurred at the beginning of the COVID-19 pandemic in March 2020. Our finding that high-social capital firms rebounded more swiftly in terms of stock liquidity and quality of the stock trading environment provides new evidence that social capital and trust can safeguard firms’ stocks against a potential liquidity drain and rapid deterioration in the stock trading environment under extreme market conditions.