This paper evaluates whether the relevance of investment properties measured using Level 3 inputs is impacted by the assumptions underpinning the determination of fair values. Evidence is provided of investors generally finding investment property fair values determined with Level 3 inputs to be relevant, and the values are not discounted in market price. However, this is not the case when there is evidence of firms using optimistic assumptions in the determination of fair values. Specifically, there is a material price discount of recognized investment property values as well as fair value gains for these observations. Our research setting of real estate investment firms has several advantages as these firms typically have as their major assets investment properties whose fair value and rental income can be observed from financial reports. This allows investors to easily infer and compare the key valuation assumptions as captured by the capitalization rate. The implication for more general circumstances where valuation assumptions cannot be inferred from financial reports is that detailed disclosures of assumptions are necessary for users to assess the reliability of fair values determined with Level 3 inputs.

We utilize a unique setting associated with the mandatory closure of the government-to-business revolving door to examine whether and how an exogenous rise in firm-level political uncertainty affects the mispricing of earnings. The tension that underlies our study stems from two opposing effects. To the extent that such uncertainty can trigger opinion divergence (rational attention) among investors, it is expected to delay (accelerate) price discovery and increase (decrease) security mispricing. Our identification strategy draws on the difference-in-differences analysis associated with the Chinese regulation in 2013 that mandated the resignation of corporate independent directors with a government background. Consistent with the dominance of the opinion divergence effect, we observe that these involuntary resignations unintentionally increase delays in share price responses following earnings announcements. These findings are more evident among firms that enjoy more benefits from independent directors with a government background. Further analyses confirm that these involuntary resignations trigger more opinion divergence rather than rational attention among investors by showing significant increases in analyst forecast diversity but no changes in analyst coverage following such resignations. We provide novel evidence that market information efficiency could deteriorate as an unintended consequence of the escalation of firm-level political uncertainty.

This paper examines the impact of managerial ability on bank loan contracting. We find that firms with higher-ability managers obtain more favourable loan contract terms, including lower loan spreads, fewer covenants, and more short-term maturities. Furthermore, the negative relation between managerial ability and loan spread is concentrated in firms with higher information asymmetry, higher default risk, or lower agency costs of debt. Finally, we find that firms with higher-ability managers are more likely to choose public bonds over bank loans.

This study examines the evolution of the interpretative support provided by the IFRS Interpretations Committee (IC), the interpretative body of the International Accounting Standards Board (IASB), over the period 2002–2019. The study focuses on its most frequent output, agenda decisions (ADs), which can provide guidance that practice has long considered relevant and has been explicitly considered authoritative since 2020. We investigate whether the IC has provided additional guidance and changed the formulation of ADs over time in response to constituents’ criticism from the perspective of legitimacy theory. We find that the IC has progressively added more explanatory material and formulated ADs in a more complete and nuanced manner so as to gain consequential legitimacy by substantially addressing the constituents’ interpretation demands. This evolution points to the growing role of ADs, which strike a balance between difficult to reconcile objectives. Providing more substantial support to constituents’ submissions can be seen as a balancing act between a more explicit shift from principles to rules, and leaving room for local interpretations that could threaten the consistent application of International Financial Reporting Standards (IFRS). In shedding light on the IC's substantial response to the challenges posed by conflicting pressures and objectives, we add to the standard-setting literature by providing evidence-based insights into under-researched areas of IFRS interpretation. We also respond to calls for more policy-oriented research and offer two proposals to enhance the clarity of ADs in the light of their evolving content and increasing relevance.

Contrary to conventional wisdom, this study reports a positive relationship between large US firms' leverage levels and their likelihood of emerging from Chapter 11 bankruptcy. In anticipation of a favourable court outcome, which allows them to emerge from bankruptcy with reduced debt, firms tend to increase their leverage levels in the years preceding the bankruptcy filing year. This suggests strategic abuse of bankruptcy courts and creditors. Test results suggest that firms start acting strategically up to four years before filing for bankruptcy so that they can emerge with a reduced debt burden at the cost of creditors. Additionally, our study also contributes to the corporate bankruptcy literature by exploring a set of factors (related to the firm, judicial, case, geographic, and macroeconomic characteristics) explaining the likelihood of firms emerging from bankruptcy, and proposing a parsimonious multivariate model that best predicts the likelihood of surviving Chapter 11 bankruptcy.

Equity issuance activity rose sharply across the corporate sector during the COVID-19 crisis. We use this period of unprecedented uncertainty to study the effects of financial distress on seasoned equity offering returns. We find that firms increased their reliance on placements during this period of economic turmoil, with, on average, significantly larger issues, steeper discounts, and a greater focus on debt repayment. We show firms at greater risk of financial distress during the pandemic benefit significantly from signalling debt repayment as a priority, with stronger announcement date returns.

We examine the association between corporate violations and executives who formerly served in the military, using a sample of A-share listed firms in China from 2004 to 2018. We find that firms led by ex-military executives are less likely to incur corporate violations. Further tests indicate that where there is a negative relationship this association is more pronounced for non-financial corporate violations than for cases involving financial fraud. We also confirm that the association between corporate misconduct and firms with ex-military executives is more significant if the firm has insufficient external oversight. The results are robust to a series of robustness tests. Overall, our results suggest that executives’ exposure to military culture has a governance effect in regulating corporate behaviour and outcomes in emerging economies.

In this study, we examine the effect of worldwide corporate governance reforms on analyst forecasts using data on firms from 41 countries that have implemented such reforms. Employing a difference-in-differences design, we find robust evidence of a significant positive effect of these reforms, which mainly promote the independence of the audit committee and auditors, on analyst forecast accuracy. We also find significant improvements in post-reform corporate governance structure and the quantity and quality of corporate disclosure, which validates the predicted economic mechanism of the impact of these reforms. Moreover, the reforms are effective in reducing analyst forecast bias and dispersion, suggesting an overall improvement in analyst forecast quality after reform implementation. Furthermore, we find a moderating effect of analyst general experience on the relationship of interest, which is consistent with the conjecture that improved corporate disclosures following reforms could be more beneficial for analysts with less experience. Overall, our findings shed new insights into how country-level corporate governance reforms worldwide shape firms’ information environment.

This paper examines whether state ownership and political connections affect the relationship between customer concentration and cash holdings for Chinese listed manufacturing firms. We show that non-state-owned firms, but not state-owned firms, hold more cash as customer concentration increases. In addition, political connections weaken the positive effect of customer concentration on non-state-owned firms’ cash holdings. Our supplemental analyses further show that for non-state-owned firms with limited access to finance—for instance, firms with low analyst following, low institutional ownership, or low government subsidies—the effects of political connections on weakening the positive association between customer concentration and cash holdings are more pronounced. Additional robustness tests support our arguments.

This study uses controlled experiments to investigate the joint effects of forecast uncertainty and forecast precision on investor judgements. It finds that forecast precision moderates the effects of forecast uncertainty on investors’ forecast reliability judgements such that the effects of forecast uncertainty on investors’ judgements of forecast reliability are more negative when an analyst's point earnings per share (EPS) forecast is rounded than when it is precise. In addition, the relationship between forecast precision and investors’ judgements of forecast reliability is mediated by investors’ perceptions of forecast attributes. The evidence also suggests that while forecast uncertainty exerts a negative effect on investment judgements, forecast precision does not play a role in mitigating these negative effects. Using a supplementary within-participants experiment, the study further finds that investors may not be consciously aware of how forecast precision influences their judgements of forecast reliability.