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- Genre: Academic theses
Description
In this study, I examine the extent to which firms rely on relative performance evaluation (RPE) when setting executive compensation. In particular, I examine whether firms use information about peer performance to determine compensation at the end of the year, i.e. after both firm and peer performance are observed. I find that RPE is most pronounced for firms that allow little or no scope for ex post subjective adjustments to annual bonuses. Conversely, firms that rely mainly on subjectivity in determining bonus exhibit little use of RPE. These findings suggest that information about peer performance is not used at the end of the year. Instead, peer performance seems to be incorporated in performance targets at the beginning of the year, at least among firms primarily using objective performance measurements. In addition, I provide new evidence on the determinants of the use of subjectivity.
ContributorsTsui, Stephanie (Author) / Matejka, Michal (Thesis advisor) / Hwang, Yuhchang (Committee member) / Kaplan, Steven (Committee member) / Arizona State University (Publisher)
Created2013
Description
In this paper, I investigate whether participation in employee stock option exchange programs contains private information about future stock returns. High participation in employee stock option exchange programs is associated with negative future abnormal returns over the ensuing 12-month period. This association is moderated by the transparency of the firm's information environment: high institutional ownership and high financial statement informativeness weaken the negative relation between participation and abnormal returns. Controlling for transparency of the firms' information environment, the association between participation and future returns arises primarily from firms that allow the CEO to participate.
ContributorsMakridis, Vanessa Radick (Author) / Matejka, Michal (Thesis advisor) / Hwang, Yuhchang (Committee member) / Kaplan, Steven E (Committee member) / Arizona State University (Publisher)
Created2013
Description
In 2016, the Financial Accounting Standards Board (FASB) imposed on managers a responsibility to evaluate their companies’ forward-looking prospects for continuing as a going concern on a quarterly basis. Prior to this change, the responsibility of assessing the future of a company was only required annually by the external auditor through auditing standards. If this increase in management responsibility induced managers to implement a process and controls to obtain forward-looking information for disclosure, I would expect this information acquisition process to also improve overall financial reporting quality. I find that financial reporting quality increased for firms after Accounting Standards Update (ASU) 2014-15, as evidenced by less restatements. Additionally, while I find the timeliness of information decreased, as evidenced by slower earnings announcements, the decrease is not economically meaningful. Lastly, I find the effect of the standard change on financial reporting quality is greater for non-financially healthy companies who have to perform a more extensive analysis under ASU 2014-15. While the purpose of the accounting standard was to reduce diversity in the timing and content of going concern disclosures, I find evidence of other benefits with little costs that this standard had on firm’s financial reporting.
ContributorsMatkaluk, Lauren (Author) / Lamoreaux, Phillip (Thesis advisor) / Kaplan, Steve (Committee member) / Call, Andy (Committee member) / Arizona State University (Publisher)
Created2023
Description
Prior studies examine how the use of earnings for valuation purposes is related to the use of earnings in contracting. I extend this literature by examining the value relevance of internal earnings relative to targets, a performance measure widely used in annual bonus contracts. Internal earnings relative to targets could be value relevant because they reflect board’s private information or the quality of firm’s management control systems. However, any internal performance measure could also be manipulated by the board or management, which would undermine its reliability and relevance to capital market participants. Using hand-collected data on internal earnings and annual bonus targets in Chief Executive Officer (CEO) cash bonus plans, I find that internal earnings relative to targets strongly predict annual stock returns. This effect is incremental to that of Generally Accepted Accounting Principles (GAAP) and street earnings surprises, as well as management earnings guidance surprises. Moreover, this effect is stronger for firms with more detailed disclosure about compensation contracts and with better governance. Buttressing the stock return results, I further show that internal earnings relative to targets predict future cash flows. This evidence suggests that the value of internal earnings relative to targets extends beyond its traditional role in contracting.
ContributorsLee, Eugie (Author) / Matejka, Michal (Thesis advisor) / Kaplan, Steve (Committee member) / Hugon, Artur (Committee member) / Arizona State University (Publisher)
Created2023
Description
This study examines the effect of outside wealth on executives’ risk-taking in financial reporting. To investigate this question, I hand-collect data on Chief Financial Officers’ (CFO) real estate assets and use housing returns as a proxy for CFOs’ outside wealth changes. I find that CFOs who experience a large negative housing return become less aggressive in financial reporting, as evidenced by a lower likelihood of restatement. Additional tests show that this effect is driven by CFOs who have less diversified wealth portfolios, by younger CFOs, and by CFOs with more leveraged houses, suggesting that the reduced risk-taking behavior of CFOs stems from decreased diversification of personal wealth and increased career concerns after a negative shock to outside wealth. These findings highlight the important role of executive outside wealth in explaining their risk-taking behaviors.
ContributorsLiu, Summer Z. (Author) / Huang, Shawn (Thesis advisor) / Lamoreaux, Phillip (Thesis advisor) / Hugon, Artur (Committee member) / Li, Yinghua (Committee member) / Arizona State University (Publisher)
Created2023
Description
I examine whether a stock’s inclusion in green exchange traded funds and mutualfunds (GMFs) affects liquidity and analyst following. I base these predictions on prior
literature that establishes that a firm’s pro-ESG (Environmental, Social, and Governance)
orientation can spur investors’ interest and mitigate investors’ agency concerns (by
signaling that managers are pro-social). I test these predictions using difference-indifferences
models of monthly turnover, bid-ask spread, and analyst coverage to examine
whether firm liquidity, trading costs, and analyst following improve post-GMF inclusion.
I find support for all three predictions, even though GMF ownership in my sample is
exceedingly modest. Importantly, I identify my treatment effects as incremental to the
liquidity boost firms receive when added to conventional mutual funds and exchange
traded funds (ETFs). Together, these results suggest that GMF inclusion is perceived as
an informative signal of a firm’s green credentials, which leads to more trading volume,
lower trading costs, and more analyst participation.
ContributorsHolden, Nicole (Author) / White, Roger (Thesis advisor) / Brown, Jenny (Committee member) / Kaplan, Steve (Committee member) / Arizona State University (Publisher)
Created2023
Description
A Chief Audit Executive (CAE) is the leader of a company’s internal audit function. Because there is no mandated disclosure requirement for the internal audit structure, little is understood about the influence of a CAE on a company. Following the logic that a CAE disclosed in SEC filings is more influential in a company’s oversight function, I identify an influential CAE using the disclosure of the role. I then examine the association between an influential CAE and monitoring outcomes. Using data hand collected from SEC filings for S&P 1500 companies from 2004 to 2015, I find companies that have an influential CAE are generally larger, older, and have a larger corporate board. More importantly, I find that an influential CAE in NYSE-listed companies is associated with higher internal control quality. This association is stronger for companies that reference a CAE’s direct interaction with the audit committee. This study provides an initial investigation into a common, but little understood position in corporate oversight.
ContributorsZhang, Wei (Author) / Lamoreaux, Phillip (Thesis advisor) / Kaplan, Steve (Committee member) / Li, Yinghua (Committee member) / Arizona State University (Publisher)
Created2019
Description
This study investigates the relation between credit supply competition among banks and their clients’ conditional accounting conservatism (i.e., asymmetric timely loss recognition). The Interstate Banking and Branching Efficiency Act (IBBEA) of 1994 permits banks and bank holding companies to expand their business across state lines, introducing a positive shock to credit supply competition in the banking industry. The increase in credit supply competition weakens banks’ bargaining power in the negotiation process, which in turn may weaken their ability to demand conservative financial reporting from borrowers. Consistent with this prediction, results show that firms report less conservatively after the IBBEA is passed in their headquartered states. The effect of the IBBEA on conditional conservatism is particularly stronger for firms in states with a greater increase in competition among banks, firms whose operations are more concentrated in their headquarter states, firms with greater financial constraints, and firms subject to less external monitoring. Robustness tests confirm that the observed decline in conditional conservatism is causally related to the passage of IBBEA. Overall, this study highlights the impact of credit supply competition on financial reporting practices.
ContributorsHuang, Wei (Author) / Li, Yinghua (Thesis advisor) / Huang, Xiaochuan (Committee member) / Kaplan, Steve (Committee member) / Arizona State University (Publisher)
Created2018
Description
This study provides new evidence on the choice of performance measures used in dual-class firms to incentivize CEOs. The choice of performance measures is informative about the extent to which the board of directors focuses CEO efforts on firms' long-term versus short-term objectives. To empirically operationalize performance evaluation horizon, I measure the length of the performance evaluation period in CEO stock awards, the use of stock-based measures, and the use of peer-based measures. I collect data on 419 dual-class firms and match them with a control group of single-class firms. I find that market-based metrics are less likely to be used by dual-class firms relative to single-class firms. In addition, I find that peer-based measures are much less common for dual-class than single-class firms. These findings suggest that dual-class firms shield their executives from short-term market pressures and design stock compensation contracts that deemphasize volatile stock prices.
ContributorsLi, Ji (Author) / Matejka, Michal (Thesis advisor) / Hwang, Yuhchang (Committee member) / Reckers, Philip (Committee member) / Arizona State University (Publisher)
Created2014
Description
In this study, I test whether firms reduce the information asymmetry stemming from the political process by investing in political connections. I expect that connected firms enjoy differential access to relevant political information, and use this information to mitigate the negative consequences of political uncertainty. I investigate this construct in the context of firm-specific investment, where prior literature has documented a negative relation between investment and uncertainty. Specifically, I regress firm investment levels on the interaction of time-varying political uncertainty and the degree of a firm's political connectedness, controlling for determinants of investment, political participation, general macroeconomic conditions, and firm and time-period fixed effects. Consistent with prior work, I first document that firm-specific investment levels are significantly lower during periods of increased uncertainty, defined as the year leading up to a national election. I then assess the extent that political connections offset the negative effect of political uncertainty. Consistent with my hypothesis, I document the mitigating effect of political connections on the negative relation between investment levels and political uncertainty. These findings are robust to controls for alternative explanations related to the pre-electoral manipulation hypothesis and industry-level political participation. These findings are also robust to alternative specifications designed to address the possibility that time-invariant firm characteristics are driving the observed results. I also examine whether investors consider time-varying political uncertainty and the mitigating effect of political connections when capitalizing current earnings news. I find support that the earnings-response coefficient is lower during periods of increased uncertainty. However, I do not find evidence that investors incorporate the value relevant information in political connections as a mitigating factor.
ContributorsWellman, Laura (Author) / Dhaliwal, Dan (Thesis advisor) / Hillegeist, Stephen (Thesis advisor) / Walther, Beverly (Committee member) / Mikhail, Mike (Committee member) / Hillman, Amy (Committee member) / Brown, Jenny (Committee member) / Arizona State University (Publisher)
Created2014