700 word discussion on economic data's value on company decisions with annotated bibliography using 5 peer review journals written in the last 5 years. Annotated bibliography must include an "assess"

Annotated Bibliography: Accounting Assignment

Shaneka Jones

School of Business, Liberty University

BUSI 701-B15: Current Topics Business Administration

Dr. Michael Coleman

February 11, 2024

Fu, X., Wu, X., & Zhang, Z. (2021). The information role of earnings conference call tone: Evidence from stock price crash risk. Journal of Business Ethics, 173(3), 643-660. https://doi.org/10.1007/s10551-019-04326-1

Summary

This study explores the relationship between the tone of earnings conference calls and stock price crash risk. Drawing from theories and empirical studies on ethical financial reporting and disclosure incentives, the authors formulate and test two competing hypotheses regarding the predictive power of call tone on crash risk. While optimistic language might be perceived as a strategy for impression management, potentially increasing crash risk, it could also reflect managers' commitment to ethical disclosure, thereby reducing crash risk. The findings provide robust evidence supporting the latter hypothesis, indicating that a more optimistic call tone is associated with lower stock price crash risk. The study further explores the moderating effects of analyst following and managerial option incentives, suggesting that these factors influence managers' communication strategies and ethical behavior.

Assess

This source was similar to the other sources in that it examined financial disclosure’s effect on stock prices. I was interested in it because it took a different approach by studying financial disclosure via conference calls and related it to market predictability.

Reflect

Although this is a different type of disclosure, I thought it was interesting that something as simple as a conference call could be used to predict the market. This will be used to show how tone of voice is linked to ethical/unethical reporting and how investors use this information to make financial decisions as it pertains to the investing with the company.

Griffin, P. A., Hong, H. A., Kalcheva, I., & Kim, J. (2022). Shorting activity and stock return predictability: Evidence from a mandatory disclosure shock. Financial Management, 51(1), 27-71. https://doi.org/10.1111/fima.12351

Summary

This study explores the repercussions of the mandatory adoption of International Financial Reporting Standards (IFRS) in 2005 on the predictability of shorting activities' returns. By leveraging a Difference-in-Differences (DiD) design and examining shorting markets across multiple countries, the research examines how the shock of IFRS adoption affects the ability of shorting demand and supply shifts to forecast abnormal stock returns over a one-month horizon. The findings reveal a notable decline post-adoption in the predictive power of shorting activities, indicating that the disclosure shock stemming from IFRS adoption disrupts short-sellers' utilization of value-relevant predictive information in the equity lending market. The study suggests that the democratization of structured disclosure, prompted by mandatory accounting changes like IFRS adoption, has dual outcomes: a drawback for sophisticated investors in terms of reduced predictive ability and a boon for others due to enhanced and more affordable information leading to accelerated price discovery. Furthermore, the study identifies a greater reduction in return predictability for shorting activities surrounding negative earnings surprises and M&A announcements, known opportunities for shorting, post-IFRS adoption. This aligns with the notion that enhanced mandatory disclosure diminishes short-sellers' profitability by devaluing their information. Additionally, the research highlights a decrease in aggregate lending market activity and lending costs following the IFRS disclosure shock, indicating a significant impact on information flow within the equity lending market.

Assess

This source was relevant in that it examined and presented one of the many financial reporting requirements to better identify shorting and how information flow from this helped to better predict market volatility.

Reflect

This source will be used to show the impact of IFRS adoption on shorting demand and supply shifts and their capacity to predict stock returns within a one-month timeframe. The study indicates a significant decrease in the effectiveness of shorting activities following the implementation of IFRS, underscoring the interference with short-sellers' utilization of value-relevant predictive information in the equity lending market.

Hassan, M., Nassar, R., & Whitherspoon, A. (2019). Impact of internal control over financial reporting under the Sarbanes-Oxley act on a firm's stock price and stock volatility. International Journal of Business, Accounting, and Finance, 13(1). https://link.gale.com/apps/doc/A584729656/GBIB?u=vic_liberty&sid=summon&xid=95c01aad

Summary

This research analyzes the consequences of financial filing alterations mandated by the Sarbanes-Oxley Act (SOX). It explores the effects of accuracy and transparency in financial disclosures, particularly in Form 10-K reports, after the enactment of SOX. The authors focus on SOX's requirement for reporting on management internal control and material deficiencies, alongside their verification by independent auditors. Analyzing a random sample of 77 companies listed on the New York Stock Exchange, the study employs time series intervention analysis and auto-regression techniques to assess the impact of the first 10-K filing post-SOX on stock price dynamics. Findings suggest that while a minority of firms experienced positive stock price effects following the new filing requirements, the majority showed no significant impact.

Assess

I took a different outlook on assessing the selected peer journals. They were similar in that they all studied the effects of financial reporting or disclosure on stock prices. This journal was selected because I wanted to examine different types of financial reporting or disclosures to conclude if stock prices were affected, in general, or if they were effected by a certain type or style of financial reporting or disclosure.

Reflect

The material presented in this study will be used to show that financial reporting (Form 10-K) had no significant impact to stock price or stock volatility, pre or post filing. Finding will be compared to results from other studies to further understand how financial reporting, in general, affects stock prices.

Kim, J., Yeung, I., & Zhou, J. (2019). Stock price crash risk and internal control weakness: Presence vs. disclosure effect. Accounting and Finance (Parkville), 59(2), 1197-1233. https://doi.org/10.1111/acfi.12273

Summary

This source probes the relationship between internal control weaknesses (ICWs) and stock price crash risk, focusing particularly on the impact of initial ICW disclosures. Through empirical analysis, the authors observe that firms with ICWs exhibit higher crash risk in the year leading up to the initial disclosure. Furthermore, they find that this elevated risk diminishes gradually post-disclosure and diminishes further after remediation efforts. Importantly, the study incorporates various controls including measures of information opaqueness, investor heterogeneity, and other firm-specific factors associated with crash risk. The results underscore the significance of ICW disclosure in enhancing external monitoring and mitigating crash risk, thus emphasizing the importance of effective internal controls for market stability. Additionally, the findings shed light on the positive market implications of stringent disclosure requirements like those outlined in SOX 404.

Assess

This study ties into Hassan et al. (2019) in that it addresses financial reporting’s effect on the stock market. I wanted to approach the topic by looking at the effects of several different reports versus just looking at the affects of 1.

Reflect

The material proposed in this study will be used to shed light on the balance of information disclosure between managers and external stakeholders. It is proposed that managers tend to conceal adverse news or information, resulting in a deficit of confidence that undermines market predictability.

Liu, J. (2021). Does negative information in MD&A can reduce stock crash risk. Nankai Business Review International, 12(4), 537-552. https://doi.org/10.1108/NBRI-04-2021-0027

Summary

This study evaluates the impact of negative information disclosure within Management Discussion and Analysis (MD&A) sections of annual reports on stock price crash risk. Utilizing data from A-share listed companies spanning 2007 to 2016, the research explores whether the disclosure of negative news in MD&A contributes to reducing crash risk by alleviating information asymmetry. Contrary to expectations, the findings suggest that negative information in MD&A fails to mitigate crash risk, potentially due to its low readability, delaying its dissemination into the market. However, in firms with higher readability, negative information exhibits a negative correlation with crash risk, indicating its potential in alleviating information asymmetry. The study also highlights the role of investor surveys in helping interpret negative information and reducing crash risk. The practical implications underscore the importance of investors discerning the quality of negative disclosures in MD&A and regulators emphasizing not just the quantity but also the quality of information disclosure to curb managerial strategic behavior.

Assess

This source is similar to Hassan et al. & Kim et al. (2019) in that they all studied the effects of financial reporting or disclosure on stock prices. This will provide several different approaches in determining how and if stock prices are affected.

Reflect

The material will be used to focus on how negative information disclosed in MD&A sections underscored the importance of readability and investor surveys in understanding and mitigating crash risk.

References

Hassan, M., Nassar, R., & Whitherspoon, A. (2019). Impact of internal control over financial reporting under the Sarbanes-Oxley act on a firm's stock price and stock volatility. International Journal of Business, Accounting, and Finance, 13(1). https://link.gale.com/apps/doc/A584729656/GBIB?u=vic_liberty&sid=summon&xid=95c01aad

Kim, J., Yeung, I., & Zhou, J. (2019). Stock price crash risk and internal control weakness: Presence vs. disclosure effect. Accounting and Finance (Parkville), 59(2), 1197-1233. https://doi.org/10.1111/acfi.12273

Liu, J. (2021). Does negative information in MD&A can reduce stock crash risk. Nankai Business Review International, 12(4), 537-552. https://doi.org/10.1108/NBRI-04-2021-0027