No abstract

In this paper, we investigate the stock market valuation of the intangible asset created by selling, general, and administrative (SG&A) expenditure. Although GAAP requires immediate expensing of SG&A, prior studies show that current SG&A generates future economic benefits, suggesting that it creates an intangible asset. We find that the contemporaneous stock market seems to recognize some of the intangible asset value implicit in SG&A. Positive subsequent returns can be earned in firms with a high SG&A intangible asset value. These excess returns are more likely due to investor mispricing than to risk compensation. Furthermore, we find that both analysts' long-term growth forecast revisions and one-year-ahead forecast errors are positively associated with the future value created by current SG&A, indicating that analysts partially incorporate the intangible SG&A asset value into their forecasts. Overall, the evidence suggests that the capital market only partially recognizes the intangible asset value created by SG&A expenditure.

We investigate whether the societal-level social capital enjoyed by firms affects the cost of their bank loans. Employing a measure of societal-level social capital for U.S. counties, we find that firms with higher societal-level social capital are associated with lower loan spreads. To further identify causality, we explore two events: Using a sample of firms that relocate their headquarters for tax reasons, we find that firms that move to lower (higher) social capital counties experience a higher (lower) cost of bank loans following relocations. The second event was the terrorist attack on September 11, 2001. After the disaster, social capital in affected counties—mainly in the State of New York, the State of Virginia, and adjacent counties—increased through social capital building efforts. We show that firms headquartered in the affected counties experience significantly lower loan spreads than other firms after the attack. Our findings contribute to the understanding of how societal-level social capital promotes economic development through its impact on financing costs.

We examine whether a stock price spillover effect spreads through the method of listing or country of origin and whether this spillover effect changes when investor sentiment shifts. Using a sample of fraud allegations against Chinese companies that became public through Chinese reverse mergers (CRMs), we investigate whether firms that experienced negative spillover effects on their stock prices are those from the same country and/or with the same method of listing as the firms accused of fraud. We first show that the negative spillover effect channeled through the firm's country of origin becomes stronger when investor sentiment about Chinese companies becomes pessimistic, as evinced by significant declines in the stock prices of non‐fraudulent Chinese companies, including both CRMs and Chinese IPOs. Second, we show that the negative spillover effects on CRMs are stronger than those on Chinese IPOs and non‐Chinese reverse mergers, suggesting that both country and listing method are applicable to CRMs. Our findings indicate that (i) investor sentiment plays an important role in the spillover process involving fraud allegations and (ii) while the two channels could coexist, negative spillover effects that spread through the country of origin play a more prominent role than those that spread through the method of listing.

In this study, we examine whether productivity shifts when accounting standards change. Using mandatory International Financial Reporting Standards (IFRS) as a shock to the accounting regime, we examine the changes in country‐level productivity. We find that mandatory IFRS‐adopting countries experience significant increases in total factor productivity (TFP) and labor productivity. The post‐adoption productivity improvements are greater for countries without IFRS convergence. Further, TFP increases more for countries that experience a larger increase in industry comparability. Taken together, the evidence suggests that the new IFRS accounting regime increases economic productivity via improving information environments and facilitating internal firm decisions.