Do long-term investors improve corporate decision making?

Harford, Jarrad; Kecskés, Ambrus; Mansi, Sattar

doi:10.1016/j.jcorpfin.2017.09.022

Cited by 235 publications

(177 citation statements)

References 78 publications

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“…Consistent with the monitoring hypothesis, we find that firms with high‐quality accruals have lower debt specialisation when institutional stakes are large (column (1)) and equity stakes are held by transient and quasi‐indexed investors (columns (2)–(5)). The predicted effect of quasi‐indexed investors (e.g., having a value‐increasing role) is compatible with the previous research on index reconstitution and corporate decision‐making (e.g., Crane et al ., ; Cao et al ., ; Harford et al ., ). The result that dedicated institutions are not more influential than transient institutions is perhaps surprising.…”

Section: Resultsmentioning

confidence: 97%

“…Due to the intensive monitoring role of institutional investors, creditors need not extensively monitor management as they would do if institutional investors are not significantly present. Furthermore, the accruals quality serves as a credible screening mechanism, because institutional equity owners reduce misreporting incentives (Harford et al ., ) and earnings management practices (Sakaki et al ., ). Under this hypothesis, firms with scrutinising institutional investors will be less likely to demand greater monitoring by specialised creditors.…”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

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Who monitors opaque borrowers? Debt specialisation, institutional ownership, and information opacity

Platikanova

Soonawalla

2019

Accounting & Finance

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In this study, we suggest that the level of information opaqueness determines the propensity of publicly listed firms to have debt financing from only a few debt types (i.e., debt specialisation). Using accruals quality as a proxy for information opaqueness, we find that the degree of debt specialisation is lower for firms with high-quality accruals. This result is consistent with the notion that information collection and monitoring costs are higher for firms that have higher informational opacity, explaining the tendency towards debt specialisation. We further argue that creditors need not monitor borrowers so closely when they are monitored by institutional owners. The empirical findings support this argument and show that firms with more stable institutional ownership are likely to have less specialised debt types. The empirical evidence is also consistent with the expectation that stable institutional ownership is likely to reduce the demand for monitoring over accruals management. Using S&P 500 membership as an exogenous event driving institutional ownership changes, we further document that debt specialisation is decreasing in accruals quality when institutional investors are expected to have an influence.An extensive literature in corporate finance and financial accounting examines the accounting information properties that facilitate access to debt

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Section: Resultsmentioning

confidence: 97%

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

Who monitors opaque borrowers? Debt specialisation, institutional ownership, and information opacity

Platikanova

Soonawalla

2019

Accounting & Finance

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“…Fifth, the receipt of a comment letter may lead to better corporate performance. To clarify, prior research (e.g., Chen et al, 2007;Harford et al, 2017) shows that oversight pressures provide a valuable signal to managers to exert greater effort in managing the firm. Further, prior studies (e.g., Berto the oversight intensity.…”

Section: Hypothesis Developmentmentioning

confidence: 99%

Does Securities Commission Oversight Reduce the Complexity of Financial Reporting?

Hesarzadeh

Rajabalizadeh

2020

RC-SAR

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En este trabajo se investiga si la supervisión de la Comisión de Valores reduce la complejidad de los informes financieros. Para ello se utilizan las cartas de opinión (comment letters) de la Comisión de Valores de Irán. Además, para medir dicha complejidad, se emplea el índice de Fog. Usando un diseño de diferencia en diferencias con la aproximación propensity score matching, se encuentra que la supervisión de la Comisión de Valores reduce esta complejidad. Además, se muestra que el impacto de la supervisión de las comisiones de valores en la complejidad de los informes financieros es mayor para las empresas con mayor calidad de gobierno corporativo. También se documenta que este impacto (1) no se limita a un año y persiste al menos dos años después, y (2) no es mayor para las empresas que reciben más cartas de opinión (comment letters). Además, se constata el efecto indirecto de la supervisión de la comisión de valores, en el sentido de que las empresas que no reciben ninguna carta de opinión (comment letters) reducen la complejidad de sus informes financieros si la comisión de valores ha hecho comentarios sobre la empresa líder del sector o sobre un competidor cercano. En definitiva, este artículo proporciona, por un lado, evidencia relacionada con el debate internacional sobre si las comisiones de valores podrían tener efectos beneficiosos en la información financiera que elaboran las empresas y, por otro, contribuye a la literatura sobre la complejidad de los informes financieros y los factores que reducen la misma, lo cual ocupa un lugar destacado entre los temas más importantes en el contexto de la información financiera internacional. We investigate whether securities commission oversight reduces the complexity of financial reporting (complexity). To measure the securities commission oversight, we use comment letters from securities commission of Iran. Further, to measure the complexity, we employ the Fog index. Using a difference-in-differences design with a propensity score matching approach, we find that the securities commission oversight reduces the complexity. Furthermore, we document that the impact of securities commission oversight on the complexity is stronger for firms with higher corporate governance quality. In addition, we document that the impact of securities commission oversight on the complexity (1) is not limited to one year and persists through at least two years later; and (2) is not higher for firms that receive more comment letters. We further document the spillover effect of securities commission oversight, in the sense that firms not receiving any comment letter reduce their complexity if the securities commission has commented on the industry leader or a close rival. Collectively, this paper, on the one hand, provides related evidence for the international debate on whether securities commissions could provide beneficial effects; and on the other hand, contributes to the literature on the complexity and its reducing factors that are among the most important issues in the context of international financial reporting.

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“…It should be noted that taking decisions by referring to the most economically efficient and rational dispute resolution method is a sufficiently complex process, and only rarely can be assessed by a single common indicator, because in reality a single absolutely right solution does not exist. The problem has been addressed in their papers of a number of authors (Harford, Kecskes, & Mansi, 2017;Ikeda, Inoue, & Watanabe, 2017;Bumblauskas, Gemmill, Igou, & Anzengruber, 2017;Yazdani, Zarate, Coulibaly, & Zavadskas, 2017;Rezaei, 2018). Since selecting a dispute resolution method we most often encounter a number of criteria, that should be taken into account, a possibly successful option could be a successive discount method.…”

Section: Introductionmentioning

confidence: 99%

Choosing the Most Economically Advantageous Solution to the Decision of the Issue

Keršulienė

Butkienė

2018

10th International Scientific Conference “Business and Management 2018”

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Countries in conflict, trying to make a resolution, encounter a decision process. Often, in practice deci-sions are made based on groundless rationalization, therefore it is commonly believed that it is experi-ence and intuition that are key to the decision making process. Since decisions in law are usually based on logical reasoning, taking into account conflict circumstances and facts, the success of this decision can be determined with mathematical calculation. In recent decades, as the boundries be-tween scholarly disciplines blur, new ones are formed, which are not entirely indepedent, but bring in new research methods. Law and economics is a clear example of this interdisciplinery relation. The law system impacts the economical atmosphere, therefore before taking decision in law, economical aspects must be evaluated. Striving to resolve the disputes between parties at work mathematical cal-culations are used in order to analyze the expected behaviour of each party. Guidance for parties having dispute is the most economically viable option for completing the dispute.

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Do long-term investors improve corporate decision making?

Cited by 235 publications

References 78 publications

Who monitors opaque borrowers? Debt specialisation, institutional ownership, and information opacity

Who monitors opaque borrowers? Debt specialisation, institutional ownership, and information opacity

Does Securities Commission Oversight Reduce the Complexity of Financial Reporting?

Choosing the Most Economically Advantageous Solution to the Decision of the Issue

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