Political Uncertainty and Firm Disclosure

Boone, Audra L.; Kim, Abby; White, Joshua T.

doi:10.2139/ssrn.3003157

Cited by 23 publications

(32 citation statements)

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“…During uncertain times, companies reduce investment and hiring (Baker et al, 2016), and engage in more cautious financial policies (Alfaro et al, 2017). Recent works find that policy uncertainty can also affect the amount of accounting information that firms disclose to external constituents (Bird et al, 2017;Boone et al, 2017;Nagar et al, 2019). This paper investigates the effect of policy uncertainty on a different type of information disclosure, that is, the decision as to whether or not to report R&D expenses in accounting statements.…”

Section: Discussionmentioning

confidence: 99%

“…Since the aftermath of the global financial crisis, scholars have paid attention to the impact of policy uncertainty on the transparency of corporate decisions-showing that while uncertainty can improve accounting disclosure (Bird et al, 2017;Boone et al, 2017;Nagar et al, 2019) it can also raise corporate opaqueness in other ways, for example, tax avoidance (Nguyen & Nguyen, 2019). In parallel, the literature is assessing the reporting practices of intangible expenses (other than R&D) and their informativeness for market players (Enache & Srivastava, 2017).…”

Section: Discussionmentioning

confidence: 99%

“…Adverse selection arguments (Grossman, 1981; Grossman & Hart, 1980) suggest that if the market knows that a firm's management possesses a certain private information, then the management has incentives to disclose this information to avoid investors discounting the firm's shares for the lack of disclosure 1 . Recent works find that during periods of high policy uncertainty firms provide more voluntary disclosure, as measured by management forecasts or 8K filings (Bird, Karolyi, & Ruchti, 2017; Boone, Kim, & White, 2017; Nagar, Schoenfeld, & Wellman, 2019).…”

Section: Introductionmentioning

confidence: 99%

“…This paper expands a flourishing literature about the impact of economic policy uncertainty on corporate policies, which has explored several variables from financing (Pastor & Veronesi, 2013) to investment (Gulen & Ion, 2016) and innovation (Atanassov et al, 2017; Bhattacharya et al, 2017) but has only recently tried to uncover how uncertainty changes the reliance of firms on each other's information (Im, Oliver, & Park, 2020) and their strategic behavior in terms of information disclosure (Bird et al, 2017; Boone et al, 2017; Nagar et al, 2019). While these latter works have focused on traditional measures of accounting information, they have not investigated the implications of policy uncertainty for innovation disclosure, which, as discussed, can have far reaching implications for firms' competitive actions.…”

Section: Introductionmentioning

confidence: 99%

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Innovation disclosure in times of uncertainty

Amore

2020

Economics Manag Strategy

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A recent literature shows that many firms feature missing R&D expenses in their accounting statements. This study explores how economic policy uncertainty affects the decision to disclose innovation-related information. Empirical analyses on a panel of U.S. listed companies show that policy uncertainty increases the likelihood of missing R&D (as opposed to both positive and zero R&D). This result is more pronounced for firms that enjoy a leadership position in their industry, firms in states subject to a weaker legal protection of internal knowledge, and firms that rely more on government demand. During uncertain times, firms also file patents that exhibit a greater textual vagueness. Finally, the evidence suggests that missing R&D helps firms alleviate the negative impact of policy uncertainty on market value. 1 | INTRODUCTION Macroeconomic events in recent years have fueled a research on the relationship between economic policy uncertainty and corporate outcomes (Baker, Bloom, & Davis, 2016; Bloom, 2014). A useful perspective to understand this relationship comes from real option theory, which suggests that uncertainty increases the value of delaying irreversible investment (Bernanke, 1983). Moreover, uncertainty can affect companies by raising risk premia and increasing borrowing costs (Pastor & Veronesi, 2013). While this literature has traditionally focused on investment and financing policies (Bonaime

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Section: Discussionmentioning

confidence: 99%

Section: Discussionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Innovation disclosure in times of uncertainty

Amore

2020

Economics Manag Strategy

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“…Boone et al . () also examine US‐based firms in a sample period between 1997 and 2013 and find that firms in states experiencing gubernatorial elections provide more frequent and informative 8‐K filings, mainly stemming from the Regulation Fair Disclosure filings that contain information such as product development, customers, and key employees. Their cross‐sectional analyses show that these increase disclosures are concentrated in firms with more investment, higher information demand, and lower proprietary disclosure costs.…”

Section: Political Uncertainty and Corporate Policiesmentioning

confidence: 99%

Political Uncertainty and Finance: A Survey

Dai

Zhang

2019

Asia-Pac J of Fin Stud

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An emerging stream of literature investigates the impact of political uncertainty on financial markets. In this survey, we review this line of literature from four perspectives, namely, asset prices, corporate policies, financial intermediaries, and economy and households, suggesting that political uncertainty generally increases market friction and as a result changes corporate behavior and adversely affects the economy. At the end of the survey, we discuss a few future directions worth being explored in view of the relationship between political uncertainty and finance. most likely to occur if the old policy has led to unexpected low realized profitability. Therefore, policy change can increase firms' expected profitability, thereby pushing stock prices up, that is, the cash flow effect. However, due to the new policy's higher uncertainty, policy change can also increase discount rates, thereby pushing stock prices down, that is, the discount rate effect. The authors show analytically that, on average, the discount rate effect will outweigh the cash flow effect and stock prices will fall at the announcement of a government policy change. The reason is that positive announcement returns tend to be small as policy changes that have the potential to push stock prices up are mostly expected by investors. Moreover, as new policies introduce more uncertainty and raise the volatility of the stochastic discount factor, government policy changes will increase stock return volatilities and correlations.Closely related to P astor and Veronesi (2012, 2013) analyze the risk premium induced by political uncertainty. P astor and Veronesi (2013) extend the general equilibrium model developed by P astor and Veronesi (2012) in two key aspects. First, unlike P astor and Veronesi (2012) who assume political cost is unknown to investors, P astor and Veronesi (2013) allow investors to learn about the political costs of the new policies through the stream of political news. Second, P astor and Veronesi (2012) assume that all government policies are identical a priori, whereas P astor and Veronesi (2013) allow the government to choose from a set of heterogeneous policies. The impacts of both, the learning about political costs and policy heterogeneity, are larger in weak economic conditions when a policy change is more likely to happen.Accordingly, in P astor and Veronesi's (2013) analytic model, stock returns are driven by capital shocks, impact shocks, and political shocks, and correspondingly the equity risk premium can be decomposed into three components based on the three types of shocks. As the optimal choice for the government is to change its policy when the old policy is perceived as sufficiently unfavorable, the authors show analytically that the composition of the risk premium varies depending on the economic state. In weak economic conditions when the probability of a policy change is high, the equity risk premium is largely driven by the political risk premium. However, in strong economic conditions when a policy change ...

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Impact of economic policy uncertainty on disclosure and pricing of earnings news

Asthana

Kalelkar

2020

Rev Quant Finan Acc

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Political Uncertainty and Firm Disclosure

Cited by 23 publications

References 64 publications

Innovation disclosure in times of uncertainty

Innovation disclosure in times of uncertainty

Political Uncertainty and Finance: A Survey

Impact of economic policy uncertainty on disclosure and pricing of earnings news

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