ABSTRACT Using the staggered adoption of takeover laws, this study examines implications of takeover threats on earnings management around the world. I find that the enactment of takeover legislation leads to increased earnings management (abnormally high accruals, target beating, and poor accruals quality). Results are driven by underperforming managers with higher turnover risk in countries with high increases in turnover sensitivity to performance, indicating job security concerns as the channel through which takeover laws increase earnings management. Furthermore, results are strongest in countries with weak investor protection, where existing governance mechanisms are weaker and earnings management is more prevalent. Moreover, regulation provisions that most directly increase takeover threats experience greater earnings management responses. Additionally, I show that accounting restatements and fraud scandals become more frequent following takeover legislation. Overall, I provide evidence that takeover reforms, although enhancing discipline of underperforming managers, inadvertently incentivize accounting manipulation due to heightened job security concerns. JEL Classifications: G34; G38; K22; M41; M43.

Economists have long observed that stock price bubbles are associated with corporate overinvestment. We study the ex-ante identification of bubbles (i.e. stock price booms followed by busts) by examining industry-level investments in net operating asset (NOA) accruals and stock returns for 49 countries around the world. Consistent with overinvestment in operating assets being key to bubble formation, we document five findings: (1) NOA accruals positively forecast the eventual crash of an industry price run-up; (2) NOA accruals negatively forecast stock returns following a run-up; (3) NOA accruals are positively associated with investor sentiment; (4) higher NOA accruals forecast more disappointing earnings relative to analysts’ expectations for run-up industries; and (5) NOA accruals are sharply stronger predictors of crashes, returns and analyst forecast errors following run-ups compared to other periods. Our results provide the first evidence that accounting information identifies stock price bubbles and suggest that financial statements are important for detecting and anticipating industry- and market-level inefficiencies.

Despite a substantial literature linking industry concentration, proprietary costs and disclosure, existing evidence is mixed. We discuss three challenges to the literature: lack of strong theoretical predictions, difficulty in measuring relevant aspects of industry concentration and difficulty in identifying disclosures that are likely to carry significant proprietary costs. We link each of the issues to the findings in Ali et al. (2014) and identify potential opportunities for future research.

Analyzing a panel of earnings announcers from 1998–2022, we document that the aggregate market return on quarterly earnings announcement dates is positively associated with the announcing firm’s subsequent three-day abnormal returns. This phenomenon is strongest for firms with extreme earnings surprises and dissipates by day seven, indicating a short-lived delay in incorporating the aggregate news. We also document a sluggish return response to same-day macro news disclosures, especially when earnings surprises are extreme. Effects strengthen when investors exert more effort in acquiring announcing firm information, measured by SEC EDGAR filing downloads, when macronews has a larger impact on a firm’s stock returns, when firms are smaller, and when investors’ attention and processing capacity are more constrained, proxied by retail trading. Overall, the findings support the notion that investors have finite information processing capacity and that intensive efforts to acquire firm earnings news delay the incorporation of macroeconomic news into prices.

We examine broad effects of MiFID II, which mandated unbundled pricing of analyst research in the European Union beginning in 2018. We find significant reductions in sell-side analyst following, particularly for firms for which the marginal analyst was less important (larger, older, less volatile firms with greater coverage and more accurate forecasts). High quality analysts (more accurate, experienced, and in positions of seniority) were more likely to leave the sell-side and move to the buy-side, while remaining sell-side analysts increased efforts to make their forecasts more informative (more accurate, more detailed, and more likely to include informative recommendations resulting in larger stock price responses). Firms responded to a loss of sell-side coverage with more frequent, forward-looking, and informative investor relations events, especially for firms that lost the most coverage. Our results support recent theoretical analysis predicting that unbundling had significant implications for sell-side research, buy-side research, and firm responses.

This paper examines how a change in disclosure regulation influences investors' information acquisition and trading across multiple markets. We leverage the 2007 elimination of the Form 20‐F reconciliation requirement for cross‐listed firms that prepare financial statements under IFRS. Using a difference‐in‐differences research design, we show that investors acquire fewer Form 20‐Fs of IFRS‐reporting cross‐listed firms when these forms are not filed in a timely manner relative to the home‐country earnings announcement. We also find an increased acquisition of earnings‐specific 6‐Ks, indicating a shift in investor attention from delayed and unreconciled 20‐Fs to more timely earnings releases in the home country. Furthermore, we find that American Depositary Receipt (ADR) market reactions to local earnings announcements increase after the deregulation, especially for firms with strong home‐country institutions. In addition, we find that the deregulation increases return co‐movement between the US ADR market and the home‐country stock market for IFRS filers' shares. Our results bring novel insights regarding the cross‐market impact of the disclosure regulation change.