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The Timeliness of Bad Earnings News and Litigation Risk

Dain C. Donelson; John M. McInnis; RICHARD MERGENTHALER; Yong Yu
The Accounting Review 2012 87(6), 1967-1991
ABSTRACT This study investigates whether the timely revelation of bad earnings news is associated with a lower incidence of litigation. The timeliness of earnings news is captured by a new measure based on the evolution of the consensus analyst earnings forecast. Holding total bad earnings news and other determinants of litigation constant, we find that earlier revelation of bad earnings news lowers the likelihood of litigation. This result holds for both settled and dismissed lawsuits. Further, we reconcile our findings with prior work that measures timeliness using managerial warnings via press releases. These tests suggest our findings are attributable to the ability of our timeliness measure to capture bad earning news revealed through disclosure channels beyond press releases. Data Availability: Data are available from public sources identified in the paper. JEL Classifications: K22; K41; M41.

Differential Communication and Local Information Advantage: Revelations from Translation Differences

Tina Lang; Lorien Stice-Lawrence; Yu Ting Forester Wong; T. J. Wong
The Accounting Review 2026 101(4), 353-386 open access
ABSTRACT We develop an empirical proxy for companies’ differential communication to local and foreign investors using translation differences in public disclosure. We validate our proxy using a field experiment and then use this proxy to document that differential communication is associated with increases in information asymmetry between local and foreign investors. It is also linked to decreases in the relative information quality of foreign analysts, even when foreign demand for information is high and communication costs are low. These and a variety of supporting tests, including those using an alternative artificial intelligence (AI)-based measure of translation differences, suggest that firms engage in differential communication because of a preference for local investors and when responding to incentives to maximize stock price. This study highlights the role of differential communication as one driver of local information advantage in our setting. Data Availability: Most data are available from publicly available sources, as described in the paper. The field experiment data are available upon request. JEL Classifications: G15; G14; M40; M41; G30.

Financial Reporting Quality of Chinese Reverse Merger Firms: The Reverse Merger Effect or the Weak Country Effect?

Kun-Chih Chen; Qiang Cheng; Ying Chou Lin; Yu-Chen Lin; Xing Xiao
The Accounting Review 2016 91(5), 1363-1390 open access
ABSTRACT In this paper, we examine why Chinese reverse merger (RM) firms have lower financial reporting quality than U.S. IPO firms. We find that the financial reporting quality of U.S. RM firms is similar to that of matched U.S. IPO firms, but Chinese RM firms exhibit lower financial reporting quality than Chinese ADR firms. We also find that Chinese RM firms exhibit lower financial reporting quality than U.S. RM firms. These results indicate that the use of the RM process is associated with poor financial reporting quality only in firms from China, where legal enforcement and investor protection are weak. In addition, we find that compared with Chinese ADR firms, Chinese RM firms have weaker bonding incentives (as measured by CEO turnover-performance sensitivity) and poorer corporate governance. These factors, in turn, contribute to the lower financial reporting quality of Chinese RM firms. Overall, our results suggest that the less scrutinized RM process allows the Chinese firms with weak bonding incentives and poor governance to gain access to U.S. capital markets, resulting in poor financial reporting quality. JEL Classifications: G15; G24; G34; G38.

Nonstandard Errors

Albert J. Menkveld; Anna Dreber; Felix Holzmeister; Jürgen Huber; Magnus Johannesson; Michael Kirchler; SEBASTIAN NEUSÜß; Michael Razen; Utz Weitzel; DAVID ABAD-DÍAZ; Menachem Abudy; Tobias Adrian; Yacine Aït-Sahalia; Olivier Akmansoy; Jamie Alcock; Vitali Alexeev; Arash Aloosh; LIVIA AMATO; Diego Amaya; James J. Angel; ALEJANDRO T. AVETIKIAN; AMADEUS BACH; EDWIN BAIDOO; GAETAN BAKALLI; LI BAO; Andrea Barbon; OKSANA BASHCHENKO; Parampreet Christopher Bindra; Geir Høidal Bjønnes; Jeffrey R. Black; Bernard S. Black; DIMITAR BOGOEV; SANTIAGO BOHORQUEZ CORREA; Oleg Bondarenko; CHARLES S. BOS; Ciril Bosch-Rosa; ELIE BOURI; Christian T. Brownlees; ANNA CALAMIA; Viet Nga Cao; Gunther Capelle-Blancard; LAURA M. CAPERA ROMERO; Massimiliano Caporin; Allen Carrion; TOLGA CASKURLU; Bidisha Chakrabarty; Jian Chen; Mikhail Chernov; WILLIAM CHEUNG; LUDWIG B. CHINCARINI; Tarun Chordia; SHEUNG-CHI CHOW; BENJAMIN CLAPHAM; Jean-Edouard Colliard; Carole Comerton-Forde; EDWARD CURRAN; THONG DAO; WALE DARE; Ryan J. Davies; RICCARDO DE BLASIS; GIANLUCA F. DE NARD; Fany Declerck; OLEG DEEV; Hans Degryse; SOLOMON Y. DEKU; CHRISTOPHE DESAGRE; Mathijs A. van Dijk; Chukwuma Dim; Thomas Dimpfl; YUN JIANG DONG; PHILIP A. DRUMMOND; Tom L. Dudda; TEODOR DUEVSKI; Ariadna Dumitrescu; Teodor Dyakov; Anne Haubo Dyhrberg; Michał Dzieliński; ASLI EKSI; Izidin El Kalak; Saskia ter Ellen; Nicolas Eugster; Martin D. D. Evans; Michael Farrell; ESTER FELEZ-VINAS; Gerardo Ferrara; EL MEHDI FERROUHI; Andrea Flori; JONATHAN T. FLUHARTY-JAIDEE; Sean Foley; Kingsley Y. L. Fong; Thierry Foucault; TATIANA FRANUS; Francesco A. Franzoni; Bart Frijns; MICHAEL FRÖMMEL; SERVANNA M. FU; Sascha Füllbrunn; BAOQING GAN; GE GAO; Thomas Gehrig; ROLAND GEMAYEL; DIRK GERRITSEN; Javier Gil-Bazo; Dudley Gilder; Lawrence R. Glosten; THOMAS GOMEZ; Arseny Gorbenko; Joachim Grammig; Vincent Grégoire; Ufuk Güçbilmez; Björn Hagströmer; JULIEN HAMBUCKERS; ERIK HAPNES; Jeffrey H. Harris; Lawrence Harris; SIMON HARTMANN; JEAN-BAPTISTE HASSE; Nikolaus Hautsch; XUE-ZHONG (TONY) HE; Davidson Heath; SIMON HEDIGER; Terrence Hendershott; Ann Marie Hibbert; Erik Hjalmarsson; Seth A. Hoelscher; Peter Hoffmann; Craig W. Holden; Alex R. Horenstein; Wenqian Huang; DA HUANG; Christophe Hurlin; KONRAD ILCZUK; ALEXEY IVASHCHENKO; Subramanian R. Iyer; Hossein Jahanshahloo; NAJI JALKH; Charles M. Jones; SIMON JURKATIS; Petri Jylhä; ANDREAS T. KAECK; GABRIEL KAISER; ARZÉ KARAM; Egle Karmaziene; BERNHARD KASSNER; Markku Kaustia; EKATERINA KAZAK; Fearghal Kearney; Vincent van Kervel; SAAD A. KHAN; MARTA K. KHOMYN; Tony Klein; OLGA KLEIN; Alexander Klos; Michael Koetter; Aleksey Kolokolov; Robert A. Korajczyk; Roman Kozhan; Jan P. Krahnen; PAUL KUHLE; Amy Kwan; QUENTIN LAJAUNIE; F. Y. Eric C. Lam; Marie Lambert; Hugues Langlois; JENS LAUSEN; Tobias Lauter; Markus Leippold; VLADIMIR LEVIN; YIJIE LI; Hui Li; CHEE YOONG LIEW; THOMAS LINDNER; Oliver Linton; JIACHENG LIU; Anqi Liu; Guillermo Llorente; Matthijs Lof; ARIEL LOHR; FRANCIS LONGSTAFF; Alejandro Lopez-Lira; Shawn Mankad; NICOLA MANO; ALEXIS MARCHAL; Charles Martineau; Francesco Mazzola; Debrah Meloso; MICHAEL G. MI; Roxana Mihet; Vijay Mohan; Sophie Moinas; David Moore; Liangyi Mu; Dmitriy Muravyev; Dermot Murphy; GABOR NESZVEDA; CHRISTIAN NEUMEIER; Ulf Nielsson; Mahendrarajah Nimalendran; Sven Nolte; LARS L. NORDEN; Peter O’Neill; Khaled Obaid; BERNT A. ØDEGAARD; Per Östberg; EMILIANO PAGNOTTA; Marcus Painter; Stefan Palan; IMON J. PALIT; Andreas Park; Roberto Pascual; Paolo Pasquariello; Ľuboš Pástor; VINAY PA℡; Andrew J. Patton; Neil D. Pearson; Loriana Pelizzon; MICHELE PELLI; Matthias Pelster; Christophe Pérignon; CAMERON PFIFFER; Richard Philip; TOMÁŠ PLÍHAL; PUNEET PRAKASH; OLIVER-ALEXANDER PRESS; TINA PRODROMOU; Marcel Prokopczuk; Talis Putnins; YA QIAN; GAURAV RAIZADA; David Rakowski; Angelo Ranaldo; Luca Regis; Stefan Reitz; Thomas Renault; REX W. RENJIE; Roberto Renò; Steven J. Riddiough; Kalle Rinne; PAUL RINTAMÄKI; Ryan Riordan; THOMAS RITTMANNSBERGER; IÑAKI RODRÍGUEZ LONGARELA; Dominik Roesch; LAVINIA ROGNONE; Brian Roseman; Ioanid Roşu; Saurabh Roy; NICOLAS RUDOLF; STEPHEN R. RUSH; Khaladdin Rzayev; ALEKSANDRA A. RZEŹNIK; Anthony Sanford; Harikumar Sankaran; Asani Sarkar; Lucio Sarno; Olivier Scaillet; STEFAN SCHARNOWSKI; KLAUS R. SCHENK-HOPPÉ; ANDREA SCHERTLER; MICHAEL SCHNEIDER; FLORIAN SCHROEDER; Norman Schürhoff; Philipp Schuster; MARCO A. SCHWARZ; Mark S. Seasholes; Norman J. Seeger; Or Shachar; Andriy Shkilko; JESSICA SHUI; MARIO SIKIC; Giorgia Simion; Lee A. Smales; Paul Söderlind; Elvira Sojli; Konstantin Sokolov; JANTJE SÖNKSEN; Laima Spokeviciute; Denitsa Stefanova; Marti G. Subrahmanyam; BARNABAS SZASZI; Oleksandr Talavera; Yuehua Tang; Nick Taylor; Wing Wah Tham; Erik Theissen; Julian Thimme; Ian Tonks; Hai Tran; Luca Trapin; Anders B. Trolle; M. ANDREEA VADUVA; Giorgio Valente; Robert A. Van Ness; Aurelio Vasquez; Thanos Verousis; Patrick Verwijmeren; ANDERS VILHELMSSON; Grigory Vilkov; Vladimir Vladimirov; SEBASTIAN VOGEL; Stefan Voigt; Wolf Wagner; THOMAS WALTHER; Patrick Weiss; Michel van der Wel; Ingrid M. Werner; P. Joakim Westerholm; Christian Westheide; HANS C. WIKA; Evert Wipplinger; Michael Wolf; Christian C. P. Wolff; LEONARD WOLK; WING-KEUNG WONG; Jan Wrampelmeyer; Zhen-Xing Wu; Shuo Xia; Dacheng Xiu; KE XU; CAIHONG XU; Pradeep K. Yadav; JOSÉ YAGÜE; Cheng Yan; Antti Yang; Woongsun Yoo; WENJIA YU; YIHE YU; Shihao Yu; Bart Z. Yueshen; Darya Yuferova; MARCIN ZAMOJSKI; Abalfazl Zareei; STEFAN M. ZEISBERGER; LU ZHANG; S. Sarah Zhang; Xiaoyu Zhang; LU ZHAO; Zhuo Zhong; Z. IVY ZHOU; Chen Zhou; XINGYU S. ZHU; Marius Zoican; REMCO ZWINKELS
Journal of Finance 2024 79(3), 2339-2390 open access
ABSTRACT In statistics, samples are drawn from a population in a data‐generating process (DGP). Standard errors measure the uncertainty in estimates of population parameters. In science, evidence is generated to test hypotheses in an evidence‐generating process (EGP). We claim that EGP variation across researchers adds uncertainty—nonstandard errors (NSEs). We study NSEs by letting 164 teams test the same hypotheses on the same data. NSEs turn out to be sizable, but smaller for more reproducible or higher rated research. Adding peer‐review stages reduces NSEs. We further find that this type of uncertainty is underestimated by participants.