Prior literature shows that high leverage is associated with losses in market share due to unfavorable actions by customers and competitors. Building on this literature, we investigate the effect of collectivism on the product market performance of highly leveraged firms. Using a sample of 46 countries over the 1989–2016 period, we find significantly lower costs of high leverage for countries with higher collectivism scores. Moreover, we find that the impact of collectivism on high leverage costs is more pronounced for firms with high product specialization and with financially healthy rivals. In additional analysis, we find that collectivism helps highly leveraged firms retain employees and obtain trade credit from suppliers. Our findings thus suggest that a country's culture affects corporate financial outcomes by influencing the actions of firm stakeholders.

We investigate the impact of family control on corporate social responsibility (CSR) performance. Using newly collected data on the ultimate ownership structure of publicly traded firms in nine East Asian economies, we find that family-controlled firms exhibit lower CSR performance, consistent with the expropriation hypothesis of family control. The negative relationship between family control and CSR is robust to alternative measures of family control, different components of CSR, as well as to endogeneity tests, subsample tests, and alternative estimation methods. We further find that CSR underperformance concentrates in family firms with greater agency problems and in countries with weaker institutions. Moreover, the underperformance of East Asian family firms holds when controlling for the effects of other large shareholders and when comparing with family firms from other countries. These findings contribute to understanding the determinants of CSR and highlight the importance of corporate governance and the institutional environment in improving CSR performance of family-controlled firms.

We examine the relation between disclosure tone and shareholder litigation to determine whether managers' use of optimistic language increases litigation risk. Using both general-purpose and context-specific text dictionaries to quantify tone, we find that plaintiffs target more optimistic statements in their lawsuits and that sued firms' earnings announcements are unusually optimistic relative to other firms experiencing similar economic circumstances. These findings are consistent with optimistic language increasing litigation risk. In addition, we find incrementally greater litigation risk when managers are both unusually optimistic and engage in abnormal selling. This finding suggests that firms can mitigate litigation risk by ensuring that optimistic statements are not contradicted by insider selling. Finally, we find that insider selling is associated with litigation risk only when contemporaneous disclosures are unusually optimistic. JEL Classifications: G38; K22; M41; M48. Data Availability: Data are available from sources indicated in the text.

Discusses the report of the Committee on Accounting for Social Performance of the American Accounting Association which explored the state of social accounting in the United States in 1975. Analysis of the practices in accounting and the reporting of corporate social performance; Investigation of corporate charitable contributions; Issues concerning the place of social accounting in accounting education.

Six of the nation's outstanding accounting authorities have been invited to prepare papers expressing the views for and against the proposition that depreciation need not be restricted to the amortization of historical cost. While accountants have long realized that their basic standard of measurement, the dollar, is a varying one, they have, with one conspicuous exception, declined to recognize, as generally accepted accounting procedures, departures from cost because of changes in the purchasing power of money. In the list obstacles to good accounting is the misconception, often entertained, and blindly fostered by many accountants, that an income statement should reflect earning power or be confined to current operating performance. By moving depreciation expense up or down, according to predictions of the moment, a more accurate earning power or operating performance is said to be reflected in the net result. A good deal of mumbo-jumbo necessarily attaches to the process, for to them earning power or operating performance is a nebulous thing, visible only to initiates such as forceful corporate managements and accountants of discernment.

Collectively organized pension plans must increasingly demonstrate that the risk preferences of their members are adequately reflected in the plans’ asset allocations. However, whether funds should elicit individual members’ risk preferences to achieve this goal, or whether they can rely on other indicators, such as socio-demographics, remains unclear. To address this question, we apply a tailored augmented lottery choice method to elicit individual pension income risk preferences from 7,894 members from five different pension plans. The results show that member risk preferences are strongly heterogeneous and can only partially be predicted from individual and plan characteristics. Differences in risk preference imply different optimal asset allocations. We find large welfare losses for heterogeneous members in pension plans with their current asset allocation because these allocations are safer than implied by members’ preferences. We provide a framework for pension plans to gauge the need to elicit risk preferences among their members.

Theory suggests that banks' private information about borrowers lets them hold up borrowers for higher interest rates. Since hold‐up power increases with borrower risk, banks with exploitable information should be able to raise their rates in recessions by more than is justified by borrower risk alone. We test this hypothesis by comparing the pricing of loans for bank‐dependent borrowers with the pricing of loans for borrowers with access to public debt markets, controlling for risk factors. Loan spreads rise in recessions, but firms with public debt market access pay lower spreads and their spreads rise significantly less in recessions.

Using a database of more than 1.85 million retail investor transactions over 1991–1996, we show that these trades are systematically correlated—that is, individuals buy (or sell) stocks in concert. Moreover, consistent with noise trader models, we find that systematic retail trading explains return comovements for stocks with high retail concentration (i.e., small‐cap, value, lower institutional ownership, and lower‐priced stocks), especially if these stocks are also costly to arbitrage. Macroeconomic news and analyst earnings forecast revisions do not explain these results. Collectively, our findings support a role for investor sentiment in the formation of returns.

We survey 336 chief financial officers (CFOs) to compare practice to theory in the areas of initial public offering (IPO) motivation, timing, underwriter selection, underpricing, signaling, and the decision to remain private. We find the primary motivation for going public is to facilitate acquisitions. CFOs base IPO timing on overall market conditions, are well informed regarding expected underpricing, and feel underpricing compensates investors for taking risk. The most important positive signal is past historical earnings, followed by underwriter certification. CFOs have divergent opinions about the IPO process depending on firm‐specific characteristics. Finally, we find the main reason for remaining private is to preserve decision‐making control and ownership.