We investigate whether institutional ownership (IO) plays a role in transmitting systemic risk through banks. We find robust evidence suggesting that IO is positively associated with future systemic risk. We find this relationship is stronger during economic downturns at the economy-wide level, as well as for banks demonstrating greater capital needs. Our results also suggest a trading mechanism through which active, and transient institutions in particular, play a role in propagating systemic risk. We find the relationship exists when there is both overlapping and non-overlapping ownership of banks, and the result is concentrated when there are low monitoring incentives for institutional owners. Furthermore, we find disclosure may play a role in mitigating the transmission of systemic risk by institutional investors. Overall, our results should be of interest to regulators, who have called for institutional investors to play a larger role in bank monitoring, and more broadly to the academic literature that tends to assume the benefits of IO without adequate consideration of the potential costs.
ChatGPT, a language-learning model chatbot, has garnered considerable attention for its ability to respond to users’ questions. Using data from 14 countries and 186 institutions, we compare ChatGPT and student performance for 28,085 questions from accounting assessments and textbook test banks. As of January 2023, ChatGPT provides correct answers for 56.5 percent of questions and partially correct answers for an additional 9.4 percent of questions. When considering point values for questions, students significantly outperform ChatGPT with a 76.7 percent average on assessments compared to 47.5 percent for ChatGPT if no partial credit is awarded and 56.5 percent if partial credit is awarded. Still, ChatGPT performs better than the student average for 15.8 percent of assessments when we include partial credit. We provide evidence of how ChatGPT performs on different question types, accounting topics, class levels, open/closed assessments, and test bank questions. We also discuss implications for accounting education and research.
We examine firm disclosure choice when information is received on a real-time, continuous basis. We use transaction-level credit and debit card sales for a sample of retail firms to construct a weekly measure of abnormal revenue for each firm. We validate the informativeness of this abnormal real-time revenue information, confirming its positive correlation with abnormal returns, unexpected revenue realizations, and management revenue forecast news. Using revenue forecasts, we find that firms are less likely to disclose abnormally negative news early in the quarter. As the quarter progresses, firms reduce their withholding of negative news. These results are consistent with impending earnings announcements disciplining managers to provide negative news. This pattern of initial withholding and then disclosure exists primarily in firms with high analyst coverage, high institutional ownership, or high litigation risk. Finally, we find increased insider stock sales in weeks with abnormally negative news and no firm disclosure. Overall, our study provides evidence of the informativeness of real-time information and manager discretion in its release.
We investigate the role of financial reporting quality in reducing a firm's over‐ and underleverage problems. While the prior literature examining reporting quality and capital structure has focused on observed capital structure, research suggests that financing frictions arising from adverse selection concerns can result in differences between observed and optimal capital structures. Using the deviation from a predicted model of optimal capital structure, we find that approximately a third of firms that have more leverage than their industry's median firm are in fact underlevered and more than 15% of firms that have less leverage than their industry's median firm are in fact overlevered. Building off a large literature that provides evidence that financial reporting quality can mitigate adverse selection concerns and reduce financing frictions, we find that a firm's deviation from the predicted model of optimal capital structure is decreasing in financial reporting quality, and these results are larger in magnitude for firms that are overlevered.
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