Entropy-Balanced Discretionary Accruals

McMullin, Jeff L.; Schonberger, Bryce

doi:10.2139/ssrn.2556389

Cited by 37 publications

(23 citation statements)

References 47 publications

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“…First, we use firm fixed effects to account for any unobservable time-invariant factors related to the firm, which can bias our inferences. Second, we employ an entropy balancing technique, which is a quasi-matching approach that weights each observation such that post-weighting distributional properties of treatment and control observations are virtually identical, thereby ensuring covariate balance (Hainmueller, 2012;McMullin and Schonberger, 2015). 13 To see the intuition behind entropy balancing, consider it in the context of the traditional propensity score matching (PSM) approach.…”

Section: Research Design and Empirical Resultsmentioning

confidence: 99%

“…To examine the impact of IR on information assimilation, we conduct our analyses using an entropy balancing technique, which is a quasi-matching approach that weights each observation such that post-weighting distributional properties of treatment and control observations are virtually identical, thereby ensuring covariate balance (Hainmueller, 2012;McMullin and Schonberger, 2015). 5 Given the decision to initiate an IR program is a firm choice, it is important to control for factors that drive firms' decision to hire IR officers.…”

Section: Introductionmentioning

confidence: 99%

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Investor Relations and Information Assimilation

Chapman

Miller

White

2018

The Accounting Review

183

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Research has shown the importance of corporate disclosure and dissemination in reducing information asymmetry and improving market efficiency. However, even though investors and analysts might receive corporate disclosures, they often need help with assimilating the information to better understand its implications for firm value. This paper examines whether investor relations (IR) teams provide value by facilitating the assimilation of firm information by the market. We find that firms with IR officers have lower stock price volatility, lower analyst forecast dispersion, higher analyst forecast accuracy, and quicker price discovery, consistent with IR professionals aiding market participants in their assimilation of firm information. We also show that our findings are stronger for firms with longer-tenured IR officers. Finally, we find that when firms transition from a long-tenured IR officer to a new IR officer, stock price volatility increases, analyst forecasts become more disperse and less accurate, and the price discovery process slows. Collectively, these findings suggest that in-house IR teams, particularly those with greater experience, help facilitate information assimilation by the market, which has positive market effects.We would like to thank Michelle Hanlon, John Core, Rodrigo Verdi, Chandra Kanodia and workshop participants at the Massachusetts Institute of Technology and the University of Minnesota for their helpful feedback on the paper.

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Section: Research Design and Empirical Resultsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Investor Relations and Information Assimilation

Chapman

Miller

White

2018

The Accounting Review

183

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“…Panel B uses firms that issue press releases during the 12-month pre-prospectus period as the treatment sample and assigns weights to firms not issuing press releases as the control sample. The match ratio (see McMullin and Schonberger, 2015) is used to assess the number of control sample observations receiving above equal weights relative to the full control sample (a ratio of 0.5 indicates an even reweighting). To assess covariate balance for each covariate, we compute standardized differences calculated as the difference in means between treated and control samples divided by the standard deviation of the treated sample.…”

Section: Appendix Bmentioning

confidence: 99%

“…Second, to ensure that samples of disclosing and non-disclosing firms appear similar based on fundamental determinants of the decision to disclose, we use entropy balancing to reweight the control sample of non-disclosing firms in our regressions so that no significant differences exist in the means, variances, or skewness of any key disclosure determinants across the two samples. This form of matching on observables (i.e., entropy balancing) retains all control sample observations while limiting concerns with potentially noisy one-to-one matches (Hainmueller, 2012;McMullin and Schonberger, 2015). After entropy balancing, disclosing and non-disclosing samples display minimal differences in the distribution of determinants associated with the decision to disclose, aiding in our identification of the effect of the disclosures themselves separate from (correlated) fundamentals.…”

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confidence: 99%

Voluntary Disclosure and Firm Visibility: Evidence From Firms Pursuing an Initial Public Offering

Dambra

Schonberger²,

Wasley

2018

SSRN Journal

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Drawing on predictions by Merton (1987) regarding the benefits to firms of enhancing visibility with prospective investors, we develop hypotheses for the role of pre-prospectus voluntary disclosure activities in terms of press releases and attendance at investor and industry conferences by firms pursuing an initial public offering (IPO). For a sample of IPOs during 2004-2014 we find that press release disclosures and conference attendance are common pre-IPO disclosure strategies. Tests using the passage of the 2005 Securities Offering Reform as a source of quasi-exogenous variation in preprospectus disclosures reveal, consistent with Merton (1987), that disclosures in this regime appear designed to enhance firm visibility, but have little effect on the extent of adverse selection costs. Overall, our evidence suggests that pre-IPO voluntary disclosure strategies provide benefits to newly public firms beyond mitigating informational asymmetries.

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“…We use entropy balancing to mitigate the effect of differences in characteristics between firms with high and low levels of complexity (Hainmueller, 2012;McMullin and Schonberger, 2015). Selection bias potentially affects our inferences, despite having firm fixed effects and several characteristics as controls in our main analyses.…”

Section: Covariate Balancingmentioning

confidence: 99%

Financial Statement Complexity and Bank Lending

et al. 2018

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Recent studies and anecdotal evidence suggest that investors struggle to process complex financial reports. Existing theory and evidence demonstrate that banks not only have unique advantages in acquiring information, relative to equity and public debt investors, but also can impose contractual terms to mitigate information frictions. We investigate whether financial statement complexity is associated with firms' reliance on bank financing and with the terms of bank loans (i.e., the amount and rate of the loan, along with covenants and collateral). We focus on two dimensions of complexity that capture the volume and presentation of financial information: 10-K length and readability. We find that complexity is positively associated both with firms' reliance on bank financing and with banks increasing their level of screening, rationing their credit supply, and imposing tighter covenants. Our results suggest that banks continue to play their role as informed capital providers in a changing economy, characterized by growing financial statement complexity and innovations in banks' business models.

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Entropy-Balanced Discretionary Accruals

Cited by 37 publications

References 47 publications

Investor Relations and Information Assimilation

Investor Relations and Information Assimilation

Voluntary Disclosure and Firm Visibility: Evidence From Firms Pursuing an Initial Public Offering

Financial Statement Complexity and Bank Lending

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