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The post‐forecast revisiondrift (PFRD), the phenomenon of delayed stock price reactions to analyst forecast revisions, is a well‐documented market anomaly. Prior research attributes PFRD to underreaction by investors to analyst forecast revisions. This study investigates the role of the analyst forecast revision process itself in the PFRD anomaly. Using a large sample of U.S. firms, we confirm prior findings of a positive serial correlation (momentum) in individual analysts’ revisions to their earnings forecasts and, based on both indirect and direct tests, document a positive association between this momentum and PFRD. Further analyses reveal that both the forecast revision momentum and PFRD varyin similarways with respect to the nature of the news driving the revisions and the information environment. Collectively, our findings show that underreaction by individual analysts in the forecast revision process is an important contributor to the PFRD phenomenon. This article is protected by copyright. All rights reserved
Po‐Chang Chen; Ganapathi S. Narayanamoorthy; Theodore Sougiannis; Hui Zhou. Analyst underreaction and the post‐forecast revision drift. Journal of Business Finance & Accounting 2020, 47, 1151 -1181.
AMA StylePo‐Chang Chen, Ganapathi S. Narayanamoorthy, Theodore Sougiannis, Hui Zhou. Analyst underreaction and the post‐forecast revision drift. Journal of Business Finance & Accounting. 2020; 47 (9-10):1151-1181.
Chicago/Turabian StylePo‐Chang Chen; Ganapathi S. Narayanamoorthy; Theodore Sougiannis; Hui Zhou. 2020. "Analyst underreaction and the post‐forecast revision drift." Journal of Business Finance & Accounting 47, no. 9-10: 1151-1181.
SYNOPSIS We examine the relation between corporate social responsibility (CSR) performance and conditional accounting conservatism. Drawing upon the stakeholder-engaging and information-enhancing perspectives of CSR activities, we hypothesize that the demand for conditional conservatism, which primarily arises from various contracting parties' concern about managerial opportunism and/or information asymmetry, is lower for better-performing CSR firms. Using the CSR ratings from the KLD database, we find, as predicted, a negative relation between CSR performance and conditional conservatism. These findings are robust to using a difference-in-differences research design and alternative measures of conditional conservatism. Further, cross-sectional analyses reveal that the negative association is more pronounced for firms with greater information asymmetry and stronger corporate governance. Overall, this study enhances our understanding of how a firm's CSR engagement may relate to an important attribute of financial reporting.
Qing L. Burke; Po-Chang Chen; Gerald J. Lobo. Is Corporate Social Responsibility Performance Related to Conditional Accounting Conservatism? Accounting Horizons 2020, 34, 19 -40.
AMA StyleQing L. Burke, Po-Chang Chen, Gerald J. Lobo. Is Corporate Social Responsibility Performance Related to Conditional Accounting Conservatism? Accounting Horizons. 2020; 34 (2):19-40.
Chicago/Turabian StyleQing L. Burke; Po-Chang Chen; Gerald J. Lobo. 2020. "Is Corporate Social Responsibility Performance Related to Conditional Accounting Conservatism?" Accounting Horizons 34, no. 2: 19-40.
Brian Ballou; Po-Chang Chen; Jonathan H. Grenier; Dan L. Heitger. Corporate social responsibility assurance and reporting quality: Evidence from restatements. Journal of Accounting and Public Policy 2018, 37, 167 -188.
AMA StyleBrian Ballou, Po-Chang Chen, Jonathan H. Grenier, Dan L. Heitger. Corporate social responsibility assurance and reporting quality: Evidence from restatements. Journal of Accounting and Public Policy. 2018; 37 (2):167-188.
Chicago/Turabian StyleBrian Ballou; Po-Chang Chen; Jonathan H. Grenier; Dan L. Heitger. 2018. "Corporate social responsibility assurance and reporting quality: Evidence from restatements." Journal of Accounting and Public Policy 37, no. 2: 167-188.
Qing L. Burke; Po-Chang Chen; Tim V. Eaton. An empirical examination of mark-to-market accounting for corporate pension plans. Journal of Accounting and Public Policy 2017, 36, 34 -58.
AMA StyleQing L. Burke, Po-Chang Chen, Tim V. Eaton. An empirical examination of mark-to-market accounting for corporate pension plans. Journal of Accounting and Public Policy. 2017; 36 (1):34-58.
Chicago/Turabian StyleQing L. Burke; Po-Chang Chen; Tim V. Eaton. 2017. "An empirical examination of mark-to-market accounting for corporate pension plans." Journal of Accounting and Public Policy 36, no. 1: 34-58.
This study investigates whether banks respond to financial misreporting as the borrowing firms release misstated financial reports, i.e., in the misreporting period. Drawing upon finance theory that recognizes banks' superior information access and processing abilities, this study predicts and finds that banks adjust loan contract terms in response to the ongoing misreporting. Compared with loans issued in the prior period, loans issued in the misreporting period have higher interest spread, are more likely to be secured by collateral, and have more restrictive covenants. Further analyses show that banks acquire indirect, rather than direct, information about the misreporting and that they do not fully adjust loan pricing until after the restatement announcement. Together, these findings suggest that banks make timely, but insufficient, adjustments during the misreporting period. Nevertheless, banks' early reactions appear to be unique, as equity investors do not respond to the ongoing misreporting, but react to the loan information when it becomes public. JEL Classifications: D82; G21; M41.
Po-Chang Chen. Banks' Acquisition of Private Information about Financial Misreporting. The Accounting Review 2015, 91, 835 -857.
AMA StylePo-Chang Chen. Banks' Acquisition of Private Information about Financial Misreporting. The Accounting Review. 2015; 91 (3):835-857.
Chicago/Turabian StylePo-Chang Chen. 2015. "Banks' Acquisition of Private Information about Financial Misreporting." The Accounting Review 91, no. 3: 835-857.
A. Rashad Abdel-Khalik; Po-Chang Chen. Growth in financial derivatives: The public policy and accounting incentives. Journal of Accounting and Public Policy 2015, 34, 291 -318.
AMA StyleA. Rashad Abdel-Khalik, Po-Chang Chen. Growth in financial derivatives: The public policy and accounting incentives. Journal of Accounting and Public Policy. 2015; 34 (3):291-318.
Chicago/Turabian StyleA. Rashad Abdel-Khalik; Po-Chang Chen. 2015. "Growth in financial derivatives: The public policy and accounting incentives." Journal of Accounting and Public Policy 34, no. 3: 291-318.
During the period 1995-2012, U.S. financial institutions had contributed significantly to the growth in financial derivatives. The notional amount of total derivatives held by the 25 largest U.S. bank holding companies grew eighteen times from $16.6 trillion in 1995 to $308 trillion in 2012, while the U.S. GDP merely doubled from $7.7 trillion to $16.2 trillion over the same period. In this paper, we examine three possible drivers of this growth: (a) the Gramm-Leach-Bliley Act of 1999, (b) the Commodity Futures Modernization Act of 2000, and (c) FAS 133 (now ASC 815), Accounting for Derivative Instruments and Hedging Activities, which became effective in 2000. Using a sample of U.S. bank holding companies, we find a temporal association between the passage of the two Congressional Acts and the abnormal growth in trading/over-the-counter derivatives. We also predict and find that the use of cash flow hedge accounting treatment helps reduce earnings volatility/equity risk, and that firms increase their use of non-trading derivatives when facing high level of earnings volatility/equity risk.
A. Rashad Abdel-Khalik; Po-Chang Chen. Growth in Financial Derivatives: The Public Policy and Accounting Incentives. SSRN Electronic Journal 2014, 1 .
AMA StyleA. Rashad Abdel-Khalik, Po-Chang Chen. Growth in Financial Derivatives: The Public Policy and Accounting Incentives. SSRN Electronic Journal. 2014; ():1.
Chicago/Turabian StyleA. Rashad Abdel-Khalik; Po-Chang Chen. 2014. "Growth in Financial Derivatives: The Public Policy and Accounting Incentives." SSRN Electronic Journal , no. : 1.