Previous research on the effect of board characteristics mostly examines established firms. This raises the question of whether the findings from the board characteristics literature are applicable to rapidly growing enterprises, as their corporate governance landscape can be very different from that in large, mature companies. Our paper extends the corporate governance literature by investigating the performance implications of board characteristics in startups using a unique set of firms: 121 startups operating in the information technology industry listed on the Growth Enterprise Market (GEM) in China. Using a firm performance indicator constructed through the factor analysis method, we find significant correlations between firm performance and board size, age structure, board meeting frequency, and board ownership of shares. Our findings contribute to the corporate governance literature by shedding new light on the performance implications of board characteristics for startups operating in fast-paced industries.

A fundamental role of financial reporting is to provide information useful in forecasting future cash flows. Applying up-to-date time series modelling techniques, this study provides direct evidence on the usefulness of quarterly data in predicting future operating cash flows. Moreover, we show that the predictive gain from using quarterly data is larger for asset-heavy industries and industries with higher levels of earnings smoothness. This study contributes to the accounting literature by examining the usefulness of quarterly financial statements in predicting the realization of future cash flows. Our results help fill the gap in knowledge on quarterly financial statements and provide new insights on why the frequency of financial reporting matters. In addition, our findings have important policy implications for the ongoing debate over interim reporting requirements in multiple jurisdictions around the world.

This study investigates whether the inclusion of the fair-value-based hedging performance measure improves the value and risk relevance of accounting earnings using data from the regulatory filings of bank holding companies required by the Federal Reserve Bank. Statement of Financial Accounting Standards No. 133 (SFAS 133) requires most types of hedge ineffectiveness to be measured on a fair value basis and reported in earnings. This earnings recognition requirement was the focal point of controversy surrounding the adoption of SFAS 133. This study provides new evidence that the fair-value-based earnings component required under SFAS has predictive power over future performance. I further show that incorporating this fair-value-based hedging performance measure helps improve the value and risk relevance of accounting earnings. The findings of this study help inform the broader debate over the effect of fair-value-based financial reporting on capital markets.

This study examines stock returns around announcements of litigation settlements to investigate the market expectations of corporate litigation outcomes and the importance of financial distress costs. Prior research regards a settlement as an exogenous shock; however, this study draws from analytical models in the economics literature to analyze how the market forms expectations prior to settlements and how these expectations affect market reactions after the announcement of a settlement. Consistent with the implications of these models, we find that returns around settlements are more positive when higher-stakes lawsuits are settled. We also find evidence of the existence of financial distress costs, although our results contradict a conclusion drawn in prior research — that the primary benefit of litigation settlements is the unexpected relief from financial distress.

We investigate whether covenant violations function as information mechanisms that lead to the external auditor either exercising closer monitoring or opting to exit. Such responses are expected based on interactive stakeholder monitoring and reaction as described in Triantis and Daniels (1995). Using a hand-collected, comprehensive sample focusing on initial covenant violations during the period from 1996 to 2008, we document that audit fees experience an average increase of about 20% in the year immediately following the violation year, and continue to stay at a high level until three years after the initial violation. Moreover, the increase in audit fees varies positively with leverage and negatively with growth, the proxy for the benefit and cost of closer auditor monitoring respectively. Finally, we find a significant increase in the occurrence of auditor change during the violation year and perform further analysis to show that this is likely due to auditors choosing to exit (resigning) rather than client-initiated auditor change. Overall, the evidence lends support to the interactive corporate governance perspective and adds to previous studies that highlight the importance of corporate governance factors in the pricing of audit services.