Choong-Yuel Yoo

Business Groups and Tunneling: Evidence from Corporate Charitable Contributions by Korean Companies

This paper investigates whether corporate philanthropic decisions are associated with a firm’s listing status and business group affiliation. Analyzing a large sample of public and private firms in Korea, we find that (1) public firms make more charitable contributions than private firms and (2) business group-affiliated firms make more charitable contributions than non-affiliated firms. The results suggest that public firms, owing to greater public scrutiny, and business groups, owing to higher political costs, are encouraged to make more corporate charitable contributions. Further, we find that (3) greater corporate giving by public firms than private firms is more pronounced for business group-affiliated firms, compared with non-affiliated firms. The result is consistent with business groups’ strategic coordination of their affiliates’ philanthropic decisions to tunnel business group resources out to controlling shareholders who hold a larger portion of private affiliates than public affiliates.

Perceived Firm Trustworthiness and Market Underreaction to Earnings News

We investigate how investors’ perception of a firm’s trustworthiness affects underreaction to earnings news. Consistent with the predictions of our model that trust helps explain underreaction to news, we find that underreaction to earnings news is weaker when the firm is perceived to be more trustworthy as measured by its corporate social responsibility performance. The results are particularly pronounced for firms with poor earnings quality, low institutional ownership, positive R&D spending, and good earnings news, and stronger during the periods of financial crisis and high economic uncertainty. Our findings are robust to using Forbes’ list of “America’s Most Trustworthy Companies” as an alternative measure of perceived firm trustworthiness and accounting restatements as a negative shock to investors’ perception on firm trustworthiness.

Do Analysts Strategically Employ Cash Flow Forecast Revisions to Offset Negative Earnings Forecast Revisions

Abstract We investigate whether analysts use cash flow forecasts to reduce the impact of earnings forecast revisions (EFRs) on market participants. In particular, we focus on conflict between an analysts concurrent cash flow and earnings forecast revisions. We hypothesize and find that analysts are more likely to issue a positive cash flow forecast revision when they issue a negative earnings forecast revision concurrently, but not the opposite, particularly for Fortune 500 firms. Furthermore, our supplementary analyses suggest that (1) some analysts optimistically bias cash flow forecasts when they issue negative earnings forecast revisions; (2) the market pays less attention to the historical accuracy of analyst cash flow forecasts, so analysts have some latitude to present their cash flow forecasts in an optimistic way; and (3) the market reacts mainly to the direction, not the magnitude, of cash flow forecast revisions. Overall, these findings suggest that analysts may strategically use cash flow forecasts in conjunction with earnings forecasts to maintain good management relationships.

Corporate Layoffs and Accounting Conservatism

We propose a novel measure of layoff efficiency which compares actual layoff size with the abnormal level of hiring prior to layoff announcements. Based on 749 layoff announcements hand-collected from corporate disclosures in Form 8-K over the period 2004 to 2012, we find that layoff decisions in the U.S. are on average inefficient. Specifically, an average layoff firm’s level of hiring already falls short of the optimal level of hiring (i.e., under-hiring) even before the layoff so that the layoff further exacerbates the extent of the under-hiring from -1.5% to -11.9%, relative to its optimal level of hiring. We further find that abnormal stock returns surrounding layoff announcements increase with layoff efficiency, suggesting that the stock market understands the performance implication of layoff efficiency. The difference in the abnormal stock returns between the lowest and the highest layoff efficiency deciles is 2.8% and economically significant.