Joung W. Kim

The Effect of First Wave Mandatory XBRL Reporting across the Financial Information Environment.

ABSTRACT: This study examines the effect of mandatory XBRL disclosure across various aspects of the financial information environment. Our findings show an increase in information efficiency, a dec...

You Get What You Pay For: The Effect of Top Executives' Compensation on Advertising and R&D Spending Decisions and Stock Market Return

Although there is literature on how top executives’ compensation influences general management decisions, relatively little is known about whether and how compensation influences advertising and research-and-development (R&D) spending decisions. This study addresses two questions. First, is there an incentive effect of long- versus short-term compensation on advertising and R&D spending? Second, is there a mediation effect of advertising and R&D spending on the relationship between long- versus short-term compensation and stock market return? The authors address these questions using a combination of ExecuComp, Compustat, and Center for Research in Security Prices data on 842 firms during the 1993–2005 period. They find that an increase in the equity to bonus compensation ratio is positively associated with an increase in advertising and R&D spending as a share of sales. Advertising and R&D spending as a share of sales also mediates the effect of equity to bonus ratio on stock market return. The authors discuss implications for top management seeking to mitigate myopic management of resources by employing compensation to incentivize a longer-term orientation for advertising and R&D spending to improve stock return.

Management earnings forecasts and adverse selection cost: good vs bad news forecast

Purpose - The aim of this paper is to investigate the effect of management earnings forecasts on the level of information asymmetry around subsequent earnings announcement. Design/methodology/approach - Employing the adverse selection cost method suggested by George Findings - Consistent with Diamond and Verrecchia is the finding that the earnings announcement in non-forecasting years decreases information asymmetry during a three-day announcement period and increases in a post-announcement period up to seven days. No significant change in information asymmetry between pre- and post-announcement periods when firms released a “good” news forecast is found. The firms that previously released a “bad” news forecast experience a significantly lower information asymmetry than those that did not forecast during announcement or post-announcement days, and experience a decrease in information asymmetry in a five to seven-day post-announcement period. Originality/value - This paper provides the first empirical reports on the different information asymmetry changes around earnings announcements followed by a “good” news management forecast from those followed by a “bad” news forecast.