Michael Ettredge

Dissemination of information for investors at corporate Web sites

Abstract We extend the limited prior research on Internet financial reporting by providing insights into dissemination of two types of financial information at corporate Web sites. One type consists of reports that already have been filed with the SEC (i.e. required filings). The second type is all other (voluntary) information for investors. In doing so we investigate whether Web-based dissemination of both types of data can be explained by theories of incentives to voluntarily disclose information via more traditional means such as meetings or conference calls with analysts. We use regression analysis to test hypotheses that link the variation in the information disseminated through corporate Web sites to factors thought to influence voluntary disclosure of financial information. Presence of required items is significantly associated only with size and a proxy for information asymmetry, while voluntary information item disclosure is associated with variables proxying for size, information asymmetry, demand for external capital, and companies’ traditional disclosure reputations. Our results confirm that incentives motivating initial voluntary disclosure also explain the subsequent dissemination of voluntary material.

The presentation of financial information at corporate Web sites

Abstract The advent of the World Wide Web has provided a new avenue for companies to communicate with current and potential investors. Our study investigates corporate Web site financial disclosure practices. We evaluate and compare the Web site disclosure levels of 17 industries, and summarize the frequencies with which a variety of financial disclosure items are found. Our examination identifies several practices that raise potential concerns for the accounting profession. In particular, we investigate annual report excerpts tailored for Internet users and identify information found at Web sites that may increase disclosure risk. We also discuss issues associated with locating and using Web site data.

Using web-based search data to predict macroeconomic statistics

Tracking common search terms used on the Web can produce accurate, useful statistics about the unemployment rate. We hope to extend this approach to other economic statistics.

Does the Year 2000 XBRL Taxonomy Accommodate Current Business Financial‐Reporting Practice?

XBRL (eXtensible Business Reporting Language) is an application of XML (eXtensible Markup Language) intended for use in digital business reporting. Observers predict XBRL will provide benefits to f...

Auditor Realignments Accompanying Implementation of SOX 404 ICFR Reporting Requirements

We examine the impact of adverse auditors’ opinions on clients’ internal control over financial reporting (ICFR), issued under SOX Section 404, on auditor dismissals. Companies receiving adverse ICFR opinions are more likely to subsequently dismiss their auditors. This association between adverse reports and dismissals persists over a four year period beginning with the initial year of SOX 404 reporting. Our evidence also suggests that these dismissals tend to be part of clients’ efforts to improve their overall financial reporting. Clients receiving adverse reports are more likely to switch to higher quality auditors, as proxied by Big 4 membership and two measures of industry specialization, than are clients receiving favorable reports. Further, adverse opinion clients that dismiss auditors and then hire new auditors that specialize in the client’s industry are more likely to receive an improved ICFR report in the next year.

Timely financial reporting at corporate web sites

Considering the competitive advantage of having current financial information available online, its curious how few institutions actually succeed in this regard.

A web site design model for financial information

SM 21.01 AMD 7.91 CFWY 3.34 ROST 30.09 VAR 63.49 RHI 18.72 LSI 11.39 RDRT 3.08 KL RCX 16.52 ATML 6.35 ADPT 7.90 CRUS 6.40 CDN 16.61 ADBE 24.23 CNO 6.41 IFMX 5.35 AL 15 ERTS 43.56 NETA 13.97 INTU 36.60 XLNX 23.35 CY 14.74 IDTI 18.56 NVLS 27.54 BELM 7.4 OL 15.40 SYMC 37.02 ACN 12.70 MXIM 35.00 WMAR 10.24 SANM 13.42 COHR 26.90 ASPT 1.69 LT 5.75 NWK 2.99 SILI 20.61 CPN 22.74 TRMB 14.08 CDCO 0.26 ESST 9.95 LSSI 0.14 ONCO 2. SPX 2.10 CWT 26.39 PLT 16.49 TRID 4.68 OAKT 7.62 STII 3.75 SPLI 17.10 ACTL 16.30 TB 2.319UTEK 11.53 AVNT 3.29 RATL 9.40 SYMM 4.65 DNEX 23.68 ENR 15.89 VVUS 2.92 ASYT 8. 18 IVAC 2.65 RMDY 29.40 SNDK 10.10 XICO 7.50 VRTS 19.70 SEBL 14.44 SJW 80.25 ISSI 6. CRL 18.82 STZ 41.11 APSG 8.65 NTAP 6.59 HAKI 4.79 THDO 2.12 EXAR 17.10 OWLD 0.016 IN 0.39 GGNS 1.93 RTEL 5.95 ASNT 0.21 ADTK 3.25 HWP 15.31 INTC 19.85 SUNW 8.16 AAPL 15 RCL 12.64 CNF 22.71 SLR 11.56 COMS 3.82 SGI 0.53 NSM 21.01 AMD 7.91 CFWY 3.34 RO HI 18.72 LSI 11.39 RDRT 3.08 KLAC 31.25 GVA 26.07 LRCX 16.52 ATML 6.35 ADPT 7.90 CR DBE 24.23 CNO 6.41 IFMX 5.35 ALTR 15.97 KMAG 0.15 ERTS 43.56 NETA 13.97 INTU 36.60 XL DTI 18.56 NVLS 27.54 BELM 7.41 SNPS 40.19 SOL 15.40 SYMC 37.02 ACN 12.70 MXIM 35.00 WM 3.42 COHR 26.90 ASPT 1.69 LTC 31.09 EFII 15.75 NWK 2.99 SILI 20.61 CPN 22.74 TRMB 14 SST 9.95 LSSI 0.14 ONCO 2.08 CMOS 11.15 ASPX 2.10 CWT 26.39 PLT 16.49 TRID 4.68 OA 75 SPLI 17.10 ACTL 16.30 TBP 4.06 EGLS 12.319UTEK 11.53 AVNT 3.29 RATL 9.40 SYMM 4. NR 15.89 VVUS 2.92 ASYT 8.44 CRV 0.54 NCDI 0.18 IVAC 2.65 RMDY 29.40 SNDK 10.10 XI 9.70 SEBL 14.44 SJW 80.25 ISSI 6.70 RSHX 0.45 MCRL 18.82 STZ 41.11 APSG 8.65 NTAP 6. HDO 2.12 EXAR 17.10 OWLD 0.016 INCY 13.58 SPCT 10.39 GGNS 1.93 RTEL 5.95 ASNT 0.21 AD NTC 19.85 SUNW 8.16 AAPL 15.73 CSCO 11.84 ORCL 12.64 CNF 22.71 SLR 11.56 COMS 3.82 SG MD 7.91 CFWY 3.34 ROST 30.09 VAR 63.49 RHI 18.72 LSI 11.39 RDRT 3.08 KLAC 31.25 GV 6.52 ATML 6.35 ADPT 7.90 CRUS 6.40 CDN 16.61 ADBE 24.23 CNO 6.41 IFMX 5.35 ALTR 15. RTS 43.56 NETA 13.97 INTU 36.60 XLNX 23.35 CY 14.74 IDTI 18.56 NVLS 27.54 BELM 7.41 SN YMC 37.02 ACN 12.70 MXIM 35.00 WMAR 10.24 SANM 13.42 COHR 26.90 ASPT 1.69 LTC 31.09 EF ILI 20.61 CPN 22.74 TRMB 14.08 CDCO 0.26 ESST 9.95 LSSI 0.14 ONCO 2.08 CMOS 11.15 AS LT 16.49 TRID 4.68 OAKT 7.62 STII 3.75 SPLI 17.10 ACTL 16.30 TBP 4.06 EGLS 12.319UT 29 RATL 9.40 SYMM 4.65 DNEX 23.68 ENR 15.89 VVUS 2.92 ASYT 8.44 CRV 0.54 NCDI 0. MDY 29.40 SNDK 10.10 XICO 7.50 VRTS 19.70 SEBL 14.44 SJW 80.25 ISSI 6.70 RSHX 0.45 MC PSG 8.65 NTAP 6.59 HAKI 4.79 THDO 2.12 EXAR 17.10 OWLD 0.016 INCY 13.58 SPCT 10.39 GG 95 ASNT 0.21 ADTK 3.25 HWP 15.31 INTC 19.85 SUNW 8.16 AAPL 15.73 CSCO 11.84 ORCL 12 LR 11.56 COMS 3.82 SGI 0.53 NSM 21.01 AMD 7.91 CFWY 3.34 ROST 30.09 VAR 63.49 RH DRT 3.08 KLAC 31.25 GVA 26.07 LRCX 16.52 ATML 6.35 ADPT 7.90 CRUS 6.40 CDN 16.61 AD FMX 5.35 ALTR 15.97 KMAG 0.15 ERTS 43.56 NETA 13.97 INTU 36.60 XLNX 23.35 CY 14.74 ID 7.54 BELM 7.41 SNPS 40.19 SOL 15.40 SYMC 37.02 ACN 12.70 MXIM 35.00 WMAR 10.24 SANM 13 SPT 1.69 LTC 31.09 EFII 15.75 NWK 2.99 SILI 20.61 CPN 22.74 TRMB 14.08 CDCO 0.26 ES 14 ONCO 2.08 CMOS 11.15 ASPX 2.10 CWT 26.39 PLT 16.49 TRID 4.68 OAKT 7.62 STII 3. CTL 16.30 TBP 4.06 EGLS 12.319UTEK 11.53 AVNT 3.29 RATL 9.40 SYMM 4.65 DNEX 23.68 EN 92 ASYT 8.44 CRV 0.54 NCDI 0.18 IVAC 2.65 RMDY 29.40 SNDK 10.10 XICO 7.50 VRTS 19 JW 80.25 ISSI 6.70 RSHX 0.45 MCRL 18.82 STZ 41.11 APSG 8.65 NTAP 6.59 HAKI 4.79 TH 7.10 OWLD 0.016 INCY 13.58 SPCT 10.39 GGNS 1.93 RTEL 5.95 ASNT 0.21 ADTK 3.25 HWP 15. UNW 8.16 AAPL 15.73 CSCO 11.84 ORCL 12.64 CNF 22.71 SLR 11.56 COMS 3.82 SGI 0.53 NS 7.91 CFWY 3.34 ROST 30.09 VAR 63.49 RH 11.39 RDRT 3.08 KLAC 31.25 GVA 26. 16.52 ATML 6.35 ADPT 7.90 CRUS 6. 16.61 ADBE 24.23 CNO 6.41 IFMX 5.3 15.97 KMAG 0.15 ERTS 43.56 NETA 13 36.60 XLNX 23.35 CY 14.74 IDTI 18.56 NV 41 SNPS 40.19 SOL 15.40 SYMC 37.02 ACN 12.70 MXIM 35.00 WMAR 10.24 SANM 13.42 COHR 26 TC 31.09 EFII 15.75 NWK 2.99 SILI 20.61 CPN 22.74 TRMB 14.08 CDCO 0.26 ESST 9.95 LS 08 CMOS 11.15 ASPX 2.10 CWT 26.39 PLT 16.49 TRID 4.68 OAKT 7.62 STII 3.75 SPLI 17 BP 4.06 EGLS 12.319UTEK 11.53 AVNT 3.29 RATL 9.40 SYMM 4.65 DNEX 23.68 ENR 15.89 VV 44 CRV 0.54 NCDI 0.18 IVAC 2.65 RMDY 29.40 SNDK 10.10 XICO 7.50 VRTS 19.70 SEBL 14 SSI 6.70 RSHX 0.45 MCRL 18.82 STZ 41.11 APSG 8.65 NTAP 6.59 HAKI 4.79 THDO 2.12 EX 016 INCY 13.58 SPCT 10.39 GGNS 1.93 RTEL 5.95 ASNT 0.21 ADTK 3.25 HWP 15.31 INTC 19 APL 15.73 CSCO 11.84 ORCL 12.64 CNF 22.71 SLR 11.56 COMS 3.82 SGI 0.53 NSM 21.01 AM 34 ROST 30.09 VAR 63.49 RHI 18.72 LSI 11.39 RDRT 3.08 KLAC 31.25 GVA 26.07 LRCX 16 DPT 7.90 CRUS 6.40 CDN 16.61 ADBE 24.23 CNO 6.41 IFMX 5.35 ALTR 15.97 KMAG 0.15 ER 3.97 INTU 36.60 XLNX 23.35 CY 14.74 IDTI 18.56 NVLS 27.54 BELM 7.41 SNPS 40.19 SOL 15. CN 12.70 MXIM 35.00 WMAR 10.24 SANM 13.42 COHR 26.90 ASPT 1.69 LTC 31.09 EFII 15.75 NW 0.61 CPN 22.74 TRMB 14.08 CDCO 0.26 ESST 9.95 LSSI 0.14 ONCO 2.08 CMOS 11.15 ASPX 2. LT 16.49 TRID 4.68 OAKT 7.62 STII 3.75 SPLI 17.10 ACTL 16.30 TBP 4.06 EGLS 12.319UT 29 RATL 9.40 SYMM 4.65 DNEX 23.68 ENR 15.89 VVUS 2.92 ASYT 8.44 CRV 0.54 NCDI 0. MDY 29 40 SNDK 10 10 XICO 7 50 VRTS 19 70 SEBL 14 44 SJW 80 25 ISSI 6 70 RSHX 0 45 MC COMMUNICATIONS OF THE ACM November 2001/Vol. 44, No. 11 51 mation about their financial performance. In effect, they are using Internet technology to market their company to investors. Our study of the financial content of 203 Web sites found evidence that detailed, objective financial data is associated with companies that have more sophisticated financial consumers. On the other hand, less extensive, more subjective financial data is associated with less sophisticated consumers. This pattern is consistent with theories developed to explain product marketing. Maheswaran and Sternthal [5] summarize marketing literature that predicts which types of information are most likely to persuade different groups of information users. Consumers that have substantial knowledge of a product genre tend to respond best to objective information about product attributes. For example, Maheswaran and Sternthal found that computer experts were more motivated to process information and make product judgments when presented with attribute information such as “It has a large memory capacity expandable to 512K by bank switching” [5]. In contrast, novice computer users were drawn to more subjective, less extensive information about product benefits: “It has a large memory capacity adequate to handle heavy duty word processing better than the existing word processors” [5]. Research provides empirical evidence supporting the relation between subject expertise (high versus low) and effective routes to persuasion (attribute versus benefit information) [3, 5, 9]. In the context of financial information, literature from the National Investor Relations Institute (NIRI) suggests that investor relations officers explicitly view their activities as a means of marketing their firms’ securities by disseminating financial information [6]. Furthermore, successful marketing involves identifying and satisfying the needs and desires of specific information consumers. While it is true that Web sites may not be constructed primarily to post financial data, their use for communicating with investors is growing throughout the world. A 1998 survey of investor relations (IR) officers [8] found that launching a Web site was the top priority innovation planned for 1999 for those located in the U.K. and Asia. It was the second priority for those located in ContiA Web Site Design Model for Financial Information Michael Ettredge, Vernon J. Richardson, and Susan Scholz

An Examination of Substitution among Monitoring Devices: The Case of Internal and External Audit Expenditures

Much of the agency literature assumes that various monitoring devices are partial substitutes in reducing total agency costs. In particular, internal and external auditing often are characterized as monitoring devices that should be partial substitutes. We argue that reliable evidence of this relation is lacking because prior studies using cross-sectional archival data have not carefully considered the implications of microeconomic theory of substitution for the models estimated. Our analysis leads to a reexamination of the relation using time-series data. We find no evidence that systematic substitution of internal for external auditing (or vice versa) occurred during the period 1989–1993. Further analysis indicates that the relative prices of internal and external auditing inputs did not change during the period. Therefore a necessary condition for substitution to occur did not exist. Although we do not detect substitution with our sample, the analysis and methodology we develop contribute to the literature by enhancing researchers’ understanding of substitution among monitoring methods.

The negative earnings effect

T his is a simple story. On average, stocks of :ompanies reporting negative earnings in one year in his study generated positive, abnormal (riskand narket-adjusted) returns in the subsequent year. Our research is motivated by several factors. ;irst, Jaffe, Keim, and Westerfield (JKW) in studying he small-firm effect and the low PE effect found ‘consistently high returns for firms of all sizes with iegative earnings” [1989, p. 1351. Almost as an .side, JKW report that ”surprisingly, stocks with neg.tive earnings outperform many of the positiveZarnings portfolios” (p. 138). Their reference is to raw” returns, as opposed to abnormal (riskand .iarket-adjusted) returns, but we thought this was a hding worth exploring further. In addition, De Bondt and Thaler [1985, 19871 .ave argued that investors overreact to earnings an.ouncements. This drives the stock prices of compaies reporting unusually poor earnings (”losers”) too )w, and the prices of those reporting unusually ood earnings (“winners”) too high. The subsequent mection of the overreaction generates positive (negtive) abnormal returns for investments in the loser vinner) stocks. De Bondt and Thaler argue that this an exploitable market inefficiency. Howe [1986] .id Brown and Harlow [1988] report results that merally support those of De Bondt and Thaler. Not surprisingly, the hypothesis that the mar2t overreacts to earnings announcements is contromial. Zarowin [ 19891 reports that the overreaction is just another manifestation of the well-documented size effect. That is, when he controls for firm size using a matching procedure, he finds no evidence that investors overreact to earnings announcements. Zarowin, however, does not specifically examine market reaction to announcements of negative earnings, as we do in this paper. Even after controlling for size, we do find a “negative earnings effect.” Stocks of firms reporting negative earnings outperform other stocks over the next twelve months on a risk-adjusted basis. Finally, Brown, Harlow, and Tinic [1988] develop what they call the Uncertain Information Hypothesis (UIH). The UIH argues that when the full implication of new information concerning a stock is uncertain, investors revise their perception of the stock’s risk upward. This results in an increase in the expected or required rate of return for the stock. Even when an event clearly conveys good or bad news about a firm’s prospects, the full extent of its eventual impact on stock prices may be uncertain. As the uncertainty is resolved, the perceived risk diminishes, and price changes subsequent to the event tend to be positive on average, even if the event was clearly bad news. Furthermore, if investors’ preferences exhibit decreasing absolute risk aversion (which is a typical assumption in economic risk-return models), the UIH predicts that the average price change subsequent to the event will be larger following bad news than following good news.

Timeliness of investor relations data at corporate web sites

Online data for investors is often stale, even when of high quality. How can this situation be improved?