William J. Mayew

Religious Social Norms and Corporate Financial Reporting

Religion has been shown to influence economic choices and outcomes in a variety of contexts. Honesty and risk aversion are two social norms forwarded to characterize the religious. Using the level of religious adherence in the county of a U.S. firm’s headquarters as a proxy for these religious social norms, we find that higher levels of religious adherence are associated with both a lower likelihood of financial restatement and less risk that financial statements are misrepresented because of overstated (understated) revenue/assets (expenses/liabilities). We also find that accruals of managers in areas of high religious adherence exhibit smaller deviations from expectations, and deviations, when they occur, tend to improve the time series mapping of accruals into cash flows. These results hold overall and separately for both Catholic and Protestant religious adherence. Further analysis reveals that the effects of religious social norms extend beyond accrual choices. We find that firms located in areas of high religious adherence are less likely to engage in tax sheltering, and are more forthcoming with bad news in their voluntary disclosures. Collectively, our results provide new evidence on the role of religion and social norms in corporate financial reporting.

Vocal Fry May Undermine the Success of Young Women in the Labor Market

Vocal fry is speech that is low pitched and creaky sounding, and is increasingly common among young American females. Some argue that vocal fry enhances speaker labor market perceptions while others argue that vocal fry is perceived negatively and can damage job prospects. In a large national sample of American adults we find that vocal fry is interpreted negatively. Relative to a normal speaking voice, young adult female voices exhibiting vocal fry are perceived as less competent, less educated, less trustworthy, less attractive, and less hirable. The negative perceptions of vocal fry are stronger for female voices relative to male voices. These results suggest that young American females should avoid using vocal fry speech in order to maximize labor market opportunities.

Which Spoken Language Markers Identify Deception in High-Stakes Settings? Evidence From Earnings Conference Calls

Quarterly conference calls where corporate executives discuss earnings that are later found to be misreported offer an excellent test bed for determining if automated linguistic and vocalic analysis tools can identify potentially fraudulent utterances in prepared versus unscripted remarks. Earnings conference calls from one company that restated their financial reports and were accused of making misleading statements were annotated as restatement-relevant (or not) and as prepared (presentation) or unprepared (Q&A) responses. We submitted more than 1,000 utterances to automated analysis to identify distinct linguistic and vocalic features that characterize various types of utterances. Restatement-related utterances differed significantly on many vocal and linguistic dimensions. These results support the value of language and vocal features in identifying potentially fraudulent utterances and suggest important interplay between utterances that are unscripted responses rather than rehearsed statements.

Reassessing the association between facial structure and baseball performance: a comment on Tsujimura & Banissy (2013)

Are the associations between the facial width-to-height ratio (fWHR) and Japanese male baseball player performance documented by Tsujimura & Banissy [[1][1]] robust to controlling for body mass index (BMI)? Two factors motivate this question. First, research suggests that BMI is positively

The Extent of Implicit Taxes at the Corporate Level and the Effect of TRA86

We examine the extent of implicit taxes at the corporate level and the effect on implicit taxes of the Tax Reform Act of 1986 (TRA86). Using a variety of specifications, we find consistent evidence that implicit taxes eliminate virtually all of the cross-sectional differences in explicit tax preferences prior to TRA86, and then abruptly decline and eliminate only about one-third of the cross-sectional differences in tax preferences in years following TRA86. We triangulate this evidence that implicit taxes declined following TRA86 by also providing evidence (a) of a decline in the relation between changes in tax preferences and changes in pre-tax returns, (b) of an increase in the persistence of tax-related earnings changes, (c) that these dramatic economic changes are priced by investors. Finally, we provide evidence suggesting that the decline in implicit taxes after TRA86 is driven at least in part by expansion of aggressive tax planning and use of tax shelters. Taken together these results indicate that TRA86 had a profound and lasting effect on implicit taxes at the corporate level.

Financial fraud detection using vocal, linguistic and financial cues

Corporate financial fraud has a severe negative impact on investors and the capital market in general. The current resources committed to financial fraud detection (FFD), however, are insufficient to identify all occurrences in a timely fashion. Methods for automating FFD have mainly relied on financial statistics, although some recent research has suggested that linguistic or vocal cues may also be useful indicators of deception. Tools based on financial numbers, linguistic behavior, and non-verbal vocal cues have each demonstrated the potential for detecting financial fraud. However, the performance of these tools continues to be poorer than desired, limiting their use on a stand-alone basis to help identify companies for further investigation. The hypothesis investigated in this study is that an improved tool could be developed if specific attributes from these feature categories were analyzed concurrently. Combining features across categories provided better fraud detection than was achieved by any of the feature categories alone. However, performance improvements were only observed if feature selection was used suggesting that it is important to discard non-informative features. We investigate whether a prediction model for corporate financial fraud that jointly considers numeric financial information as well as both linguistic and vocalic aspects of corporate executive speech improves predictive accuracy.Optimization results reveal that only a subset of the complete set of numeric, linguistic and vocalic predictors enhance overall predictive accuracy.These results should assist investors, financial analysts and regulators in identifying the most effective markers of corporate fraud.

Speech Analysis in Financial Markets

The ways in which managers communicate information to capital market participants go far beyond financial statements and accounting numbers. Managers communicate economically relevant information both verbally, in documents distributed and available to investors (such as annual reports and SEC filings), and nonverbally, through meetings and conference calls with analysts and investors. We review research on the information contained in nonverbal communication, particularly vocal communication that occurs in organizational contexts. We also explore possible ways in which accounting researchers can draw useful insights from investigating managerial vocal communication. The advances in computerized voice analysis coupled with the increasing availability of audio files containing managerial communication presents promising research opportunities.

Using Shareholder Letters to Measure CEO Integrity

We forward and validate a linguistically-derived measure of CEO integrity. We contend low-integrity CEOs lack credibility when communicating, which creates a demand for explanations beyond that created by firm-specific or other CEO characteristics. We capture the supply of such explanations by low-integrity CEOs via relatively excessive explanations in the annual shareholder letter. Using shareholder letter causation words to measure variation in explanations, we find low-integrity CEOs receive lower integrity ratings from subordinates, are perceived unfavorably by employees generally, are more likely to receive a tone-at-the-top material weakness and a higher fee from their auditor, provide lower quality accruals prior to Sarbanes-Oxley, are more likely to receive backdated options, and have inferior future firm performance.We investigate the audit fee response to CEO behavioral integrity (BI). BI refers to the perceived congruence between an individual’s words and deeds (Simons 2002). Because low word-deed congruence should result in more explanations when communicating, we use variation in explanations beyond firm fundamentals and CEO-specific characteristics in more than 30,000 shareholder letters to serve as a linguistic-based proxy for CEO BI. We find audit fees increase as BI decreases, but BI is not associated with financial misstatement or litigation. These findings are potentially consistent with auditors undertaking additional work in response to low BI, which in turn mitigates the risk of restatements and lawsuits. The likelihood of option backdating increases as BI decreases, consistent with the contention that auditors lacked incentives to prevent backdating. Finally, BI is increasing in future performance, which suggests CEOs partially underpin the returns to high-integrity corporate cultures.We forward and validate using survey data a linguistically derived measure of CEO integrity by documenting a negative association between CEO use of causation words and employee perceptions of the extent to which their CEOs honor their word. Using causation words from annual shareholder letters, we then create CEO integrity scores for a large archival sample. Accounting accruals capture the CEOs word regarding firm cash flows, and we find that highintegrity CEOs report accruals that better map into cash flows. Given that poor accruals quality is costly, we also find boards rationally respond by increasing governance over low-integrity CEOs.

Improving Experienced Auditors’ Detection of Deception in CEO Narratives

We experimentally study the deception detection capabilities of experienced auditors, using CEO narratives from earnings conference calls as case materials. We randomly assign narratives of fraud and nonfraud companies to auditors as well as the presence versus absence of an instruction explaining that cognitive dissonance in speech is helpful for detecting deception. We predict this instruction will weaken auditors’ learned tendency to overlook fraud cues. We find that auditors’ deception judgments are less accurate for fraud companies than for nonfraud companies, unless they receive this instruction. We also find that instructed auditors more extensively describe red flags for fraud companies and more accurately identify specific sentences in narratives that pertain to underlying frauds. These findings indicate that instructing experienced auditors to be alert for cognitive dissonance in CEO narratives can activate deception detection capabilities.

A Linguistic-Based Approach to Measuring Innate Executive Traits: The Case of CEO Integrity

We forward and validate a linguistically-derived measure of CEO integrity. We contend low-integrity CEOs lack credibility when communicating, which creates a demand for explanations beyond that created by firm-specific or other CEO characteristics. We capture the supply of such explanations by low-integrity CEOs via relatively excessive explanations in the annual shareholder letter. Using shareholder letter causation words to measure variation in explanations, we find low-integrity CEOs receive lower integrity ratings from subordinates, are perceived unfavorably by employees generally, are more likely to receive a tone-at-the-top material weakness and a higher fee from their auditor, provide lower quality accruals prior to Sarbanes-Oxley, are more likely to receive backdated options, and have inferior future firm performance.We investigate the audit fee response to CEO behavioral integrity (BI). BI refers to the perceived congruence between an individual’s words and deeds (Simons 2002). Because low word-deed congruence should result in more explanations when communicating, we use variation in explanations beyond firm fundamentals and CEO-specific characteristics in more than 30,000 shareholder letters to serve as a linguistic-based proxy for CEO BI. We find audit fees increase as BI decreases, but BI is not associated with financial misstatement or litigation. These findings are potentially consistent with auditors undertaking additional work in response to low BI, which in turn mitigates the risk of restatements and lawsuits. The likelihood of option backdating increases as BI decreases, consistent with the contention that auditors lacked incentives to prevent backdating. Finally, BI is increasing in future performance, which suggests CEOs partially underpin the returns to high-integrity corporate cultures.We forward and validate using survey data a linguistically derived measure of CEO integrity by documenting a negative association between CEO use of causation words and employee perceptions of the extent to which their CEOs honor their word. Using causation words from annual shareholder letters, we then create CEO integrity scores for a large archival sample. Accounting accruals capture the CEOs word regarding firm cash flows, and we find that highintegrity CEOs report accruals that better map into cash flows. Given that poor accruals quality is costly, we also find boards rationally respond by increasing governance over low-integrity CEOs.