Posts Tagged ‘Arthur Kraft’

Real Effects of Frequent Financial Reporting

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday September 19, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Arthur Kraft of Cass Business School, City University London, and Rahul Vashishtha and Mohan Venkatachalam, both of the Accounting Area at Duke University.

In our paper, Real Effects of Frequent Financial Reporting, which was recently made publicly available on SSRN, we examine the impact of financial reporting frequency on firms’ investment decisions. Whether increased financial reporting frequency improves or adversely influences a manager’s investments decision is ambiguous. On the one hand, increased transparency through higher reporting frequency can beneficially affect firms’ investment decisions in two ways. First, increased transparency can reduce firms’ cost of capital and improve access to external financing, allowing firms to invest in a larger set of positive NPV projects. Second, increased transparency can improve external monitoring and help mitigate over- or under-investment stemming from managerial agency problems. On the other hand, frequent reporting can distort investment decisions. In particular, frequent reporting can cause managers to make myopic investment decisions that boost short-term performance measures at the cost of long run firm value. Which of these two forces dominate is an open empirical question that we explore in this study.

…continue reading: Real Effects of Frequent Financial Reporting

Financial Reporting Frequency, Information Asymmetry, and the Cost of Equity

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday November 8, 2012 at 9:58 am
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Editor’s Note: The following post comes to us from Renhui Fu of the Rotterdam School of Management at Erasmus University, Arthur Kraft of the Cass Business School at City University London, and Huai Zhang of the Nanyang Business School at Nanyang Technological University.

In our paper, Financial Reporting Frequency, Information Asymmetry, and the Cost of Equity, forthcoming in the Journal of Accounting and Economics, we examine the impact of financial reporting frequency on information asymmetry and the cost of equity. While it may seem obvious that more frequent disclosures will reduce information asymmetry and the cost of equity, this issue is more complicated. For one, more frequent financial reporting may encourage sophisticated investors to engage in private information acquisitions, resulting in a greater information asymmetry among investors. Alternatively, requiring more frequent reporting may reduce managerial voluntary disclosures, leading to a net loss of information. As such, it is an empirical question.

…continue reading: Financial Reporting Frequency, Information Asymmetry, and the Cost of Equity

 
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