The Impact of SEC Disclosure Monitoring on the Uncertainty of Fair Value Estimates

2015 ◽  
Vol 91 (2) ◽  
pp. 349-375 ◽  
Author(s):  
Daniel A. Bens ◽  
Mei Cheng ◽  
Monica Neamtiu
Keyword(s):  
Fair Value ◽  
Securities And Exchange Commission ◽  
Data Availability ◽  
Market Uncertainty ◽  
Market Participants ◽  
Comment Letters ◽  
Value Reporting ◽  
The Impact ◽  
Level 2

ABSTRACT We investigate the role played by the Securities and Exchange Commission (SEC) in monitoring fair value disclosures in regulatory filings. Specifically, we assess whether SEC action via the issuance of fair value comment letters to registrants is followed by reductions in uncertainty about the firms' fair value estimates. We hypothesize that registrants that receive a comment letter focusing on their fair value disclosure policies experience reductions in investor uncertainty regarding their fair value estimates in the post-letter period, compared to the pre-letter period. Supporting this prediction, we find that for the periods after the fair value comment letters, the associations between Level 2 and 3 fair value assets and our measures of uncertainty are significantly reduced. These findings are robust to a series of tests designed to ensure that we do not simply capture general changes in market uncertainty levels for firms investing in these types of assets. Our study contributes to the further understanding of market participants' perception of fair value disclosures by investigating the role of SEC enforcement. This finding is important given recent criticisms of fair value reporting emanating from the highest levels of government and industry. Data Availability: Data are available from public sources identified in the paper.

Reviewing the SEC's Review Process: 10-K Comment Letters and the Cost of Remediation

2013 ◽  
Vol 88 (6) ◽  
pp. 1875-1908 ◽  
Author(s):  
Cory A. Cassell ◽  
Lauren M. Dreher ◽  
Linda A. Myers
Keyword(s):  
Review Process ◽  
Fair Value ◽  
Securities And Exchange Commission ◽  
Data Availability ◽  
Additional Time ◽  
Audit Firm ◽  
Sarbanes Oxley ◽  
Comment Letters ◽  
Time Required ◽  
The Cost

ABSTRACT: Securities and Exchange Commission (SEC) comment letters provide independent and timely feedback on the clarity of disclosures and on the extent to which filings comply with Generally Accepted Accounting Principles and SEC reporting regulations. We investigate factors that affect the probability of receiving a 10-K comment letter, the extent of comments received, and the cost of remediation. We find that in addition to factors explicitly stated to increase SEC scrutiny in Section 408 of the Sarbanes-Oxley Act, low profitability, high complexity, engaging a small audit firm, and weaknesses in governance are positively associated with the receipt of a comment letter, the extent of comments, and the cost of remediation. The probability that the comment letter results in a restatement is higher for smaller companies and for companies engaging a small audit firm. We also provide evidence that comments relating to accounting issues result in higher remediation costs, largely due to the additional time required to resolve comments relating to classification issues and fair value issues. Our findings should be of interest to stakeholders who use SEC comment letters to assess disclosure quality and reporting compliance, and to managers and other stakeholders impacted by costs associated with the SEC's review process. Data Availability All data used in the study are publicly available from the sources cited in the text.

The Role of Dissemination in Market Liquidity: Evidence from Firms' Use of Twitter™

2013 ◽  
Vol 89 (1) ◽  
pp. 79-112 ◽  
Author(s):  
Elizabeth Blankespoor ◽  
Gregory S. Miller ◽  
Hal D. White
Keyword(s):  
Information Asymmetry ◽  
Market Liquidity ◽  
Data Availability ◽  
Market Participants ◽  
Technology Firms ◽  
The Press ◽  
The Impact ◽  
To Receive ◽  
Bid Ask Spreads

ABSTRACT Firm disclosures often reach only a portion of investors, which results in information asymmetry among investors and, therefore, lower market liquidity. This issue is particularly salient for firms that are not highly visible, as they tend not to receive broad news dissemination via traditional intermediaries, such as the press. This paper examines whether firms can reduce information asymmetry by more broadly disseminating their news. To isolate the impact of dissemination, we focus our analysis on firms' use of Twitter and exploit the 140-character message restriction. Specifically, using a sample of technology firms, we examine the impact of using Twitter to send market participants links to press releases that are provided via traditional disclosure methods. We find this additional dissemination of firm-initiated news via Twitter is associated with lower abnormal bid-ask spreads and greater abnormal depths, consistent with a reduction in information asymmetry. Moreover, this result holds mainly for firms that are not highly visible, consistent with them being in greater need of this additional dissemination channel. We also examine the impact of dissemination on a volume-based measure of liquidity, and find that dissemination is positively associated with liquidity. Data Availability: All data are publicly available from the sources indicated in the paper.

Better ‘Best Execution’

2018 ◽  
pp. 165-196
Author(s):  
Christopher Nagy ◽  
Tyler Gellasch
Keyword(s):  
Securities And Exchange Commission ◽  
Client Expectations ◽  
The Us ◽  
Best Execution ◽  
Public Disclosures ◽  
Investment Advisers ◽  
The Impact ◽  
Disclosure Obligations

This chapter reviews best execution and new disclosure obligations in relation to investment advisers as well as brokers; it also provides an overview of the strategies they use to meet their rapidly changing obligations. Investment advisers and brokers are confronted with increasingly stringent regulatory and client expectations to fulfil their duty of best execution. Regulators in Europe have become active in developing formal best execution obligations, but the US Securities and Exchange Commission (SEC) is lagging behind in providing a clear framework for best execution. This chapter first outlines the analogous best execution obligation for broker-dealers and explores the contours of the SEC’s expectations for investment advisers. It then assesses the impact of new European best execution obligations and the role of public disclosures in aiding the fulfilment of best execution duties. It concludes by examining various strategies used by investment advisers to fulfil their evolving duties.

The role of using fair value on relevance and representation faithfulness of accounting information in accordance with the Common Conceptual Framework (FASB-IASB)

2019 ◽  
Vol 118 (12) ◽  
pp. 142-165
Author(s):  
Dr. Nada Kaki Bira ◽  
Layla Naji Majeed Al Fatlawi
Keyword(s):  
Conceptual Framework ◽  
Accounting Information ◽  
Fair Value ◽  
Fair Value Accounting ◽  
Global Trend ◽  
The Common ◽  
Relationship Of ◽  
The Impact ◽  
The Relationship

The global trend towards the use of fair value accounting is increasing, so the current study aimed to maximize the impact of fair value application on achieving relevance and representation faithfulness of accounting information in accordance with the common conceptual framework. To achieve the objective of this study, the researcher has determined in the theoretical framework the relationship of fair value with the characteristics of relevance and representation faithfulness of accounting information and the extent of achieving these characteristics, as well as conducting a field study by preparing a questionnaire distributed to a sample of academics (50) and auditors (50) with a total number of selected participants (100) of academics and auditors.

Fair Value Measurements and Audit Fees: Evidence from the Banking Industry

2014 ◽  
Vol 33 (3) ◽  
pp. 33-58 ◽  
Author(s):  
Michael L. Ettredge ◽  
Yang Xu ◽  
Han S. Yi
Keyword(s):  
Positive Association ◽  
Audit Fees ◽  
Fair Value ◽  
Data Availability ◽  
Publicly Traded ◽  
Cost Efficiencies ◽  
Level 3 ◽  
Level 1 ◽  
Fair Value Measurements ◽  
Level 2

SUMMARY: Using publicly traded bank holding company data from 2008 through 2011, this paper documents that the proportions of fair-valued assets held by banks are positively associated with audit fees. The positive association between audit fees and the proportions of total assets that are fair-valued using Level 3 inputs is greater than its positive association with the proportions of total assets that are fair-valued using Level 1 or Level 2 inputs. These results are consistent with a hypothesized scenario in which audit effort increases in the difficulty of verifying asset fair values. We also document that bank specialist auditors, defined as in Behn, Choi, and Kang (2008), charge lower audit fees to bank clients on average, suggesting cost efficiencies passed to clients as lower fees. However, bank expert auditors charge more for auditing the proportions of total assets that are fair-valued. Overall, the results support concerns expressed by some observers that greater use of fair value measurements for financial instruments will trigger increased audit fees. Data Availability: All data used in this study are publicly available from the sources identified in the text.

The role of small-scale topographic features on inundation dynamics: potential impacts on large-scale investigations

2021 ◽  
Author(s):  
Alessio Domeneghetti ◽  
Antonio Leonardi ◽  
Oliver E. J. Wing ◽  
Francesca Carisi ◽  
Armando Brath
Keyword(s):  
High Resolution ◽  
Large Scale ◽  
Hydraulic Modeling ◽  
Data Availability ◽  
Small Scale ◽  
Topographic Features ◽  
Capacity Data ◽  
The Impact ◽  
Flood Prone Areas

<p>The execution of large-scale (i.e., continental or global) hydraulic modeling is nowadays a reality thanks to the increasing computational capacity, data availability, as well as understanding of essential physical dynamics. Such achievements are typically associated to a compromise in terms of model resolutions (the finer being of few tens of meters, with a coarsened representation of the terrain) and, thus, accuracy on representing the topographic peculiarities of the flood-prone areas. Nevertheless, the experience gained observing the dynamics of past inundations highlights the role of small-scale topographic features (e.g., minor embankments, road deck, railways, etc.) in driving the flow paths. Recent advances on automated identification of flood defense from high resolution digital elevation model paved the way to include hydraulically relevant features (e.g., main levees) while preserving the model resolution suitable for large-scale applications (Wing et al, 2020). <br>The present study extends this approach to flood-prone areas by investigating how the automatic detection of minor topographic discontinuities can enhance the estimation of flood dynamics of large-scale models. Taking advantage of high-resolution topographic data (i.e., 1-2 m) the approach automatically detects hydraulically relevant features and preserves their height while coarsening the resolution of the terrain used into the hydraulic model. The impact of such approach on the inundation dynamic is tested referring to three different case-studies that recently experienced riverine flooding: Secchia and Enza rivers (2014, 2017, respectively; Italy), Des Moines (Iowa, USA). The results confirm the relevance of small-scale topographic features, which, when considered, ensure a high correspondence to observations and local models. The element of strength of the presented approach is that such performances are ensured without requiring the adoption of high grid resolutions, and thus, not affecting the overall computational costs.</p>

Fair value's effects on closed-end funds' discounts and premia: is level 3 the sole perpetrator?

2020 ◽  
Vol 46 (8) ◽  
pp. 1001-1022 ◽  
Author(s):  
Steve Fortin ◽  
Ahmad Hammami ◽  
Michel Magnan
Keyword(s):  
Relevant Information ◽  
Fair Value ◽  
Content Type ◽  
Level 3 ◽  
Closed End Funds ◽  
Level 1 ◽  
Value Hierarchy ◽  
Valuation Uncertainty ◽  
The Impact ◽  
Level 2

PurposeThis study examines the long-term link between fair valuation uncertainty and discounts/premia in closed-end funds. This study argues that, in exploring the close-end funds puzzle, prior research generally omits to consider the uncertainty surrounding the measurement of funds' financial disclosure, as reflected in the fair value hierarchy, when investment specialty differs across funds.Design/methodology/approachRegressions were employed to explore how the fair value hierarchy affects closed-end funds' discounts/premia when investment specialty differs. The authors also examine the effects pre- and post-2012 to explore if that relationship changes due to the additional disclosure requirements enacted at the end of 2011.FindingsThe authors find that the three levels of the fair value hierarchy have effects that vary according to a fund's specialty. For equity specialized funds, Level 3 significantly increases discounts and decreases premia, suggesting the impact of valuation uncertainty that underlies Level 3 estimates; this relationship disappears (decreases in severity) for premia (discount) experiencing funds post-2012. In contrast, Level 1 and Level 2 do not have any significant effect on discounts or premia except that post-2012, Level 2 begins to display discount decreasing effects. For bond specialized funds, no significant association was noted between premia and any of the fair value levels except that post-2012, Level 3 begins to display premium increasing effects. However, results are different for discounts. The authors note that Level 1 valuations significantly increase discounts, but only post-2012; Level 2 valuations significantly decrease discounts (pre- and post-2012), consistent with such estimates incorporating unique and relevant information; and Level 3 valuations do not have a significant effect on discounts.Originality/valueThe results of this study revisit prior evidence and indicate that results about the effects of fair value measurement and the closed-end funds' puzzle are sensitive to the period length being considered and the investment specialty of the fund. The authors also note that additional disclosure regarding Level 3 valuation inputs decreases market concern for valuation uncertainty and increases the liquidity benefits of investing in Level 3 carrying funds.

The Impact of Fair Value Measurement for Bank Assets on Information Asymmetry and the Moderating Effect of Own Credit Risk Gains and Losses

2018 ◽  
Vol 93 (6) ◽  
pp. 127-147 ◽  
Author(s):  
Joana C. Fontes ◽  
Argyro Panaretou ◽  
Kenneth V. Peasnell
Keyword(s):  
Credit Risk ◽  
Information Asymmetry ◽  
Fair Value ◽  
Data Availability ◽  
Bid Ask Spread ◽  
Fair Value Measurement ◽  
Gains And Losses ◽  
Value Measurement ◽  
The Impact

ABSTRACT We examine whether the use of fair value measurement (FVM) for bank assets reduces information asymmetry among equity investors (bid-ask spread) and how this is affected by the recognition of own credit risk gains and losses (OCR). Our findings show that FVM of assets is associated with noticeably lower information asymmetry, and that this reduction is more than twice as large when banks also recognize OCR. In addition, we find that the bid-ask spread is incrementally lower for banks that provide more detailed narrative disclosures on OCR. The findings also indicate that the effects of asset FVM and OCR recognition on the bid-ask spread do not simply capture the differences in the characteristics of the banks and the quality of their information environments. Data Availability: All data are available from public sources.

Printing Outsourcing: Local Market with Global Dominance

2021 ◽  
Vol 144 (4) ◽  
pp. 136-141
Author(s):  
Maxim A. Chasovikov ◽  
Keyword(s):  
Document Management ◽  
Local Market ◽  
Electronic Document ◽  
Systems Architecture ◽  
Market Participants ◽  
It Systems ◽  
Electronic Document Management ◽  
The Impact ◽  
Opening Up

Using the example of print outsourcing, the article examines the problems of analyzing and forecasting markets that significantly depend on the global players' behaviour. At the same time provisions of the economic domination theory allow, through highlighting the typical strategies of market participants, to identify a number of new trends emerging in the market and opening up for Russian companies. First of all, they have to do with such processes as transition to electronic document management, expansion of the sphere of product labeling and traceability systems. In addition, the 2020 crisis has resulted in creation of a new demand for organizing home workplaces, changing the requirements for IT systems architecture in large offices. Based on the case studies of the companies that are present on the market, the author draws up conclusions on notable changes in the role of large Russian companies in this market, including under the impact of transformations on the related markets.

Managerial ability and fair value accounting: evidence from nonfinancial firms

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Wray Bradley ◽  
Li Sun
Keyword(s):  
Design Methodology ◽  
Fair Value ◽  
Managerial Ability ◽  
Fair Value Accounting ◽  
Content Type ◽  
Level 3 ◽  
Level 1 ◽  
The Impact ◽  
Nonfinancial Firms ◽  
Level 2

Purpose The purpose of this study is to examine the relation between managerial ability and fair value inputs (measured as fair value intensity) for nonfinancial firms. Design/methodology/approach This study uses regression analysis to investigate the impact of managerial ability on the level of fair value inputs. Findings This study finds significant and positive relations between managerial ability and use of Level 1 and Level 2 fair value inputs. On the other hand, this study finds an insignificant relation between managerial ability and Level 3 inputs. Originality/value The findings contribute to two research streams. To the best of the author’s knowledge, this is perhaps the first study that directly examines the link between managerial ability and fair value inputs.

Sign in / Sign up

Export Citation Format

Share Document