This study examines the effectiveness of algorithmic reading by testing whether the algorithm can identify hedging information from energy firms’ annual reports. Beyond the conventional practice of summarizing qualitative information of human language using algorithms, we introduce an additional evaluative dimension by testing whether such algorithms can identify market price movements documented in the hedging literature, thereby comparing the performance of the machine and the human reading side by side. Our textual analysis, based on a keyword-counting method, reveals a 21% to 55% mismatch rate relative to human reading. Despite these discrepancies, algorithmic identification successfully detects a more obvious pattern of the lower betas among hedged firms. However, algorithms are less effective than human classification in more complex applications, such as identifying the altered conditional betas of hedged firms. We also find that the keywords with the least discrepancy from human work, as well as those that performed best in a more straightforward application, do not excel in a more challenging task.

Purpose This study aims to investigate the relation between stakeholder proximity and the likelihood of reporting discontinued operations (DO). Design/methodology/approach The analysis is based on 31,799 firm-year observations from publicly listed firms in the USA over the period 1992–2023. Stakeholder proximity is proxied by firms’ headquarters location, with urban firms defined as those headquartered in one of the ten largest USA metropolitan areas. We examine its association with discontinued-operations reporting using multivariate regression models. Findings The results show a significant positive association between stakeholder proximity and the likelihood of reporting DO. Firms headquartered closer to key stakeholders are more likely to discontinue business segments, consistent with the view that geographic proximity intensifies external scrutiny and stakeholder pressure. Originality/value This study provides new evidence on how firms’ geographic positioning relative to stakeholders influences both reporting choices and operational restructuring decisions. By linking stakeholder proximity to DO, it extends the literature on geographic effects in accounting and corporate strategy.

Purpose This study aims to examine the relation between firm complexity and the disclosure of non-GAAP earnings. Design/methodology/approach Using a comprehensive panel data set of 23,162 firm-year observations from 2003 to 2020, this study uses multivariate regression analyses to assess the relation between firm complexity and non-GAAP reporting practices. Findings The results show that firm complexity is significantly and positively associated with the likelihood of reporting non-GAAP earnings. Originality/value This study contributes to the literature on voluntary disclosure and earnings quality by documenting a significant link between firm complexity and non-GAAP reporting behavior. Unlike prior studies that focus primarily on managerial incentives, this study identifies firm complexity as a structural factor influencing disclosure strategies.

Purpose This study aims to examine whether firms’ carbon emissions are associated with their use of non-GAAP earnings disclosures. Design/methodology/approach Using a large sample of US public firms from 2002 to 2020 comprising 12,984 firm-year observations, the authors analyze the relation between firm-level carbon emissions and the likelihood of reporting non-GAAP earnings. The authors use logistic regression models with a comprehensive set of firm-level controls, as well as industry and year fixed effects. Findings The authors document a positive and statistically significant relation between carbon emissions and non-GAAP earnings disclosure, indicating that firms with higher emissions are more likely to report non-GAAP earnings. Cross-sectional analyses further show that the relation is concentrated among firms operating in non-environmentally sensitive industries and low-tech sectors, and is primarily driven by firms with higher emission intensity. Originality/value This study contributes to the literature on sustainability and financial reporting by identifying environmental performance as an important determinant of discretionary financial disclosure choices. The findings are consistent with a legitimacy-based disclosure framework in which firms adjust reporting practices in response to environmental scrutiny and highlight the role of non-GAAP earnings as part of a broader strategic communication process.

The Porter Hypothesis argues that pollution is often a sign of resource misallocation and operational inefficiency, and that environmental challenges, rather than acting purely as a cost, can drive firms to improve efficiency, innovate, and restructure. Building on this theoretical framework, we examine whether carbon emissions, as a proxy for environmental inefficiency, are associated with firms' decisions to discontinue business operations. Using a sample of 33,323 U.S. firm-year observations from 2002 to 2023 and carbon emissions data from Trucost, we find a significant positive relation between emissions and the likelihood of discontinued operations, suggesting that firms with more emissions are more likely to discontinue business operations.

This paper explores the impact of the Kangmei case, the first-ever securities class action in China, on shareholder wealth, director turnover, and firm behavior. Around the ruling, we find that China’s A-share firms experience higher market returns relative to comparable firms in the United States and Hong Kong. This rise in shareholder wealth is moderated for firms that are likely to experience greater increases in investor compensation and frivolous lawsuits and firms with prior misconduct. We also find increased director resignations among firms with prior misconduct, suggesting a disciplinary effect of litigation risk. Furthermore, boards enhance their protection by increasing insurance coverage, director compensation, and monitoring efforts. Meanwhile, firms reduce rent-seeking, including related-party transactions and insider trading, improve accounting quality, and incur fewer securities violations and penalties. These results are consistent with increased shareholder wealth and reduced agency conflicts in the aftermath of the Kangmei case.

This study explores the impact of judicial transparency on the Environmental, Social, and Governance (ESG) performance of local listed firms, using the disclosure of court environmental judgments mandated by China's 2013 judicial transparency reform as a proxy. Analyzing a large panel dataset, we find a significant positive relation between the disclosure of environmental judgments at the city level and the ESG performance of firms within those jurisdictions. These findings highlight how judicial transparency can drive improvements in ESG performance within China's unique institutional context, and they contribute to a more comprehensive understanding of the factors influencing firms' ESG outcomes in emerging economies with similar governance structures. We also find that the impact of disclosing environmental judgments differs based on firm, industry, and regional characteristics.

Accounting Standards Codification 820 (ASC 820), which addresses fair value measurement, mandates that companies categorize their fair value inputs, both assets and liabilities, into three distinct levels. Level 1 represents inputs derived from highly observable market prices, whereas Level 3 is based on data that is minimally observable. Examining a sample from 2008 to 2020, consisting of more than 30,000 firm-year observations, we identify a significant positive relation between asset redeployability and the use of Level 1 inputs, suggesting that firms with assets that can be easily repurposed tend to prefer these transparent valuation methods. On the other hand, we observe a significant negative relation between asset redeployability and the use of Level 3 inputs, implying that firms with flexible assets are less likely to depend on subjective or obscure valuation techniques. These results emphasize that businesses with more redeployable assets favor market-driven and objective inputs.

PurposeWe investigate the relation between corporate culture and the likelihood of discontinuing business operations.Design/methodology/approachWe rely on regression analysis in our study.FindingsWe find a significant negative relation, suggesting that firms with strong corporate culture are less likely to discontinue business operations. To enhance the incremental contributions of our study, we delve into the moderating role of corporate culture on the aforementioned relation and identify several factors that, when coupled with corporate culture, could indirectly impact the decision-making process regarding discontinuing operations. We also find that the negative relation between corporate culture and discontinued operations is mainly driven by firms with lower earnings performance, and this relation becomes stronger for high-tech firms. Lastly, we find that stronger culture is associated with a larger magnitude of discontinued operations for firms reporting discontinued operations, and this positive association is largely driven by firms reporting income-decreasing discontinued operations.Originality/valueOur analysis adds to two independent streams of research: corporate culture in management literature and discontinued operations in accounting literature. Prior research, in particular, focuses on examining if and how managers exploit discontinued operations to manipulate earnings. By showing a significant negative impact of corporate culture on the likelihood of discontinuing business operations, our research undoubtedly adds to the body of understanding regarding the factors that lead managers to discontinue certain operations.

Purpose This study aims to examine whether and how managerial ability enhances research and development (R&D) productivity, measured through the research quotient (RQ), a forward-looking metric capturing the revenue elasticity of R&D spending. Design/methodology/approach The author analyzed a panel of 35,260 firm-year observations from U.S. publicly listed firms between 1998 and 2021. Managerial ability is measured using the two-stage efficiency-based approach of Demerjian et al. (2012). RQ data are sourced from Compustat following Knott’s (2008) methodology. The regression analysis includes firm and year fixed effects. Findings Results show a significant and positive association between managerial ability and RQ. A one-standard-deviation increase in managerial ability corresponds to an approximate 4.4% improvement in R&D productivity. This relation holds across alternative measures of managerial ability, different innovation proxies (patents), change and fixed-effects regressions and subsamples. The effect is stronger in smaller firms and is amplified by stronger corporate governance. Originality/value To the best of the author’s knowledge, this study is the first to provide large-sample evidence linking managerial ability to realized economic returns from innovation. By integrating the resource-based view and upper echelons theory, it highlights managerial talent as a strategic intangible asset in the innovation process. Findings have implications for corporate governance, executive recruitment and innovation policy.

Asset redeployability reflects firm ability to reallocate or sell capital assets in secondary markets. Using data from publicly listed firms, we show that asset redeployability is negatively related to managerial ability, suggesting capable managers maintain lower redeployability levels. We reveal labor efficiency as one channel through which managerial ability influences asset redeployability. Managerial ability's negative effect on asset redeployability is stronger under low political risk, consistent with it serving as a costly form of insurance against uncertainty. Our findings imply that while asset redeployability is commonly viewed as a source of corporate flexibility, it may also reflect inefficient asset allocation.

Purpose This study aims to examine the relation between firm-level political risk and managerial ability. Design/methodology/approach This study uses regression analysis to explore firm-level political risk’s influence on managerial ability. Findings The findings exhibit a significant and positive relationship between firm-level political risk and managerial ability, suggesting that firms facing increased political risk demonstrate stronger managerial ability. Originality/value This study extends the body of research exploring the impact of firm-level political risk on corporate behavior and outcomes.

PurposeIn this study, we examine the impact of asset specificity on firms' operating performance, which is measured as firm efficiency.Design/methodology/approachWe use regression analysis to examine the relation between asset specificity and firm operating efficiency.FindingsAnalyzing a dataset of over 165,000 firm-year observations from 1987 to 2022, we find a significant negative relation between asset specificity and firm efficiency, supporting our hypothesis. This relation suggests that firms with higher asset specificity face greater operational rigidity, higher costs and reduced adaptability, leading to lower efficiency.Originality/valueOur study advances the understanding of asset specificity at the firm level, an area that has received limited empirical attention. Moreover, our study contributes to the ongoing debate on whether asset specificity is beneficial or detrimental to firms.

Purpose We examine the impact of redeployable assets on non-GAAP earnings disclosure. Design/methodology/approach We use regression analysis to examine the impact of redeployable assets on non-GAAP earnings disclosure. Findings We examine the impact of asset redeployability on non-GAAP earnings disclosure using a sample of US public companies from 2002 to 2020. We find a significant and negative relation between asset redeployability and the likelihood of non-GAAP reporting. This relation is more pronounced among firms with stronger earnings performance. Additionally, a channel analysis reveals that stock price crash risk and earnings management further strengthen this negative relation. Originality/value We add to the progressing body of literature in finance and accounting that explores how asset redeployability affects firm characteristics. Additionally, our research contributes to the ongoing debate regarding whether firms decide to disclose non-GAAP earnings with an informative motive or an opportunistic motive. Our findings indicate that firms with higher asset redeployability are less likely to use non-GAAP reporting to influence public perceptions of their financial performance. This insight helps strengthen the understanding of the motives behind non-GAAP earnings disclosure. Furthermore, we are among the first, to the best of our knowledge, to directly investigate how asset redeployability influences non-GAAP earnings reporting.

Purpose This study aims to examine the relation between firms nearing a broad bond rating change (a rating that includes a plus or minus specification) and their use of non-GAAP earnings reporting. Design/methodology/approach This study uses regression analysis to examine this relation. Findings Analyzing a large panel sample from 2002 to 2020, the authors find that firms approaching a broad bond rating change are more likely to report non-GAAP earnings relative to firms not in this position. Further analysis reveals that firms with a plus specification in their bond ratings are less inclined to report non-GAAP earnings. In contrast, firms with a minus specification are significantly more likely to disclose non-GAAP earnings. Hence, the primary findings are primarily driven by firms with a minus specification. Originality/value This study connects two separate streams of literature: bond credit ratings from finance and non-GAAP earnings from accounting.

This study examines how firm-level political risk relates to labor performance, measured as the ratio of the total of net income and labor cost to the number of employees. Using a sample of 9508 firm-year observations consisting of U.S. firms during the years 2002-2021, we find a significant and negative relation between political risk and labor performance. Our empirical tests show that after controlling for other factors, firms facing a higher level of political risk demonstrate lower labor performance, highlighting the negative impact of political risk on firm behavior and outcomes.

This study examines the impact of twin agency problems (political corruption and minority shareholders’ expropriation) on corporate debt management policies across a large number of countries. Our results show that in more corrupt countries, managers are more likely to shield liquid assets from potential political extraction by maintaining a higher level of leverage. This effect is magnified by the protection of shareholders’ rights. We further show that twin agency problems influence not only the level of debt in capital structures but also other aspects of debt management, including debt maturity, deviation from optimal leverage, capital structure stability, and the leverage speed of adjustments. The findings are robust due to their inclusion of different measures of corruption and a wide range of firm-level and country-level characteristics. Our study has implications for policymakers, as we show that the improvement of the country-level institutional environment and, particularly, addressing corruption can lead to more effective debt management by firms, ultimately resulting in higher firm values.

This study analyzes the relationship between corporate culture, the likelihood of reporting special items, and firm performance. We find a significant negative relation between corporate culture and special items using more than 55,000 firm-year observations from 6931 U.S. corporations between 2002 and 2021. The result suggests that firms with strong corporate cultures are less likely to use and report special items. Firms with lower performance mainly drive the negative relation; the pattern indicates that firms with weaker corporate cultures are prone to manage earnings using special items.

Purpose In this study, we examine the relation between employee treatment and annual report readability, which is measured as a reading difficulty score. Design/methodology/approach We use regression analysis to explore the impact of employee treatment on annual report reading difficulty. Findings We find a significant negative relation between employee treatment and reading difficulty, which suggests that annual reports of firms with better employee treatment are easier to read and understand (i.e. more readable). Originality/value Our study contributes to a more thorough knowledge of annual report readability and our findings may be of relevance to accounting standard setters and investors.

We examine the impact of holding more redeployable assets on corporate social responsibility (CSR). Using a large panel sample of U.S. public companies, we posit and find a significant negative relation between asset redeployability and CSR performance, suggesting that firms with more redeployable assets demonstrate lower overall CSR performance. Our findings are robust to different time periods, alternative measures of redeployability, a changes analysis, and a two-stage regression analysis.