Yaqi Shi

• Magnan, M.; Wang, H.; Shi, Y. N., (Forthcoming), "Fair value accounting and the cost of corporate bonds: the role of auditor expertise", Journal of Financial Reporting and Accounting
  Abstract: Purpose This study aims to examine the association between fair value accounting and the cost of corporate bonds, proxied by bond yield spread. In addition, this study explores the moderating role of auditor industry expertise at both the national and the city levels. Design/methodology/approach This study first examines the effect of the use of fair value on yield spread by estimating firm-level regression model, where fair value is the testing variable and yield spread is the dependent variable. To test the differential impact of the three levels of fair value inputs, this paper divides the fair value measures based on the three-level hierarchy, Level 1, Level 2 and Level 3, and replace them as the test variables in the regression model. Findings This study finds that the application of fair value accounting is generally associated with a higher bond yield spread, primarily driven by Level 3 estimates. The results also show that national-level auditor industry expertise is associated with lower bond yield spreads for Level 1 and Level 3 fair value inputs, whereas the impact of city-level auditor industry expertise on bondholders is mainly on Level 3 fair value inputs. Research limitations/implications The paper innovates by exploring the impact of fair value accounting in a setting that extends beyond financial institutions, the traditional area of focus. Moreover, most prior research considers private debt, whereas this study examines public bonds, for which investors are more likely to rely on financial reporting for their information about a firm. Finally, the study differentiates between city- and national-level industry expertise in examining the role of auditors. Practical implications This research has several practical implications. First, firms seeking to raise debt capital should consider involving auditors, with either industry expertise or fair value expertise, due to the roles that auditors play in safeguarding the reliability of fair value measures, particularly for Level 3 measurements. Second, from standard-setting and regulatory perspectives, the study’s findings that fair value accounting is associated with higher bond yield spread cast further doubt on the net benefits of applying a full fair value accounting regime. Third, PCAOB may consider enhancing guidance to auditors on Level 2 fair value inputs, to further enhance audit quality. Finally, creditors can be more cautious in interpreting accounting information based on fair value while viewing the employment of auditor experts as a positive signal. Originality/value First, the paper extends research on the role of accounting information in public debt contracting. Second, this study adds to the auditing literature about the impact of industry expertise. Finally, and more generally, this study adds to the ongoing controversy on the application of fair value accounting.

  Link(s) to publication:

  http://dx.doi.org/10.1108/jfra-11-2022-0398

• Magnan, M.; Li, T.; Shi, Y. N., 2022, "Governance Tensions in MNCs’ Accounting Quality", Journal of International Business Studies
  Abstract: This study investigates how the institutional complexity of a multinational corporation (MNC) impacts its accounting quality. Toward that end, we employ a unique sample of MNCs registering subsidiaries in offshore financial centers (OFCs). Our focus is the tension between external governance mechanisms (i.e., U.S. cross-listing, home-country institutional context) and internal governance mechanisms (OFC subsidiaries). Consistent with the corporate governance bonding hypothesis, we show that cross-listed MNCs exhibit higher accounting quality compared to non-cross-listed MNCs. However, the positive association between cross-listing and accounting quality is negatively moderated by an MNC’s choice of OFC subsidiaries, thereby suggesting that the internal governance mechanisms of MNCs interact with external mechanisms to impact its accounting quality. Moreover, an MNC’s OFC choice negatively moderates the relation between home-country governance and accounting quality, thus lending further support to corporate governance arbitrage hypothesis. Our study underscores, to regulators and investors concerned about opportunistic earnings management, the importance of enhancing monitoring efforts for MNCs with opaque and complex governance that exhibits international mobility.

  Link(s) to publication:

  https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4026241

  http://dx.doi.org/10.1057/s41267-022-00514-w

• Dunbar, C. G.; Li, Z. F.; Shi, Y. N., 2020, "CEO Risk-Taking Incentives and Corporate Social Responsibility", Journal of Corporate Finance, October 64: 101714 - 101714.
  Abstract: We examine how firms adjust CEO risk-taking incentives in response to risk environments associated with their corporate social responsibility (CSR) standing. We find strong evidence that as a firm's CSR status improves (declines), increasing (decreasing) its risk-taking capacity, the firm responds by adjusting compensation contracts to increase (decrease) CEO risk-taking incentives (Vega). One channel of the adjustment is through stock option grants. Further analyses indicate that the positive CSR-Vega association is stronger in firms with better corporate governance and in industries where riskiness is more important. Our evidence indicates that firms are not passive in response to changes in CSR status and firm risk.

  Link(s) to publication:

  http://dx.doi.org/10.1016/j.jcorpfin.2020.101714

• Foerster, S. R.; Sapp, S.; Shi, Y. N., 2014, "The Effect of Voluntary Disclosure on Firm Risk and Firm Value: Evidence from Management Earnings Forecasts", Advances in Quantitative Analysis of Finance and Accounting, October 12: 179 - 213.
  Abstract: This study investigates whether the voluntary disclosure of management earnings forecasts is associated with investors' assessment of firm risk and firm value. We find a significant negative relationship between the issuance of management earnings forecasts and a variety of measures of firm risk (idiosyncratic risk, stock return volatility, beta, and bid-ask spreads). Considering specific features of the management earnings forecasts, we find more frequent, more precise and more accurate earnings forecasts are associated with a larger decrease in firm risk. Our results therefore suggest that information quality is an important determinant of both diversifiable risk and nondiversifiable systematic risk. We also demonstrate that management earnings forecasts are positively associated with firm value as captured by Tobin's Q. More frequent, precise and accurate forecasts further enhance valuation premiums. Finally, we partition our sample into good news versus bad news forecasts, and show that the results are driven more by good news forecasts. Overall, releasing high-quality management earnings forecasts is associated with important capital market benefits.

  Link(s) to publication:

  https://www.airitilibrary.com/Common/Click_DOI?DOI=10.6293%2fAQAFA.2014.12.07

• Shi, Y. N.; Kim, J. B.; Magnan, M., 2014, "Voluntary Disclosure, Legal Institutions and Firm Valuation: Evidence from U.S. Cross-Listed Foreign Firms", Journal of International Accounting Research, October 13(2): 57 - 85.
  Abstract: Building on the bonding hypothesis, this paper examines the economic consequences of voluntary management earnings forecasts (MFs) made by foreign firms cross-listed in the U.S. market. Our work reveals the following. First, cross-listed firms that voluntarily issue MFs exhibit higher firm valuation (Tobin's Q) than those that do not issue MFs, with forecast precision and frequency further enhancing valuation premiums. Additionally, the valuation premium of MFs is more pronounced for cross-listed firms than for a matched sample of U.S. domestic firms. Second, cross-listed firms from countries with weaker legal regimes are valued more for their voluntary forecasts relative to those from stronger legal regimes. Third, further sensitivity analyses suggest that valuation implications from MFs are more consistent with reputational bonding than with a signaling perspective. Finally, our mediation analysis suggests that voluntary disclosures of MFs are an important channel through which the information environment positively influences firm valuation. Overall, our study contributes to both the voluntary disclosure and cross-listing literatures.

  Link(s) to publication:

  http://dx.doi.org/10.2308/jiar-50842

• Shi, Y. N.; Magnan, M.; Kim, J. B., 2012, "Do Countries Matter for Voluntary Disclosure? Evidence from Cross-listed Firms in the U.S.", Journal of International Business Studies, January 43(2): 143 - 165.
  Abstract: This paper explores the likelihood and consequences of voluntary disclosure (proxied by management earnings forecasts) for a sample of 1,005 cross-listed firms in the U.S. from 40 countries over the period of 19962005. Our study is grounded in a three-tiered conceptual framework that relies on insights from and implications of institutional theory, agency theory, and bonding theory to explain the costs and benefits associated with voluntary disclosure. Consistent with institutional theory and agency theory, our results indicate that disclosure likelihood increases with the strength of cross-listed firms’ home country legal institutions, and is also influenced by U.S. listing type, product market internationalization, and ownership structure. Further, our results show that voluntarily committing to U.S. disclosure practice is associated with lower information asymmetry, which supports reputational bonding theory. Overall, our study provides a costs-and-benefits framework to understand voluntary disclosure practices in an international context. Our work also presents convincing evidence that home country institutions still matter when foreign firms migrate into the U.S. financial market, which highlights the importance of country-level institution development.

  Link(s) to publication:

  http://dx.doi.org/10.1057/jibs.2011.38

• Kim, J.; Shi, Y. N., 2011, "Voluntary Disclosure and the Cost of Capital: Evidence from Management Earnings Forecasts", Journal of Accounting and Public Policy, July 30(4): 348 - 366.
  Abstract: This paper examines the directional effects of management earnings forecasts on the cost of equity capital. We find that forecasters of bad news experience a significant increase in the cost of equity capital in the month after their disclosure. Conversely, the cost of equity capital for good news forecasters does not change significantly in the same period. We also indicate that the magnitude of changes in the cost of capital for good news forecasters is significantly lower than that for bad news forecasters and non-forecasters, which suggests that investors may view good news forecasts less credible. Finally, we show that the effect of the subsequent earnings announcement on the cost of equity capital is preempted by the management forecasts for bad news firms, and that the combined effects of the management earnings forecasts and the earnings announcement are not significant for both good news and bad news forecasters. Our paper contributes to the literature by adding evidence on directional effects of voluntary disclosures and on long-term economic consequences of management earnings forecasts.

  Link(s) to publication:

  http://dx.doi.org/10.1016/j.jaccpubpol.2011.03.001

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