Download or read book Textual Classification of SEC Comment Letters written by James Ryans and published by . This book was released on 2019 with total page 61 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines the impact of SEC comment letters on future financial reporting outcomes and earnings credibility. Naive Bayesian classification identifies comment letters associated with future restatements and write-downs. An investor attention-based quantitative measure of importance, using EDGAR downloads, is also predictive of these outcomes. Disclosure-event abnormal returns, revenue recognition comments, and the number of letters in a conversation appear to be useful quantitative metrics for classifying importance in certain settings. This study also documents trends in comment letter topics over time, and identifies topics associated with the textual and quantitative classifications of importance, providing insights into the factors drawing investor attention and which relate to future restatements and write-downs. Innocuous comment letters are associated with improvements in earnings credibility following comment letter reviews.
Download or read book Textual Classication of SEC Comment Letters written by James Patrick Ryans and published by . This book was released on 2016 with total page 95 pages. Available in PDF, EPUB and Kindle. Book excerpt: The purpose of this study is to identify important SEC comment letters and examine the mechanisms by which they affect firm value. The SEC periodically reviews public-company financial statements, issuing comment letters in response to disclosure deficiencies, to ensure that investors are provided with material information, and to prevent fraud. Given that comment letters consist of unstructured text, statistical text classification may be an effective technique to identify comment letter importance. The information in comment letters is distributed over several separate filings and they are not widely cited by the press or analysts as information sources, which may result in investor inattention and underreaction to their disclosure. I utilize negative abnormal returns following comment letter disclosure as the primary indicator of comment letter importance, and develop a Naive Bayesian classification model that signals important comment letters from their text features that are associated with the indicator. In a holdout sample, the text classification model correctly identifies important comment letters between 10 and 40 percent better than chance. The average out-of-sample abnormal return for firms with signaled comment letters is -5.8 percent during the 90 days post-disclosure, but only when the comment letters were viewed on EDGAR. Signaled comment letters are associated with lower persistence of profits and increased material restatements in the year following comment letter disclosure.
Download or read book SEC Comment Letters written by Hugh Grove and published by . This book was released on 2015 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper is the first study to demonstrate strong informational content and economic significance associated with the issuance of SEC comment letters. Access to comment letters, for forensic accountants and investors, is a relatively recent phenomenon and little research has focused on the impact the letters have on security pricing. We construct a “red flag” forensic metric to examine the information content in SEC comment letters and analyze market performance surrounding the issuance event. The metric consists of five models that are developed to screen for and identify financial reporting problems. We document that SEC comment letters contain salient information about a firm's financial condition, valuation, and future performance that is not only consistent with “red flags” but is apparently overlooked by investors and other financial statement users. Although the letters themselves do not evaluate the merits or investment potential associated with any reported transaction, they do reflect significant industry, accounting and disclosure expertise. We conclude that comment letters are a useful but unrecognized source of independent expert opinion regarding the quality of a firm's financial reports.
Download or read book Is the Character of SEC Comment Letters Relevant to Recipients written by Jordan Rippy and published by . This book was released on 2017 with total page 206 pages. Available in PDF, EPUB and Kindle. Book excerpt: Prior research has provided mixed results regarding changes in firm behavior in response to comment letters from the Securities and Exchange Commission (SEC) (Johnston and Petacchi 2016; Kubick, Mayberry, Omer, and Lynch 2016; Robinson, Xue, and Yu 2011; Wang 2016). This study documents that comment letters come in two main categories: accounting-focused letters and disclosure-focused letters. I examine whether the character of comment letters (accounting versus disclosure) impacts a firm's response to comment letters questioning the allowance for doubtful accounts (AFDA). I find that firms with abnormal accruals in the AFDA are more likely to receive an accounting-focused comment letter and these firms are also more likely to constrain AFDA-related earnings management behaviors in the period after comment letter resolution. Disclosure-focused comment letters exhibit no such patterns. The results of this study suggest (1) the lack of consistent findings in prior research may be partially attributable to homogenously classifying dissimilar comment letters and (2) the SEC filing review and comment letter process may be an effective tool in monitoring and constraining earnings management behaviors.
Download or read book SEC Comment Letters and Insider Sales written by Patricia Dechow and published by . This book was released on 2016 with total page 67 pages. Available in PDF, EPUB and Kindle. Book excerpt: We document that insider trading is significantly higher than normal levels prior to the public disclosure of SEC comment letters relating to revenue recognition. Furthermore, insider trading is triple its normal level for firms with high short positions. We find a small negative return at the comment letter release date and a negative drift in returns of one to five percent over the next 50 days following the release. We also find that greater pre-disclosure sales are associated with a stronger negative drift. This evidence suggests that insiders appear to benefit from trading prior to revenue recognition comment letters. We investigate whether the delayed price reaction to comment letter releases is due to investor inattention. Consistent with this explanation, we document that comment letters are downloaded infrequently from EDGAR in the days following their public disclosure.
Download or read book Styles of Regulators written by Truc (Peter) Do and published by . This book was released on 2018 with total page 57 pages. Available in PDF, EPUB and Kindle. Book excerpt: Security regulations are enforced by SEC staff members. Conceptually, the regulations are to be uniformly enforced despite personal differences among SEC enforcers. We offer evidence to the contrary. Using the SEC's comment letters as our setting, we find that SEC staff members exhibit unique personal “styles.” The effects of their personal styles on firms' remediation costs, the contents of SEC comment letters, and the quality of firms' financial reporting are surprisingly large. We manually collect information on SEC staff members. Our results demonstrate that female staff members are generally tougher reviewers and that CPA qualification matters. Overall, our study offers evidence that SEC staff members exhibit individual differences, and their styles shape firms' financial reporting.
Download or read book How Novelty and Narratives Drive the Stock Market written by Nicholas Mangee and published by Cambridge University Press. This book was released on 2021-10-14 with total page 451 pages. Available in PDF, EPUB and Kindle. Book excerpt: 'Animal spirits' is a term that describes the instincts and emotions driving human behaviour in economic settings. In recent years, this concept has been discussed in relation to the emerging field of narrative economics. When unscheduled events hit the stock market, from corporate scandals and technological breakthroughs to recessions and pandemics, relationships driving returns change in unforeseeable ways. To deal with uncertainty, investors engage in narratives which simplify the complexity of real-time, non-routine change. This book assesses the novelty-narrative hypothesis for the U.S. stock market by conducting a comprehensive investigation of unscheduled events using big data textual analysis of financial news. This important contribution to the field of narrative economics finds that major macro events and associated narratives spill over into the churning stream of corporate novelty and sub-narratives, spawning different forms of unforeseeable stock market instability.
Download or read book SEC Comment Letter Disclosures and Short Sellers Front Running written by Sam (Sunghan) Lee and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Prior studies show that comment letters released by the Securities and Exchange Commission provide information on firms' financial reporting quality and can have adverse value implications about the firms. We examine whether short sellers front-run comment letter disclosures and take short positions based on the economic implications of the letters. We find that short interest increases before comment letter disclosures and that the increase is positively associated with the severity of the letters. We also find evidence suggesting that short sellers obtain private information through social connections with corporate insiders. Finally, we document a negative but delayed market reaction to the disclosure of severe comment letters. These results suggest that front-running the comment letter disclosure is not the optimal trading strategy for short sellers. Short sellers can gain similar profits, and bear less risk, if they put off increasing their short positions until after the disclosure.
Download or read book Alternative Data and Artificial Intelligence Techniques written by Qingquan Tony Zhang and published by Springer Nature. This book was released on 2022-10-31 with total page 340 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book introduces a state-of-art approach in evaluating portfolio management and risk based on artificial intelligence and alternative data. The book covers a textual analysis of news and social media, information extraction from GPS and IoTs data, and risk predictions based on small transaction data, etc. The book summarizes and introduces the advancement in each area and highlights the machine learning and deep learning techniques utilized to achieve the goals. As a complement, it also illustrates examples on how to leverage the python package to visualize and analyze the alternative datasets, and will be of interest to academics, researchers, and students of risk evaluation, risk management, data, AI, and financial innovation.
Download or read book Financial Data Analytics written by Sinem Derindere Köseoğlu and published by Springer Nature. This book was released on 2022-04-25 with total page 393 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book presents both theory of financial data analytics, as well as comprehensive insights into the application of financial data analytics techniques in real financial world situations. It offers solutions on how to logically analyze the enormous amount of structured and unstructured data generated every moment in the finance sector. This data can be used by companies, organizations, and investors to create strategies, as the finance sector rapidly moves towards data-driven optimization. This book provides an efficient resource, addressing all applications of data analytics in the finance sector. International experts from around the globe cover the most important subjects in finance, including data processing, knowledge management, machine learning models, data modeling, visualization, optimization for financial problems, financial econometrics, financial time series analysis, project management, and decision making. The authors provide empirical evidence as examples of specific topics. By combining both applications and theory, the book offers a holistic approach. Therefore, it is a must-read for researchers and scholars of financial economics and finance, as well as practitioners interested in a better understanding of financial data analytics.
Download or read book Current Financial Reporting Trends A Qualitative Review of SEC Comment Letters written by and published by . This book was released on 19?? with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Effect of Sec Tax Comment Letters on Institutional Investors Information Acquisition Activities and Corporate Disclosure written by Yang Cheng and published by . This book was released on 2020 with total page 116 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines the effect of SEC tax comment letters on institutional investors' information acquisition activities and consequential tax disclosures. These two research questions are related to the SEC's mission to protect investors, which is the primary objective of the SEC's comment letter public release policy. Regarding the first research question, I find that institutional investors' information acquisition activities for tax-related comment letter conversations, which include recipient firms' responses, are greater than those for non-tax related conversations. Moreover, institutional investors are more likely to obtain comment-letter conversations for recipient firms that have appeared to be tax aggressive in both current and previous years. Institutional investors are more likely to obtain comment-letter conversations if the SEC comment letters include more uncertain tax topics. Regarding the second research question, I find a significant increase in the number of words in both tax footnotes and paragraphs but with slightly reduced readability, suggesting that managers modify the consequential tax disclosures with their own purposes.This research achieves several aims. First, the findings of this study contribute to the understanding of the consequences of receiving comment letters and their resolution. Second, this study contributes to the literature investigating investors' acquisition of tax-related information. This paper also contributes to tax information disclosure literature as well as to the literature on textual analysis in accounting and finance. The findings of this study will have implications for regulators, investors, and corporate managers.
Download or read book The Power of Words in Capital Markets written by Daniel Giamouridis and published by . This book was released on 2018 with total page 68 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we examine the language tone of comment letters issued to foreign firms listed on US stock exchanges and the impact of domestic enforcement. We find that the tone of SEC reviews has capital market implications following the dissemination of comment letters. Using a textual analysis methodology, we gauge SEC linguistic nuance by creating a customized wordlist for the US regulatory context. We evaluate alternative measures of tone and present evidence that our discipline-specific tone measure outperforms the frequently-cited dictionaries employed in analyses of corporate narratives. We document that negative-tone regulatory language, in contrast to positive, produces significant investor reactions. We further demonstrate that negative market reactions are amplified relative to the strength of domestic enforcement environments. Finally, we find that negative-tone measures generate the same directional capital effect on both US GAAP and non-US GAAP filers; however, when we consider only the important comment letters, the market reaction is more negative for foreign firms which apply the US GAAP. We offer important implications for enforcement agencies, companies, lenders and investors.
Download or read book The Effect of SEC Reviewers on Comment Letters and Financial Reporting Quality written by Matthew Baugh and published by . This book was released on 2017 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine whether the idiosyncrasy of individual employees of U.S. financial regulators contributes to inconsistent regulatory outcomes. Using a sample of SEC comment letters, we show that SEC reviewers' idiosyncratic style plays an economically and statistically significant role in explaining the cross-sectional variation in filing review outcomes, even after holding firm and disclosure attributes constant. We also show that the reviewer style is persistent across firms and time. Finally, we find that reviewers with a stricter style are associated with improved financial reporting quality. These findings suggest that individual SEC reviewers have significant influence on the SEC filing review process.
Download or read book Does Auditor Involvement Expedite SEC Comment Letter Resolution written by Ryan Ballestero and published by . This book was released on 2019 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: The remediation of Securities and Exchange Commission (SEC) comment letters can impose significant costs on companies. This study examines whether auditor involvement in the SEC comment letter process expedites comment letter resolution. Such a finding would indicate that auditors add value outside of the annual financial statement audit. We measure auditor involvement by identifying whether the audit partner is copied on SEC correspondence. First, we document that auditor involvement is more likely when the SEC's comment letter relates to one or more accounting issues. Then, we show that comment letters that copy the partner, especially a partner with greater experience, have reduced time to resolution. In particular, we provide evidence suggesting that copying the audit partner reduces the amount of time it takes the company to respond to a SEC comment letter and copying a more experienced partner reduces the SEC's response time to the company. We also find that copying more experienced partners is associated with clearer responses to the SEC and shorter times to reach full resolution. Our findings indicate that auditors often add value outside of the financial statement audit, while likewise expanding the understanding of the relationship between partner attributes and financial reporting outcomes.
Download or read book The Readability of Company Responses to SEC Comment Letters and SEC 10 K Filing Review Outcomes written by Cory A. Cassell and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: An emerging literature shows that shareholders benefit from the Securities and Exchange Commission's (SEC) filing reviews in terms of improved disclosures and reduced information asymmetry. However, these reviews also impose significant costs on companies because comment letter remediation diverts time and resources away from normal operations and may result in restated or amended filings. Applying processing fluency theory, we examine whether the readability of the company's initial response to an SEC comment letter is associated with the likelihood of unfavorable outcomes from the review. We find that less readable company responses are associated with longer SEC response times and a greater likelihood that the company restates or amends a reviewed filing. Because the company response is preceded by a specific request for information from the SEC (i.e., a prompt), our setting allows for an improved ability to disentangle the effects of disclosure readability from the effects of disclosure content.
Download or read book Financial Statements Based Bank Risk Aggregation written by Jianping Li and published by Springer Nature. This book was released on 2022-03-15 with total page 217 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book proposes a bank risk aggregation framework based on financial statements. Specifically, bank risk aggregation is of great importance to maintain stable operation of banking industry and prevent financial crisis. A major obstacle to bank risk management is the problem of data shortage, which makes many quantitative risk aggregation approaches typically fail. Recently, to overcome the problem of inaccurate total risk results caused by the shortage of risk data, some researchers have proposed a series of financial statements-based bank risk aggregation approaches. However, the existing studies have drawbacks of low frequency and time lag of financial statements data and usually ignore off-balance sheet business risk in bank risk aggregation. Thus, by reviewing the research progress in bank risk aggregation based on financial statements and improving the drawbacks of existing methods, this book proposes a bank risk aggregation framework based on financial statements. It makes full use of information recorded in financial statements, including income statement, on- and off-balance sheet assets, and textual risk disclosures, which solves the problem of data shortage in bank risk aggregation to some extent and improves the reliability and rationality of bank risk aggregation results. This book not only improves the theoretical studies of bank risk aggregation, but also provides an important support for the capital allocation of the banking industry in practice. Thus, this book has theoretical and practical importance for bank managers and researchers of bank risk management.
