Frank D. Hodge

• University of Washington

Managerial myopia imposes significant costs on firms, stakeholders, and the overall economy. Research suggests that both a firm’s shareholder base and the frequency of its earnings guidance influence myopia. Shareholder bases have undergone significant changes in recent years as index fund ownership supplants long-term shareholder ownership, yet it...

Investors face a difficult challenge in determining whether news they read is true or fake and, according to psychology theory, an additional challenge of ceasing to rely on news subsequently revealed to be fake. To help address this latter challenge, we examine whether prompting investors to be in a deliberative mindset reduces their reliance on n...

We examine how shareholders' trust in managers is affected by (1) the outcome of earnings management (inconsistent vs. consistent with shareholders' interests) and (2) the method of earnings management (accruals vs. real methods). Using a controlled experiment, we predict and find that trust is impaired when the outcome of earnings management sugge...

We examine how CEOs can facilitate the development of investor trust that helps mitigate the effects of negative information. Results from an experiment show that investors trust the CEO more and are more willing to invest in the firm when the CEO communicates firm news followed by a negative earnings surprise through a personal Twitter account tha...

We examine whether CEOs are able to influence how investors react to a negative earnings surprise by directly communicating with them via Twitter prior to the earnings surprise. Results show that investors exhibit higher levels of trust and are more willing to invest in a firm when the firm’s CEO communicates broad firm news followed by a negative...

We present 60 experienced credit analysts with financial information for two firms: one that mainly outsources production and one that does not. We find that analysts are better able to identify firm characteristics that make an outsourcer more creditworthy when those characteristics are presented in the same general section of a financial report;...

Given the information asymmetry that exists between a firm’s managers and its stakeholders, investing in the firm involves a certain degree of trust. The discovery of earnings management likely impairs that trust. The accounting literature, however, has yet to examine how trust impairments stemming from the discovery of different methods of earning...

The Dodd-Frank Act requires firms to include a clawback or holdback clause in executive compensation contracts. Using an experiment, we examine how executives react to the enforcement of these clauses after a restatement. We find that executives generally reduced the riskiness of their financial reporting choices after enforcement. An exception was...

We examine whether financial reporting quality improves after firms voluntarily adopt a compensation clawback provision. Clawback provisions allow companies to recoup excess incentive pay in the event of an accounting restatement, and are intended to ex ante deter managers from publishing misstated accounting information and to ex post penalize man...

Press releases accompanying earnings restatements attempt to minimize negative reactions by explaining the reasons for the restatement. Although text-based press releases have been the norm for years, firms have recently begun using online video for such announcements. We examine the implications of doing so, and find that when a CEO accepts respon...

We report the results of an experiment designed to examine whether enhanced disaggregation and cohesive classification of information across financial statements helps professional credit analysts identify firms’ operating structures. Our results show that analysts are better able to identify the operating structures of our experimental firms when...

Le Financial Accounting Standards Board (FASB) et l’International Accounting Standards Board (IASB), dans leur projet conjoint de norme relative à la présentation des états financiers, remettent à l’étude les éléments de base de la présentation des états financiers. Les discussions préliminaires des deux organismes dans le cadre de ce projet indiqu...

This chapter reviews the main sources of financial data on intercollegiate athletics and the budgeting processes used in athletics.

Restatements are economically significant events that damage investor trust in a firm’s financial reporting. We conduct an experiment to investigate how using online video to announce a restatement interacts with the level of responsibility a manager assumes for the restatement to influence investors’ perceptions of management’s trustworthiness and...

We conduct a field survey to investigate whether current mid-level and future entry-level managers (collectively managers) subjectively value stock options and restricted stock consistent with economic theory. We find that managers, on average, subjectively value stock options at greater than their Black-Scholes value and greater than fair-value eq...

The Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB), in their joint Financial Statement Presentation project, are reconsidering the basic format of financial statements. The Boards' preliminary discussions related to this joint project indicate that they intend to modify the required financial stateme...

In this paper we investigate the relationship between non-professional investors' information choices and their portfolio returns. We also investigate the role investing experience plays in this relationship. We find that non-professional investors earn lower returns as their use of unfiltered information (e.g., SEC filings) increases relative to t...

We investigate a key assumption underlying much of the experimental research in financial accounting that graduate business students are a good proxy for nonprofessional investors. To conduct our investigation, we categorize recent experimental studies in financial accounting, based on the relative level of integrative complexity inherent in each s...

In this study we use a unique dataset to examine whether professional and nonprofessional investors use different online quarterly financial information when making investment decisions, and whether the online information they use depends on whether they are researching a new investment or evaluating a current investment. Our results suggest profes...

We gather data from 77 current mid-level managers and 111 future entry-level managers, to investigate how they value stock options and restricted stock. We refer to our current and future manager groups collectively as "managers." We supplement our manager data with a dozen field interviews with senior executives. We find that managers, on average,...

We investigate a key assumption underlying much of the experimental research in financial accounting that graduate business students are a good proxy for non-professional investors. To conduct our investigation, we categorize recent experimental studies in financial accounting based on the relative level of integrative complexity inherent in each s...

In this study we report the results of an experiment that examines how relatively sophisticated financial statement users interpret management stock option compensation disclosures under SFAS No. 123 and SFAS No. 123R. We predict and find that mandated income statement recognition, as required under SFAS No. 123R, leads to higher user assessments o...

In this study we investigate how the level of discretion in the reporting environment and management’s reporting reputation influence the extent to which management’s reporting incentives are important in determining the perceived credibility of management’s classification choices. Consistent with prior research, we show that users view incentive-i...

In this study we conduct a field experiment to examine how qualifying an income-decreasing accounting change in years of strong financial performance affects user assessments of strategic reporting, current financial performance, and financial performance over the next three years (future performance). We find that without the qualification, users...

We investigate a key assumption underlying much of the experimental research in financial accounting that graduate business students are a reasonable proxy for nonprofessional investors. We investigate this assumption using two settings: (a) an experimental setting from a recent paper that relies on this assumption, and (b) by using a proprietary d...

XBRL (Extensible Business Reporting Language) is an emerging technology that facilitates directed searches and simultaneous presentation of related financial statement and footnote information. We investigate whether using an XBRL-enhanced search engine helps nonprofessional financial statement users acquire and integrate related financial informat...

In this study we report the results of a laboratory experiment in which we examine whether the credibility of management's balance-sheet classification of hybrid securities as liabilities or equity is a joint function of (1) the level of classification discretion in the reporting environment, (2) whether management's classification choice is consis...

SYNOPSIS: In this paper I investigate whether nonprofessional investors' beliefs mirror the Securities and Exchange Commission's (SEC) concerns that earnings quality and auditor independence have declined over time. I also examine whether lower percep- tions of earnings quality are associated with more or less reliance on a firm's audited financial...

Research suggests that investors and creditors react less strongly to information disclosed in footnotes than to information recognized on the face of financial statements, due at least in part to cognitive processing limitations. Emerging technologies (e.g., XBRL) that facilitate directed searches and simultaneous presentation of related financial...

In this study we examine how an audit qualification of an accounting change affects investor assessments of the firm's current and future financial performance, and the representational faithfulness of the change. We investigate this issue for income-increasing and income-decreasing accounting changes, and across four apparent reporting strategies:...

This study provides evidence that hyperlinking a firm's audited financial statements to unaudited information in a Web-based environment leads investors to blend the unaudited information with the audited statements. I obtain evidence of this blending effect using an experiment where investors assessed a firm's earnings potential by evaluating the...

White for helpful comments. We also thank Scott Asay and Tim Brown for their coding assistance. Rob Bloomfield acknowledges support of the Nicholas H. Noyes Professorship, Frank Hodge acknowledges support of the Herbert O. Whitten Professorship, and Pat Hopkins acknowledges support of the Deloitte Foundation. This research project was conducted wit...