Browsing by Author "Zhao, Rong"
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- ItemOpen AccessCost Uniqueness: An Alternative Lens for Examining Cost Behavior(2023-09-06) Wang, Ye; Mashruwala, Raj; Anderson, Mark; Zhao, Rong; Jingjing, Wang; Sherer, Peter; Weiss, DanCost information is a critical input required for profit analysis, earnings estimation, and firm valuation by capital market participants (Banker and Chen 2006; Weiss 2010; Ciftci et al. 2016). Conventional methods of understanding cost behavior seek to separate costs based on their movements relative to production volume. In a set of three essays, I investigate an alternative lens for examining cost behavior. In my approach, I seek to separate cost movements driven by firm-specific factors from movements that are common to industry or market peers. I refer to this as “cost uniqueness”. In the first of my essays, I describe this new construct of cost uniqueness, and I identify a method to empirically measure this new construct. Firm-specific cost variations are of special interest because costs reflect the inner workings of the firm that are opaque to investors. To establish the importance of measuring cost uniqueness, I investigate the effects of cost uniqueness on information uncertainty for external users by looking at the forecasting difficulty faced by financial analysts. In my second essay, I conduct an exploratory investigation into the forces that potentially drive some firms to be more unique than others. I organize my search around three distinct forces that can shape costs, namely, internal firm characteristics, external environment, and manager-specific characteristics. Within these three dimensions, I specifically examine various factors pertaining to the incentives and capabilities of firms to operate distinctively from their peers. In my third essay, I delve into some of the implications of cost uniqueness for firms. I examine the relationship between cost uniqueness and firm value to assess whether cost uniqueness is driven by managers’ value-enhancing activities or by value-destroying activities. I also investigate what measures a firm can take to mitigate the information uncertainty associated with cost uniqueness. Specifically, I examine whether firms increase their disclosure of cost items to help outsiders unpack cost uniqueness.
- ItemOpen AccessSupply chain relational capital and the bullwhip effect: An empirical analysis using financial disclosures(Emerald Group Publishing Limited, 2019-08-15) Zhao, Rong; Mashruwala, Raj; Pandit, Shailendra; Balakrishnan, JaydeepPurpose: The primary objective of this study is to conduct a large-sample empirical investigation of how relational capital impacts bullwhip at the supplier. Design/methodology/approach: The study uses mandatory disclosures in regulatory filings of US firms to identify a supplier’s major customers and constructs empirical proxies of supply chain relational capital i.e., length of the relationship between suppliers and customers, and partner interdependence. Multivariate regression analyses are performed to examine the effects of relational capital on bullwhip at the supplier. Findings: The findings show that bullwhip at the supplier is greater when customers are more dependent on their suppliers, but is reduced when suppliers share longer relationships with their customers. The results also provide additional insights on several firm characteristics that impact supplier bullwhip, including shocks in order backlog, selling intensity, and variations in profit margins. Further, we document that the effect of supply chain relationships on bullwhip tends to vary across industries and over time. Originality/value: The study employs a novel dataset that is constructed using firms’ financial disclosures. This large panel dataset consisting of 13,993 observations over 36 years enables thorough and robust analyses to characterize supply chain relationships and gain a deeper understanding of their impact on bullwhip.
- ItemOpen AccessThe impact of intangible intensity on the amount and quality of accruals, the tone of narrative disclosures, and the stock of capital assets(2023-07) Iqbal, Aneel; Srivastava, Anup; Warsame, Hussein; Anderson, Mark; Zhao, Rong; Nault, Barrie; Trabelsi, Samir; Keyhani, MohammadMy dissertation consists of three studies about the impact of intangible intensity on the amount and quality of accruals, the tone of narrative disclosures, and the stock of capital assets. In my first study, presented in Chapter 2, I examine whether the amounts of accruals, their composition (components such as working capital, long-term, conditionally conservative, nonarticulating, and financial accruals), and their properties (alleviating timing difference between the occurrence of economic events and cash flows, as well as accruals’ ability to predict cash flows and earnings) differ for knowledge versus physical firms. I find that, as a percentage of assets and revenues, the absolute value of accruals is larger for knowledge firms than for physical firms. This pattern indicates that accounting for knowledge firms requires at least as much judgment and estimates as for physical firms. Meanwhile, accruals’ timing mitigating role is more prone to estimation errors for knowledge firms. Despite higher errors, knowledge firms’ accruals are as predictive of future earnings and cash flows as for physical firms, at least by the time knowledge firms become large and mature. This study contributes to the ongoing debate on the changing usefulness of accrual accounting vis-à-vis cash accounting, as the composition of listed firms shifts toward knowledge firms. I show that accrual accounting remains prevalent and useful despite this shift. In my second study, presented in Chapter 3, I estimate investment and maintenance portions of research and development (R&D) and MainSG&A (SG&A minus R&D), and their amortization rates, on an industry-year–specific basis. My modified book value, inclusive of capitalized intangibles, exhibits greater association with future returns, investments, and bankruptcies, relative to as-reported and mechanically estimated book values. I provide a better estimate of book values of assets and equity for consumers of financial statements. In my third study, presented in Chapter 4, I develop a model that uses the level of uncertainty in the narrative disclosures of the loss-reporting firms to predict their future earnings. I find that the level of uncertainty in narrative disclosures contains incremental information about the future performance of the loss-reporting firms. This information is economically significant as a size-adjusted hedged portfolio based on this information provides abnormal returns. In additional analysis, I find that the level of uncertainty in the narrative disclosures is more informative for young firms and those that report special items and research and development expenditures.