I provide two versions of my research portfolio to help you
understand my research interests. This is the Standard Version which
lists my research by status. The following button will lead you to the story
version which lists my research by main topics and provides more detailed information.
My research interests include corporate disclosure, executive
personality traits, financial
reporting quality, internal control and capital markets, and information technology and
accounting. While disruptive technologies have transformed our economy to digital economy and
brought new challenges to accounting, the new information technologies, such as machine learning
and natural language processing, also enable us to conduct new accounting research. My current
research mainly focuses on textual analysis of corporate disclosure. My earlier research mainly
focuses on the determinants of internal control quality and the capital market consequences. My
new research interest is in information technology and accounting. The following are my
research portfolio.
DISSERTATION
Earnings Conference Calls and Lazy Prices
2021
Changes to the language and construction of financial reports are
indicative of firms’ future returns and operations. Investors, however, are often
inattentive to these changes; consequently, price reactions to these changes are
delayed— resulting in “lazy” prices (Cohen, Malloy, and Nguyen, 2020). Earnings
conference calls have become a prevalent voluntary disclosure medium for U.S. firms but
are also criticized as an irrelevant “show” between executives and analysts. In this
study, I examine whether earnings conference calls can mitigate lazy prices.
Specifically, I examine whether the topic overlap between conference call transcripts
and 10K/10Q content and whether the comparison language used on conference call
transcripts can trigger investors’ attention to firms’ financial reports and changes
therein, and thus attenuate the predictive ability of changes in textual narratives for
future returns. The preliminary results support that the earnings conference calls do
mitigate the lazy prices. Specifically, the comparison language used in the Presentation
session of the conference call can mitigate the lazy prices. This study contributes to
earnings conference call literature by providing new insights into the role of earnings
conference calls in the capital markets and contributes to textual analysis literature
by providing best practices of applying topic modeling methods to accounting
research.
Abstract Audio:
PUBLICATIONS
Chen, H., T. Li, and C. Zhang. 2021. “Going Too Far is as Bad as not Going Far Enough: An
Inverted U-shaped Relationship between Internal Control and Operational
Efficiency” Journal of International Accounting Research Forthcoming.
In this study, we explore the inverted U-shaped association
between internal control quality and firm operational efficiency. Although effective
internal controls can facilitate and improve operational efficiency, excessive internal
controls can negatively affect operational efficiency by (1) influencing management
energy, attention, risk-taking, and innovation motivations; (2) hindering employees’
creativity, enthusiasm, and trust. Our findings support the inverted U-shaped
association. We further explore and prove the two channels through which internal
controls affect firm operational efficiency: the “information channel” (the quality of
internal management reports), and the “application channel” (the enforcement of internal
controls). Additionally, we show that the inverted U-shaped association only exists in
non-state-owned firms. We do not find significant association between internal control
quality and operational efficiency in state-owned firms. Overall, this study suggests
that firms should not only establish an optimal level of internal controls, but also
enforce the internal controls effectively to achieve their intended goals.
Zhang, M. C., D. Stone, and H. Xie. 2019. “Text Data Sources in Archival
Accounting Research: Insights and Strategies for Accounting Systems’ Scholars” Journal of
Information Systems 33 (1):145-180.
This paper reviews the emerging computer-aided text analysis
(CATA) accounting literature through proposing a model of the corpus linguistic research
production process, followed by analysis of the main text archival data sources in
published papers in the Top Six accounting journals from 2010 to 2016. Reviewed papers
appear in a 5 × 5 matrix that includes five categories of text data (i.e., SEC filings,
conference call transcripts, earnings press releases, financial analyst reports, and
other sources) and five categories of text measures (i.e., tone, readability,
similarity, firm characteristics and environment, and other measures). A brief review of
the CATA literature published in two AIS journals is followed by a summary of the tools
and KS (knowledge and skills) observed in the reviewed research. Finally, we offer
implications by discussing four issues related to CATA accounting research. We conclude
that the emerging CATA accounting research offers unique opportunities for knowledgeable
AIS scholars.
Zhang, C., and H. Chen. 2016. “Product Market Competition, State Ownership
and Internal Control Quality” China Journal of Accounting Studies 4 (4):406-432.
Based on a sample of Chinese A-share listed firms on the Shenzhen
Stock Exchange and the Shanghai Stock Exchange between 2007 and 2012, we examine the
effect of product market competition on the internal control quality of Chinese listed
firms and the difference in this effect between state owned firms and non-state owned
firms. Using the internal control index constructed by Chen et al. (2013) as the proxy
for internal control quality, we find that product market competition has a significant
effect on the internal control quality of Chinese listed firms: the more intense the
product market competition is, the higher the internal control quality will be. However,
the effect is only significant for non-state owned firms, not for state owned firms. In
addition, we find that high quality internal control can improve product market
competition advantage, providing support for our main findings. Overall, our study
extends the literature on internal control and product market competition, provides
evidence on whether internal control can help firms realise their development
strategies, and offers advice to related government departments and firms on improving
internal control quality.
Zhang, C., and H. Chen. 2014. “Internal Control, Investor Sentiment and
Stock Market Response to Earnings News” China Economic Studies 4: 61-74. In Chinese.
Using data on Chinese A-share listed companies from 2007 to
2011,we study whether internal control helps to inhibit the impact of investor sentiment
on stock market response to earnings news. We find that for companies with low internal
control quality,stock market responses to earnings news are more likely to be influenced
by investor sentiment,with high( low) investor sentiment increasing earnings response
coefficients of good( bad) news. However,for companies with high internal control
quality,the impact of investor sentiment on earnings response coefficients is in the
opposite direction,with high( low) investor sentiment decreasing earnings response
coefficients of good( bad) news. These results show that high internal control quality
not only can inhibit the improvement effect of investor sentiment on earnings response
coefficients,but also has a safe harbor effect. In addition,we find that the above
phenomenon is more evident for small companies and non-state owned companies. In
contrast,earnings response coefficients are not influenced by investor sentiment in
either large companies or state owned companies.
Yang, D., C. Zhang, and H. Chen. 2014. “Internal Control, Integration
Ability and M&A Performance: Empirical Evidence from Chinese Listed Firms” Auditing Research 3:
43-50. In Chinese.
The role of internal control on reasonably assuring the
reliability of financial report has been verified by extensive empirical
evidences,however few literatures explores the role of internal control on detail firms’
operational activities. Therefore,taking merger and acquisition( MA) activity as
example,with sample of MA events which listed firms are buyers and have been finished in
2008 and 2009,we find that buyer’s internal control quality is negatively associated
with increasing of bankruptcy risk in right and subsequent 3 years when MA has been
completed; consistent with this,the higher firm’s internal control quality is,the better
MA performance will be.These findings indicate that higher quality internal control can
improve firm’s integration ability and performance after MA. This study enriches and
broadens literatures on internal control and MA,and has certain implication for firms’
internal control practice.
Chi, G., C. Zhang, and H. Han. 2012. “Individual Investors’ Perception of
Risk Associated Internal Control Deficiencies Disclosure: an Experimental Study” Auditing
Research 2: 105-112. In Chinese.
There is important value on internal control relevant policy
formulation and implementation to study individual investors’ reaction mechanism of
internal control information disclosure.This research examines the influence of internal
control deficiency information disclosure on individual investors’ investment risk
perception with experimental research method.We find that the severity of internal
control deficiency significantly influences individual investors’ expected investment
risk assessment,but there is no significant difference between the disclosure of none
deficiency and the disclosure of significant deficiency on individual investors’ risk
perception. The description of internal control deficiency has no significant effect on
individual investors’ expected investment risk assessmentthe. The trust on managers is
an important intermediary variable between the severity of internal control deficiency
and individual investors’ investment risk perception.We also find that internal control
audit report has significant effect on individual investors’ investment risk
perception.The higher the level of individual investors using the internal control audit
report is,the more it will strengthen the negative influence of internal control
deficiency to individual investors’ risk perception.
The Role of Linguistic Style on Successor CEO Selection after Accounting
Restatements
Dan Stone, Hong
Xie, Tony Tongqing Ding
We examine whether the linguistic style of successor CEO signals a
firm’s effort to restore damaged reputation following an accounting restatement.
Applying a new measure of language cohesion (i.e., Coh-Metrix measures) on earnings
conference call transcripts, we find that restatement firms are more likely to appoint a
successor CEO with a linguistic style that conveys high integrity than non-restatement
firms. Further, appointing a successor CEO with high language cohesion result in a less
negative market reaction proxied by the short-term cost of capital, consistent with the
notion that linguistic style signals to investors effectively about a firm’s effort to
restore its reputation damaged from an accounting restatement. We also find evidence
that linguistic style that conveys high integrity of the successor CEO relates to with
long-term benefits proxied by lower long-term cost of capital, higher subsequent ROA,
and Tobin’s Q. Collectively, the findings suggest that restatement firms can benefit
from choosing a successor CEO with a linguistic style that conveys high integrity.
Abstract Audio:
Presentations
University of
Kentucky, 2018
The Effect of Management Language Cohesion on Information Asymmetry and
the Cost of Equity Capital
Dan Stone, Hong
Xie
This study examines the association between language cohesion in
earnings conference calls and information asymmetry/the cost of equity capital, using
earnings conference call transcripts from 2005-2017. Using an emerging automated
discourse analysis tool, Coh-Metrix, we explore Coh-Metrix measures as proxies for
management language cohesion. Results indicate that larger values of two Coh-Metrix
measures of conference calls, the word concreteness and temporality, are associated with
lower information asymmetry and cost of equity capital. Further, adding traditional
readability metrics to regression analysis only increase R2 by 0.05% over the benchmark
model. In contrast, adding Coh-Metrix measures increases R2 by 0.9%-2.5% over the
benchmark model. The results suggest that Coh-Metrix language cohesion measures are
potentially stronger measures of linguistic complexity in accounting-relevant documents
compared with traditional readability measures. This study contributes to the textual
analysis literature in accounting by introducing a new discourse analysis method,
Coh-Metrix, for assessing text cohesion and understandability.
Abstract Audio:
Presentations
AAA Annual
Meeting, 2018
AAA Southeast
Region Meeting, 2018
University of
Louisville, 2017*
Cloud-Based Text Analytics: Harvesting, Cleaning and Analyzing Corporate
Earnings Conference Calls
Vikram Gazula, Dan
Stone, Hong Xie
The automated text analysis of corporate earnings conference calls
is an increasingly important data source for understanding accounting information and
financial markets. However, the advanced text analysis of corporate earnings conference
calls requires unique extract, transform, and loading (ETL) skills for harvesting,
cleaning, managing, analyzing and displaying data. This case describes one approach to
harvesting, cleaning, and analyzing the text data found in corporate earnings conference
call transcripts. Using a web crawler, we harvested 115,882 earnings conference call
transcripts which were then parsed and structured using regular expressions in Stata.
Because our project included analysis using emerging text analytic software (i.e.,
Coh-Metrix3), the only feasible alternative for analysis was cloud-based virtual
hardware, which we ran on Amazon Web Services (AWS), through Amazon Elastic Compute
Cloud (Amazon EC2). One important insight of the case study is the necessity of
automating ETL and analyses processes that have historically been manually and locally
executed in accounting research. We estimate that manually conducting the ETL process
and running the analyses on local computing resources would have required about 2 years.
In contrast, automating ETL and running cloud-based analyses required about 38 days.
This case describes the tools and processes used in achieving these results.
Abstract Audio:
Presentations
University of
Kentucky, 2017
WORKS IN
PROGRESS
The Dark Side of CFO Extraversion: The Effect on Financial Reporting
Quality, and the Consequences from the Capital Market
This study examines how CFO extraversion affects firms’ financial
reporting quality and how investors perceive the risk of the firms with extraverted
CFOs. Based on the two fundamental features of extraversion, reward sensitivity and
social attention, I predict that CFO extraversion is negatively associated with firms’
financial reporting quality, because (1) extraverted CFOs have stronger attempts to
actively ingratiate themselves with CEOs which reduces the bottom-up monitoring role of
the CFO and (2) the close relationship between the extraverted CFO and other C-suites
executives facilitates the passive acquiescence or active collusion in accounting
manipulation. I do not have predictions about the sign of the effect of CFO extraversion
on firms’ cost of equity capital, because investors may have different perceptions about
CFO extraversion. The preliminary results show that CFO extraversion is positively
associated with accruals earnings management and accounting reporting complexity, and
positively associated with firms’ cost of equity capital. These results indicate that
CFO extraversion reduces firms’ financial reporting quality and increases firms’ cost of
capital. This study contributes to financial disclosure literature by showing that
extraversion is an important personality trait that can affect CFO’s financial
disclosure decisions.
