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Abstract:
This paper addresses the debate about R-square as an indicator of information quality: Does low R-square indicate early resolution of uncertainty through the arrival of firm-specific information, or does it indicate a high level of uncertainty that remains unresolved? Tests based on the post-earnings-announcement drift, V/P, accruals, and net operating assets anomalies all reject the view that low R-square indicates a high quality information environment (early resolution of uncertainty). Low R-square firms have lower future earnings response coefficient, indicating that their current stock price incorporates a smaller amount of future earnings news, and thus more uncertainty about future earnings news remains unresolved. Furthermore, low R-square firms have worse information environment as measured by earnings quality, earnings persistence, and earnings predictability, and have higher probability of distress.

R-square, idiosyncratic volatility, firm-specific information

Abstract:
We document that the passage of the Sarbanes-Oxley Act (SOX) coincided with an increase in voluntary delistings and deregistrations of foreign firms traded as American Depository Receipts (ADRs) from US stock markets. We examine the extent to which these exits were motivated by firms' costs of complying with SOX or by managers' or controlling shareholders' (MCOs) loss of control rents that resulted from corporate governance mandates of SOX. We find that compared to foreign firms that maintained their ADRs, foreign firms which voluntarily deregistered have weaker corporate governance, had a significantly less negative stock market reaction when SOX was passed, and suffered a significant price decline when they announced their intention to delist. There is also evidence supporting the argument that the delistings were motivated by firms' (as opposed to MCOs') compliance costs related to SOX. Taken together, our results demonstrate that both the agency problem (i.e., private benefit of control of the MCOs) and the compliance cost of SOX play a role in motivating foreign firms to withdraw from the US market.

Abstract:
We examine a potential benefit associated with the voluntary reporting of corporate social responsibility performance, a reduction in firms' cost of equity capital. We find that firms with high cost of equity capital tend to release corporate social responsibility reports and that reporting firms with relatively superior social responsibility performance enjoy a reduction in the cost of equity capital. Further, reporting firms with superior social responsibility performance attract dedicated institutional investors and analyst coverage. Superior social responsibility performance also serves to reduce forecast errors and dispersion. Finally, firms appear to exploit the benefit of a reduction in the cost of equity capital associated with social responsibility reporting: Reporting firms are more likely than non-reporting firms to raise equity capital in the two years following the reporting and among firms raising equity capital, reporting firms raise a significantly larger amount than non-reporting firms.

voluntary disclosure, non-financial disclosure, CSR, cost of equity capital