Matthew Sooy

• Doshi, H.; Patel, S.; Ramani, S.; Sooy, M., 2023, "Uncertain tone, asset volatility and credit default swap spreads", Journal of Contemporary Accounting & Economics, December 19(3): 100380 - 100380.
  Abstract: We examine the relationship between uncertain linguistic tone and credit default swap (CDS) spreads. Using an event study approach, we first show that uncertain linguistic tone in 10-Q/K filings is positively associated with CDS spread changes incremental to positive and negative tone and incremental to the response implied by equity market reactions to the same information. We further demonstrate that the relationship of uncertain tone to CDS spreads manifests largely through its impact on asset volatility. We show that this effect is driven by firms with high leverage and is stronger among firms with shorter relative to longer maturities. Our findings contribute to growing research into credit market reactions to non-quantitative information by demonstrating a positive relationship between credit market responses and uncertainty disclosure language, and that this relationship is mediated by investors’ implied asset volatility estimates.

  Link(s) to publication:

  https://www.sciencedirect.com/science/article/pii/S1815566923000309

  http://dx.doi.org/10.1016/j.jcae.2023.100380

• Sooy, M., 2023, "The Compliance Consequences of Fault Assignment and Sanction Strength in Sanctions", Behavioral Research in Accounting, September 35(2): 131 - 152.
  Abstract: Regulators rely heavily on “no-fault” settlements in their enforcement, where targets avoid costly litigation by accepting sanctions without admitting or denying fault. Considerable public debate surrounds the issue, but prior research has typically focused on financial dimensions of sanctions such as the magnitude of fines. I conduct an economic experiment where individuals face a costly compliance choice in the presence of sanctions that may either be greater than or less than the benefits of violating and may also require admission of fault. I observe that compliance quality is greater when sanctions assign fault. I also observe that, relative to strong sanctions, the frequency of compliance decreases under weak no-fault sanctions but does not decrease under weak fault sanctions. Lastly, I observe that non-decision-making participants struggle with the task of anticipating compliance, believing that compliance quality will increase in sanction strength but not fault although the opposite is true.

  Link(s) to publication:

  http://dx.doi.org/10.2308/bria-2022-034

• Barradale, N. J.; Goodson, B.; Sooy, M., 2022, "Does Accounting Measurement Influence Market Efficiency? A Laboratory Market Perspective", Behavioral Research in Accounting, September 34(2)
  Abstract: Using laboratory markets where accounting regimes can be directly compared with equivalent economic parameters, we test whether and how two different accounting measurement bases – historical cost (HC) and mark-to-market (MTM) – influence trader perceptions and asset mispricing. Our results show that traders perceive otherwise equivalent assets differently by regime, consistent with accounting regimes imposing differential information processing costs. In the MTM regime, traders integrate market price information to a greater extent and integrate asset fundamental information to a lesser extent. We also observe that traders in the MTM regime express prospective preferences for information about future market prices, but in HC prefer information about future dividends. These individual-level effects correspond with greater market-level mispricing/bubbles under MTM. Our results suggest that accounting regimes can, on their own, contribute to price bubbles and their subsequent collapse.

  Link(s) to publication:

  https://meridian.allenpress.com/bria/article-abstract/doi/10.2308/BRIA-2020-049/484910/Does-Accounting-Measurement-Influence-Market?redirectedFrom=fulltext

  http://dx.doi.org/10.2308/BRIA-2020-049

• Brown, J. B.; Fisher, J.; Sooy, M.; Sprinkle, G., 2014, "The Effect of Rankings on Honesty in Budget Reporting", Accounting Organizations and Society, May 39(4): 237 - 246.
  Abstract: We conduct an experiment to investigate the effect of rankings, which are pervasive in practice, on the honesty of managers’ budget reports, which is important for sound decision making in organizations. Participants in our experiment are ranked in one of four ways: (1) firm profit, (2) own compensation, (3) both firm profit and own compensation, and (4) randomly, which serves as our baseline condition. None of the rankings affect participants’ remuneration. Compared to our baseline (random rankings) setting, where participants indeed exhibit honesty concerns, we find that rankings based on firm profit significantly increase honesty and that rankings based on own compensation significantly decrease honesty. Participants who received both rankings were significantly more honest than participants in the own compensation rankings condition. We did not, however, find significant differences in honesty between the both rankings and firm profit rankings conditions. As such, participants in the both rankings condition seemed to focus more on the firm profit metric than on the financially congruent own compensation metric. We also find that our results are stable across periods, suggesting that the effects of rankings neither increased nor dissipated over time. We discuss the contributions of our study and concomitant findings to accounting research and practice.

  Link(s) to publication:

  http://dx.doi.org/10.1016/j.aos.2014.03.001

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