A review of an article to evaluate one of its arguments: for Accounting and Finance students 01

A review of an article to evaluate one of its arguments: for Accounting and Finance students [information from chatpdf.com]

The article reviewed is: "CEO succession origin and annual reports readability" The British Accounting Review.

My question 1: "What are the research objectives of the article?"

The reply: "The research objectives of the article are as follows:

1. Examine the Association between CEO Succession Origin and Report Readability: The study aims to analyze how the origin of a CEO's succession (insider vs. outsider) affects the readability of annual reports, specifically focusing on 10-K filings.

2. Assess the Impact of CEO Characteristics: The research investigates how specific characteristics of insider CEOs, particularly their level of power and financial background, influence the readability of annual reports.

3. Explore Underlying Mechanisms: The study seeks to test whether the association between CEO succession origin and report readability is driven primarily by earnings management or by firm-level business strategies.

4. Address Endogeneity and Robustness: The researchers aim to address potential endogeneity issues and verify the robustness of their results through various methodological approaches.

5. Highlight Policy Implications: The study intends to inform stakeholders, such as investors and regulatory bodies, about the significance of CEO succession origin on the transparency and quality of financial reporting.

These objectives drive the investigation into how CEO origin and characteristics affect not just corporate governance but also the clarity and effectiveness of financial communications."

My question 2: "What are the research methods employed in the study as reported in the article?"

The reply: "The research methods employed in the study include:

1. Sample Selection: The study focuses on a sample of large U.S. companies during the period from 2004 to 2020, with the aim of analyzing the readability of their 10-K reports based on CEO succession origin.

2. Descriptive Statistics: The researchers present descriptive statistics of various variables to minimize the impact of outliers, such as the readability measures and CEO characteristics (e.g., insider vs. outsider, financial background).

3. Structural Equation Modeling (SEM): The study uses SEM to analyze the mediating effects of business strategies and earnings management on the relationship between insider CEOs and readability.

4. Sobel Test: A Sobel test is employed to evaluate the significance of the mediation effects identified through SEM.

5. Robustness Checks: The researchers carry out several robustness tests, including:

• Using alternative measures for 10-K readability, such as the net file size of the report in megabytes.
• Testing different earnings management measures, such as the discretionary accruals model and real earnings management activities, to confirm the consistency of their results.
• Removing observations of firm-year data with one year of CEO tenure to enhance robustness.

6. Business Strategy Operationalization: Using metrics like R&D intensity, marketing and advertising efforts, historical growth, and capital intensity to classify firms' business strategies.

These methods collectively aim to ensure a comprehensive analysis of the data and address potential biases, contributing to the study's findings on CEO succession origin and report readability."

My question 3: "Could you give me one concrete example of an argument in the article, indicating its "backings", "warrants", "qualifiers", "grounds", "rebuttals" and "claims" in terms of the Toulmin argument model?"

The reply: "Certainly! Here's an example of an argument from the article structured according to the Toulmin model:

Claim: Insider CEOs lead to more readable 10-K reports compared to outsider CEOs.

• Grounds: The research findings demonstrate a significant negative coefficient for insider CEOs when analyzing the readability index of 10-K reports, indicating that these reports are more readable when drafted by insider CEOs (β = -0.6369, t-statistic = -2.91) .

• Warrant: CEO familiarity with the company's operations generally translates into clearer communication, as insider CEOs have a deeper understanding of the company’s operations and culture, which influences their ability to convey information effectively in reports.

• Backing: Prior studies in corporate governance suggest that familiarity with a company enables CEOs to communicate more transparently (Gounopoulos & Pham, 2018) and reduces the likelihood of complex disclosures that can obscure important information (Jiang et al., 2013; Kalelkar & Khan, 2016) .

• Qualifier: While the evidence strongly supports that insider CEOs tend to produce more readable reports, the effect may vary based on other factors such as the CEO's financial background or levels of power within the company.

• Rebuttal: However, powerful insider CEOs may have less incentive to produce readable reports, as they might engage in opportunistic behavior, which could negatively impact the clarity of disclosures (Abernethy et al., 2015; Lisic et al., 2016) .

This structure effectively illustrates how the argument is built up, supported, and nuanced, capturing the complexity of firm leadership influence on report readability as discussed in the article."

My question 4: "Does the example of the argument address any of the research objectives of the article?"

The reply: "Yes, the example of the argument addresses specific research objectives outlined in the article. Here’s how it aligns with those objectives:

1. Investigating the Relationship Between CEO Succession Origin and Readability: The claim that insider CEOs lead to more readable 10-K reports directly aligns with the objective of the study to investigate how the origin of the CEO (insider vs. outsider) impacts the readability of financial reporting. This aspect of the research seeks to provide empirical evidence regarding variations in readability based on CEO characteristics, which is a central focus of the study.

2. Exploring Mediating Factors: The argument implies that the readability of reports may be influenced by the CEO's familiarity with the company, indirectly suggesting an avenue for further investigation into mediating factors, such as the CEO's background and decision-making style. This ties back to the objective of exploring the mechanisms (e.g., business strategy) that might mediate the relationship between CEO origin and 10-K report readability.

3. Understanding the Implications of CEO Characteristics on Reporting Practices: The argument showcases how insider knowledge benefits the communication of financial performance, thereby illuminating the implications of CEO characteristics on corporate reporting practices. This is directly in line with the research objective to discern how different types of CEO leadership affect qualitative components of financial disclosures.

Overall, the argument is not only relevant but essential in addressing the article's key research objectives related to CEO succession origin and its influence on the readability of financial reports."

Reference: a collection of blog notes on using chatgpt for research purpose.