We show that managers have a propensity to disproportionately report total revenues just above base-ten thresholds (e.g., 10 million, 30 million, 1 billion) and examine motives for and consequences of this behavior. Focusing on base-ten thresholds in revenues is important because, despite being unusually prevalent in revenue targets set in executive compensation contracts, analyst forecasts, and management forecasts, they have not been previously explored. We also show that pressure to beat these targets provides one explanation for the base-ten bias in reported revenues. However, these incentive effects do not offer a complete explanation because base-ten threshold-beating is observed even in the absence of these explicit targets. We further find that when firms beat a base-ten threshold for the first time, they experience increases in news coverage, institutional ownership, liquidity, and analyst following, even after controlling for whether they have beaten other common benchmarks. These results suggest that managers also beat base-ten thresholds in order to increase their firms' overall visibility. Overall, we show that a preference for base-ten numbers, which have no inherent economic meaning, has a measurable effect on the actions of market participants. These results open the door to a new range of managerial targets previously unexplored.
University of North Carolina at Chapel Hill, Kenan-Flagler Business School
Ph.D., Business Administration (Accounting) – 2011
Brigham Young University, Marriott School of Management
B.S. in Accounting, Minor: Economics – 2006
Professor Derrald Stice joined the HKU Business School in July 2019. Previous to joining HKU, Derrald was a professor in the accounting department at HKUST for eight years. Derrald’s main research expertise relates to how accounting is used in the capital markets, with a particular emphasis on the debt markets. His research has been published in top accounting and finance journals and has been cited in The Wall Street Journal and Bloomberg. He has presented his research at many universities in many countries around the world. In addition to his research focus, Derrald has taught various graduate courses in accounting in Hong Kong, China, Saudi Arabia, and Russia and has provided corporate training for employees at Goldman Sachs.
Financial and Managerial Accounting – Undergraduate, Master’s, and MBA Levels
The use of accounting as a source of information in capital markets, with a particular emphasis on the debt markets. Areas of interest: debt contracting, debt covenants, auditing, financial analysts, and media.
- “The Association Between Stock Liquidity and Audit Pricing” AUDITING: A Journal of Practice & Theory (2023) 42(2): 53-74 (with John Campbell, Jon Duchac, and Wei Shi).
- “The Power of Numbers: Base-Ten Threshold Effects in Reported Revenue” Contemporary Accounting Research (2022) 39: 2903-2940 (with Earl K. Stice, Han Stice, and Lorien Stice-Lawrence).
- “Firm Innovation and Covenant Tightness” Review of Accounting Studies (2022) Forthcoming (with Zhiming Ma, Kirill E. Novoselov, and Yue Zhang).
- “The Effect of Individual Auditor Quality on Audit Outcomes: Opening the Black Box of Audit Quality” Managerial Auditing Journal (2022) 37: 937-966 (with Han Stice and Roger White).
- “Strategic Disclosure and Debt Covenant Violation” Journal of Management Accounting Research (2022) 34: 29–57 (with Thomas Bourveau and Rencheng Wang).
- “What’s My Style? Supply-Side Determinants of Debt Covenant Inclusion” Journal of Business Finance and Accounting (2022) 49: 461-490 (with Zhiming Ma and Christopher Williams) – Presented at the 2021 JBFA Capital Markets Conference.
- “Stop the Presses! Or Wait, We Might Need Them: Firm Responses to Local Newspaper Closures and Layoffs” Journal of Corporate Finance (2021) 69: 102035 (with Min Kim, Han Stice, and Roger M. White).
- “The Effect of Bank Monitoring on Public Bond Terms” Journal of Financial Economics (2019) 133: 379-396 (with Zhiming Ma and Christopher Williams).
- “Auditor Choice and Information Asymmetry: Evidence from International Syndicated Loans” Accounting and Business Research (2019) 49: 365-399 (with Zhiming Ma and Rencheng Wang).
- “The Market Response to Implied Debt Covenant Violations” Journal of Business Finance and Accounting (2018) 45: 1,195-1,223 (Dissertation).
- “Do Banks Care About Analysts’ Forecasts When Designing Loan Contracts?” Journal of Business Finance and Accounting (2018) 45: 625-650 (with Joshua Coyne).
- “The Information Role of Audit Opinions in Debt Contracting” Journal of Accounting and Economics (2016) 61: 121-144 (with Peter F. Chen, Shaohua He, and Zhiming Ma).
- Winner: IMBA Teaching Award 2020-21, HKU-Fudan University
- Winner: Franklin Prize for Teaching Excellence, HKUST, 2015
- Winner: Best 10 Lecturers on Campus, HKUST, 2012
- Dean’s Letter of Teaching Recognition HKUST (2012-2018)
- Residence Master of Hall VII – HKUST (July 2015 – June 2019)