Hans B. Christensen

REVISION: Reversing the Resource Curse: Foreign Corruption Regulation and the Local Economic Benefits of Resource Extraction
Date Posted:Wed, 30 Mar 2022 18:36:27 -0500
We examine how foreign corruption regulation affects the economic benefits communities receive from extraction activities in resource-rich areas of Africa. After a mid-2000s increase in US Foreign Corrupt Practices Act (FCPA) enforcement, nighttime luminosity increases by 15% (5%) in communities within a 10-(25-) kilometer radius of affected extraction facilities. Cash-wage employment increases by 22%, suggesting that the economic benefits are not limited to electricity access. Consistent with foreign corruption regulation mitigating the political resource curse, we find that perceived corruption decreases and that the pass-through from global commodity prices to luminosity increases following the rise in FCPA enforcement.

REVISION: Policeman for the World: The Impact of Extraterritorial FCPA Enforcement on Foreign Investment and Internal Controls
Date Posted:Fri, 08 Oct 2021 08:06:00 -0500
We show that a mid-2000s increase in extraterritorial enforcement of the US Foreign Corrupt Practices Act (FCPA), characterized by greater international regulatory cooperation and more frequent use of the FCPA’s accounting provisions, has a significant deterrent effect on foreign direct investment in high-corruption-risk countries. The decrease in investment is at least as large for non-US as for US firms, suggesting that widespread extraterritorial enforcement helps to create a level foreign-investment playing field. Firms under US jurisdiction with fundamental characteristics that make it more difficult to maintain effective internal controls invest less in high-corruption-risk countries after the FCPA enforcement increase, suggesting regulatory compliance costs play a role in deterring investment. Consistent with investments in accounting systems being one way firms limit enforcement risk when investing in high-corruption-risk countries, firms pursuing new investments spend more ...

REVISION: Policeman for the World: The Impact of Extraterritorial FCPA Enforcement on Foreign Investment and Internal Controls
Date Posted:Wed, 01 Sep 2021 10:30:12 -0500
We show that a mid-2000s increase in extraterritorial enforcement of the US Foreign Corrupt Practices Act (FCPA), characterized by greater international regulatory cooperation and more frequent use of the FCPA’s accounting provisions, has a significant deterrent effect on foreign direct investment in high-corruption-risk countries. The decrease in investment is at least as large for non-US as for US firms, suggesting that widespread extraterritorial enforcement helps to create a level foreign-investment playing field. Firms under US jurisdiction with fundamental characteristics that make it more difficult to maintain effective internal controls invest less in high-corruption-risk countries after the FCPA enforcement increase, suggesting regulatory compliance costs play a role in deterring investment. Consistent with investments in accounting systems being one way firms limit enforcement risk when investing in high-corruption-risk countries, firms pursuing new investments spend more ...

REVISION: Financial Shocks to Lenders and the Composition of Financial Covenants
Date Posted:Thu, 10 Jun 2021 06:56:49 -0500
We provide evidence that financial shocks to lenders influence the composition of financial covenants in debt contracts. Using two distinct measures of lender-specific shocks—defaults in a lender’s corporate loan portfolio that occur outside the borrower’s region and industry, and non-corporate loan delinquencies—we show that lenders respond to financial shocks by increasing the number and strictness of performance-based but not of capital-based covenants in debt contracts. We examine two possible channels for this result. We find evidence consistent with lenders using stricter control rights because of concerns about capital depletion (a capital channel) and because of new information about lenders’ own screening ability (a learning channel). Our results indicate that lender preferences influence how accounting information is used in debt contracts.

REVISION: Mandatory CSR and Sustainability Reporting: Economic Analysis and Literature Review
Date Posted:Thu, 20 May 2021 11:04:35 -0500
This study collates potential economic effects of mandated disclosure and reporting standards for corporate social responsibility (CSR) and sustainability topics. We first outline key features of CSR reporting. Next, we draw on relevant academic literatures in accounting, finance, economics, and management to discuss and evaluate the potential economic consequences of a requirement for sustainability reporting for U.S. firms, including effects in capital markets, on stakeholders other than investors and on firm behavior. We also discuss issues related to the implementation and enforcement of CSR and sustainability reporting standards as well as two approaches to sustainability reporting that differ in their overarching goals and materiality standards. Our analysis yields a number of insights that are relevant for the current debate on mandatory CSR and sustainability reporting. It also points scholars to avenues for future research.

REVISION: Mandatory CSR and Sustainability Reporting: Economic Analysis and Literature Review
Date Posted:Mon, 17 May 2021 09:57:40 -0500
This study collates potential economic effects of mandated disclosure and reporting standards for corporate social responsibility (CSR) and sustainability topics. We first outline key features of CSR reporting. Next, we draw on relevant academic literatures in accounting, finance, economics, and management to discuss and evaluate the potential economic consequences of a requirement for sustainability reporting for U.S. firms, including effects in capital markets, on stakeholders other than investors and on firm behavior. We also discuss issues related to the implementation and enforcement of CSR and sustainability reporting standards as well as two approaches to sustainability reporting that differ in their overarching goals and materiality standards. Our analysis yields a number of insights that are relevant for the current debate on mandatory CSR and sustainability reporting. It also points scholars to avenues for future research.

REVISION: Mandatory CSR and Sustainability Reporting: Economic Analysis and Literature Review
Date Posted:Thu, 06 May 2021 10:31:08 -0500
This study collates potential economic effects of mandated disclosure and reporting standards for corporate social responsibility (CSR) and sustainability topics. We first outline key features of CSR reporting. Next, we draw on relevant academic literatures in accounting, finance, economics, and management to discuss and evaluate the potential economic consequences of a requirement for sustainability reporting for U.S. firms, including effects in capital markets, on stakeholders other than investors and on firm behavior. We also discuss issues related to the implementation and enforcement of CSR and sustainability reporting standards as well as two approaches to sustainability reporting that differ in their overarching goals and materiality standards. Our analysis yields a number of insights that are relevant for the current debate on mandatory CSR and sustainability reporting. It also points scholars to avenues for future research.

REVISION: Mandatory CSR and Sustainability Reporting: Economic Analysis and Literature Review
Date Posted:Thu, 29 Apr 2021 05:39:25 -0500
This study collates potential economic effects of mandated disclosure and reporting standards for corporate social responsibility (CSR) and sustainability topics. We first outline key features of CSR reporting. Next, we draw on relevant academic literatures in accounting, finance, economics, and management to discuss and evaluate the potential economic consequences of a requirement for sustainability reporting for U.S. firms, including effects in capital markets, on stakeholders other than investors and on firm behavior. We also discuss issues related to the implementation and enforcement of CSR and sustainability reporting standards as well as two approaches to sustainability reporting that differ in their overarching goals and materiality standards. Our analysis yields a number of insights that are relevant for the current debate on mandatory CSR and sustainability reporting. It also points scholars to avenues for future research.

REVISION: Financial Shocks to Lenders and the Composition of Financial Covenants
Date Posted:Tue, 16 Mar 2021 11:15:37 -0500
We provide evidence that financial shocks to lenders influence the composition of financial covenants in debt contracts. Using two distinct measures of lender-specific shocks—defaults in a lender’s corporate loan portfolio that occur outside the borrower’s region and industry, and non-corporate loan delinquencies—we show that lenders respond to financial shocks by increasing the number and strictness of performance-based but not of capital-based covenants in debt contracts. We examine two possible channels for this result. We find evidence consistent with lenders using stricter control rights because of concerns about capital depletion (a capital channel) and because of new information about lenders’ own screening ability (a learning channel). Our results indicate that lender preferences influence how accounting information is used in debt contracts.

REVISION: Reversing the Resource Curse: Foreign Corruption Regulation and Economic Development
Date Posted:Sat, 19 Dec 2020 05:40:56 -0600
We examine whether foreign corruption regulation reduces corruption and increases the local economic benefits of resource extraction. After a mid-2000s increase in enforcement of the US Foreign Corrupt Practices Act (FCPA), economic activity (measured by nighttime luminosity) increases by 14% (3%) in African communities within a 10- (25-) kilometer radius of resource extraction facilities whose owners are subject to the FCPA. Local perceptions of corruption decline by 8%. Consistent with changes in existing extraction firms’ business practices contributing to the increase in development, the association between resource production, instrumented by world commodity prices, and local economic activity increases by 40%.

REVISION: Reversing the Resource Curse: Foreign Corruption Regulation and Economic Development
Date Posted:Tue, 01 Dec 2020 17:48:23 -0600
We examine the impact of foreign corruption regulation on economic development in high-corruption-risk areas. We find that, after a mid-2000s increase in enforcement of the US Foreign Corrupt Practices Act (FCPA), economic activity (measured by nighttime luminosity) in African communities within a 50-kilometer radius of natural resource extraction facilities subject to the FCPA increases by 8%. Local perceptions of corruption also significantly decline. Consistent with the increase in economic activity being driven, at least in part, by existing extraction firms shifting to business practices that are more beneficial to the local communities where they operate, the association between resource production and local economic activity increases by 37%. Overall, our findings suggest that anti-corruption regulation originating in developed countries is effective in changing corporate behavior and has a positive economic impact in developing countries.

REVISION: Financial Shocks to Lenders and the Composition of Financial Covenants
Date Posted:Mon, 28 Sep 2020 03:28:29 -0500
We show that financial shocks to lenders affect the composition of covenants in new debt contracts in a way that cannot be explained by borrower fundamentals. Using two distinct measures of lender-specific shocks—defaults in a lender’s corporate loan portfolio that occur outside the borrower’s region and industry, and non-corporate loan delinquencies—we show that lenders respond to financial shocks by increasing the use and strictness of performance-based and negative covenants, while reducing the use of capital covenants. We investigate two possible channels for these effects, specifically, the capital channel (lenders are concerned about capital depletion) and the learning channel (defaults carry information about lenders’ screening ability), and find evidence in support of both. Our results indicate that lenders’ preferences influence the use of accounting information in debt contracts.

REVISION: Policeman for the World: The Impact of Extraterritorial FCPA Enforcement on Foreign Investment and Internal Controls
Date Posted:Thu, 03 Sep 2020 03:23:49 -0500
We show that a mid-2000s increase in US extraterritorial enforcement of the Foreign Corrupt Practices Act (FCPA), characterized by greater international regulatory cooperation and more frequent use of the FCPA’s accounting provisions, has a significant deterrent effect on foreign direct investment in high-corruption-risk countries. The decrease in investment is at least as large for non-US as for US firms, suggesting that increased extraterritorial enforcement helps to level the foreign-investment playing field. Firms with fundamental characteristics that make it more difficult to maintain effective internal controls invest less in high-corruption-risk countries, suggesting regulatory compliance costs play an important role in deterring investment. Consistent with investments in accounting systems being one margin firms move on to limit enforcement risk when investing in high-corruption-risk countries, firms pursuing new investments spend more time evaluating potential acquisition ...

REVISION: Policeman for the World: The Rise in Extraterritorial FCPA Enforcement and Foreign Investment Competition
Date Posted:Fri, 19 Jun 2020 05:51:29 -0500
Using insights gained from Foreign Corrupt Practices Act (FCPA) enforcement actions against corporations from 1977 to 2017, we show that a mid-2000s increase in US extraterritorial FCPA enforcement has a significant deterrent effect on foreign direct investment in high-corruption-risk countries by non-US firms headquartered in developed countries. Regulatory compliance costs appear to play a role in deterring investment. Contrary to prior research on the impact of FCPA enforcement against US firms only, our evidence suggests that extraterritorial enforcement reduces both the FCPA’s anticompetitive impact on US firms and aggregate foreign direct investment in high-corruption-risk countries.

REVISION: Financial Shocks to Lenders and the Composition of Financial Covenants
Date Posted:Mon, 13 Apr 2020 03:09:47 -0500
We show that financial shocks to lenders affect the composition of covenants in new debt contracts in a way that cannot be explained by borrower fundamentals. Using two distinct measures of lender-specific shocks — defaults in a lender’s corporate loan portfolio that occur outside the borrower’s region and industry, and non-corporate loan delinquencies — we show that lenders respond to financial shocks by increasing the use and strictness of performance-based and negative covenants, while reducing the use of capital covenants. We investigate two possible channels for these effects, specifically, the capital channel (lenders are concerned about capital depletion) and the learning channel (defaults carry information about lenders’ screening ability), and find evidence in support of both. Overall, our results indicate that lenders’ preferences influence the use of accounting information in debt contracts.

REVISION: Policeman for the World: The Rise in Extraterritorial FCPA Enforcement and Foreign Investment
Date Posted:Thu, 20 Feb 2020 09:27:52 -0600
Using insights gained from Foreign Corrupt Practices Act (FCPA) enforcement actions against corporations from 1977 to 2017, we show that a mid-2000s increase in US extraterritorial FCPA enforcement, characterized by international cooperation and prosecutions based on the FCPA’s recordkeeping provisions, has a significant deterrent effect on foreign direct investment by non-US firms in high-corruption-risk countries. Regulatory compliance costs appear to play a role in deterring investment. Our evidence suggests that extraterritorial FCPA enforcement significantly affects the investment policies of non-US firms under US jurisdiction, thereby limiting the FCPA’s anticompetitive impact on US firms relative to firms from other developed countries.

REVISION: Proactive Financial Reporting Enforcement and Shareholder Wealth
Date Posted:Sun, 06 Oct 2019 09:49:26 -0500
Within the U.K.’s proactive financial-reporting-enforcement regime, we examine the effect of increased regulatory scrutiny on equity values. We find that a fourfold increase in the likelihood of regulator-initiated reviews of financial reports reduces equity values by 1.3% on average. Reductions in equity values are largest for firms with strong private oversight that likely ensures that they are closer to their equity-value-maximizing level of transparency. Additional evidence suggests that competition increases and that managers’ investment horizons decrease in industries selected for increased regulatory scrutiny, consistent with direct compliance costs not fully explaining the reduction in equity values.

REVISION: Policeman for the World: U.S. Enforcement of Foreign Corruption Regulation and Corporate Investment Policies
Date Posted:Fri, 06 Sep 2019 08:45:57 -0500
We examine the impact of US enforcement of the Foreign Corrupt Practices Act (FCPA) on firms’ investment policies. Following a sharp increase in FCPA prosecutions in the mid-2000s, particularly for violations of the Act’s recordkeeping provision, both US and non-US companies under US jurisdiction headquartered in countries that agree to increase cooperation with US regulators (“FCPA” firms) reduce direct investment in corrupt countries; there is no evidence that non-FCPA firms offset this reduction. Consistent with the FCPA imposing significant recordkeeping-related compliance costs, following the enforcement increase, FCPA firms significantly strengthen their internal anti-bribery controls when investing in a corrupt country.

REVISION: Adoption of CSR and Sustainability Reporting Standards: Economic Analysis and Review
Date Posted:Fri, 09 Aug 2019 08:30:43 -0500
This study provides an economic analysis of the determinants and consequences of corporate social responsibility (CSR) and sustainability reporting. To frame our analysis, we consider a widespread mandatory adoption of CSR reporting standards in the United States. The study focuses on the economic effects of standards for disclosure and reporting, not on the effects of CSR activities and policies themselves. It draws on an extensive review of the relevant academic (CSR and non-CSR) literatures in accounting, economics, finance, and management. Based on a discussion of the fundamental economic forces at play and the key features and determinants of (voluntary) CSR reporting, we derive and evaluate possible economic consequences, including capital-market effects for select stakeholders as well as potential firm responses and real effects in firm behavior. We also highlight issues related to the implementation and enforcement of CSR reporting standards. Our analysis yields a number of ...

New: Broad- Versus Narrow-Sample Evidence in Disclosure Regulation Studies: A Discussion of Badia, Duro, Jorgensen, and Ormazabal (2018)
Date Posted:Thu, 08 Aug 2019 10:16:44 -0500
Broad-sample evidence that examines the effect of disclosure regulation is widespread in accounting research — often justified by its greater generalizability relative to narrow-sample evidence. Badia et al. (this issue) takes a different approach by focusing on the effect of disclosure rules in a narrow sample of U.S. and Canadian oil and gas companies. In this discussion, I argue that the contention that broad samples make research on disclosure regulation generalizable is a misconception and that the narrow-sample approach has many advantages and often advances knowledge more than broad-sample research. The key advantage of a narrow sample is that, everything else equal, we generally understand the institutional setting that generated the evidence better. Institutional details allow researchers to more precisely identify the changes that the regulation caused, assess the validity of untestable identification assumptions, and, as a field, it improves our ability to take a Bayesian ...

REVISION: Proactive Financial Reporting Enforcement and Shareholder Wealth
Date Posted:Thu, 08 Aug 2019 03:47:33 -0500
Within the U.K.’s proactive financial-reporting-enforcement regime, we examine the effect of increased regulatory scrutiny on equity values. We find that a fourfold increase in the likelihood of regulator-initiated reviews of financial reports reduces equity values by 1.3% on average. Reductions in equity values are largest for firms with strong private oversight that likely ensures that they are closer to their equity-value-maximizing level of transparency. Additional evidence suggests that competition increases and that managers’ investment horizons decrease in industries selected for increased regulatory scrutiny, consistent with direct compliance costs not fully explaining the reduction in equity values.

REVISION: Securities Regulation, Household Equity Ownership, and Trust in the Stock Market
Date Posted:Thu, 08 Aug 2019 03:45:12 -0500
Using aggregate data from national accounts, we study whether strengthening and harmonizing securities regulation across the European Union increases household equity ownership. We find a significant increase in the proportion of liquid assets invested in equity, both when a household’s own country adopts the regulation and when other countries adopt the regulation. To directly explore the mechanism through which households’ willingness to directly invest in the equity market increases, we show that the effect of securities regulation is stronger in countries where trust is low and between countries where cultural biases are most pronounced.

REVISION: Policeman for the World: U.S. Enforcement of Foreign Corruption Regulation and Corporate Investment Policies
Date Posted:Mon, 05 Aug 2019 03:57:18 -0500
We provide evidence on the determinants and targets of US enforcement of the Foreign Corrupt Practices Act (FCPA) and study the Act’s impact on firms’ investment policies. Both US and non-US companies under US jurisdiction headquartered in countries that agree to increase cooperation with US regulators (“FCPA” firms) experience an increase in FCPA prosecutions in the mid-2000s, particularly for violations of the Act’s accounting provision. Following this increase in enforcement, FCPA firms reduce their direct investments in corrupt countries; there is no evidence that non-FCPA firms offset this reduction. When acquiring a firm in a corrupt country, FCPA firms increase the length of their due diligence and the likelihood of disclosing an accounting advisor. Overall, our evidence highlights (i) the central role of the US in the worldwide enforcement of foreign corruption regulation, (ii) the importance of regulatory cooperation and the FCPA’s accounting provision in facilitating ...

REVISION: The Only Prescription is Transparency: The Effect of Charge-Price-Transparency Regulation on Healthcare Prices
Date Posted:Mon, 05 Aug 2019 03:40:20 -0500
We examine the effect of charge-price-transparency regulation (PTR) — a common policy solution intended to curb rising healthcare costs — on hospitals’ prices. We find that although PTR does not affect payments or consumer search, it does cause hospitals to reduce charges by approximately 5%. The reputational costs of perceived overcharging appear to be one impetus for the reduction in charges, suggesting that certain stakeholders who are able to impose costs on hospitals are unaware that hospitals can decouple charges from payments. The ineffectiveness of PTR policies in reducing payments and the apparent inability of some stakeholders to realize this fact could explain why charge-transparency policies have been widely adopted with little opposition. Overall, our findings provide a cautionary note — transparency regulation focusing on an indicator that can be decoupled from the construct of interest might placate some stakeholders without actually solving the underlying problem.

REVISION: Adoption of CSR and Sustainability Reporting Standards: Economic Analysis and Review
Date Posted:Wed, 31 Jul 2019 08:46:10 -0500
This study provides an economic analysis of the determinants and consequences of corporate social responsibility (CSR) and sustainability reporting. To frame our analysis, we consider a widespread mandatory adoption of CSR reporting standards in the United States. The study focuses on the economic effects of standards for disclosure and reporting, not on the effects of CSR activities and policies themselves. It draws on an extensive review of the relevant academic (CSR and non-CSR) literatures in accounting, economics, finance, and management. Based on a discussion of the fundamental economic forces at play and the key features and determinants of (voluntary) CSR reporting, we derive and evaluate possible economic consequences, including capital-market effects for select stakeholders as well as potential firm responses and real effects in firm behavior. We also highlight issues related to the implementation and enforcement of CSR reporting standards. Our analysis yields a number of ...

REVISION: Financial Shocks and Corporate Investment Activity: The Role of Financial Covenants
Date Posted:Wed, 01 May 2019 06:55:08 -0500
We examine whether economic shocks to credit institutions differentially affect the use and strictness of different accounting-based covenants in debt contracts, and whether these effects represent a channel through which shocks to lenders propagate to the real sector. To capture lender-specific shocks, we use variation in payment defaults experienced by lenders outside the borrower’s region and industry. We find that lenders respond to payment defaults by shifting towards performance-based covenants (and away from capital-based covenants), and by increasing the strictness of performance covenants. In turn, these changes in covenants constrain future investments among relationship borrowers. We also find that subsequent to contract initiation, lender-specific shocks affect corporate investment. Overall, our results suggest that credit-supply frictions influence the type and strictness of covenants in debt contracts, and that financial covenants represent a channel through which ...

REVISION: Policeman for the World: U.S. Enforcement of Foreign Corruption Regulation and Corporate Investment Policies
Date Posted:Mon, 01 Apr 2019 09:05:19 -0500
We provide evidence on the determinants, targets, and consequences of U.S. enforcement of the Foreign Corrupt Practices Act (FCPA). Both U.S. companies and foreign companies under U.S. jurisdiction headquartered in countries that agree to increase cooperation with U.S. regulators (“FCR” firms) experience an increase in FCPA prosecutions in the mid-2000s, particularly for violations of the Act’s accounting provision. Following this increase in enforcement, FCR firms reduce direct investment in corrupt countries; additionally, there is no evidence that non-FCR firms offset this reduction. When acquiring a firm in a corrupt country, FCR firms increase the length of their due diligence and the likelihood of disclosing an accounting advisor. Overall, our evidence highlights (i) the central role of the U.S. in the worldwide enforcement of foreign corruption regulation, (ii) the importance of regulatory cooperation and accounting controls in detecting corrupt practices and facilitating ...

REVISION: Proactive Financial Reporting Enforcement and Shareholder Wealth
Date Posted:Wed, 06 Mar 2019 08:16:00 -0600
We examine the effect of increased proactive-financial-reporting-enforcement (PFRE) on shareholder wealth. We find that a fourfold increase in the likelihood of regulator-initiated reviews of financial reports reduces equity values by 1.3% on average. Reductions in equity values are largest in settings where it is most likely that, prior to PFRE, private oversight ensures firms are already at their equity-value-maximizing level of transparency. Consistent with proprietary costs of increased transparency partly explaining the effect, firms with abnormally high profits experience the largest reductions in equity value and, in industries selected for increased regulatory scrutiny, profitability mean reverts faster after PFRE.

REVISION: Economic Analysis of Widespread Adoption of CSR and Sustainability Reporting Standards: Structured Overview of CSR Literature
Date Posted:Sat, 26 Jan 2019 14:06:32 -0600
In this appendix to Christensen, Hail, and Leuz (2018), “Economic Analysis of Widespread Adoption of CSR and Sustainability Reporting Standards,” Research report (available at SSRN: https://ssrn.com/abstract=3315673), we classify and briefly summarize extant academic literature on corporate social responsibility (CSR) and sustainability reporting. Based on a systematic search and review of articles in leading accounting, economics, finance, and management journals as well as ongoing research, we identify more than 380 published articles and working papers on topics related to CSR and CSR reporting. For each academic study, we provide a summary of the research question and the variables of interest, the research design, and the main results. We also indicate the research methods applied and whether the study specifically relates to CSR reporting issues or rather to CSR activities in general. We group the studies into seven topical areas, each represented by its own summary table, and ...

New: Economic Analysis of Widespread Adoption of CSR and Sustainability Reporting Standards
Date Posted:Fri, 25 Jan 2019 10:55:04 -0600
This report provides an economic analysis for a widespread adoption of corporate social responsibility (or sustainability) disclosure and reporting standards in the United States. It is based on an extensive review of the academic literature in accounting, economics, finance, and management. We discuss possible economic consequences, including capital-market effects, real effects in firm behavior, and implementation issues related to the adoption of CSR standards. The report focuses on the economic effects of standards for disclosure and reporting, not on the economic effects of CSR activities and policies themselves. Our analysis yields a number of insights that are relevant to the current debate on CSR and sustainability reporting standards.

REVISION: Securities Regulation, Household Equity Ownership, and Trust in the Stock Market
Date Posted:Tue, 15 Jan 2019 11:26:39 -0600
Using aggregate data from national accounts, we study whether strengthening and harmonizing securities regulation across the European Union increases household equity ownership. We find a significant increase in the proportion of liquid assets invested in equity, both when a household’s own country adopts the regulation and when other countries adopt the regulation. To directly explore the mechanism through which households’ willingness to directly invest in the equity market increases, we show that the effect of securities regulation is stronger in countries where trust is low and between countries where cultural biases are most pronounced.

REVISION: Economic Analysis of Widespread Adoption of CSR and Sustainability Reporting Standards: Structured Overview of CSR Literature
Date Posted:Mon, 14 Jan 2019 08:40:59 -0600
In this appendix to Christensen, Hail, and Leuz (2018), “Economic Analysis of Widespread Adoption of CSR and Sustainability Reporting Standards,” Working paper, we classify and briefly summarize extant academic literature on corporate social responsibility (CSR) and sustainability reporting. Based on a systematic search and review of articles in leading accounting, economics, finance, and management journals as well as ongoing research, we identify more than 380 published articles and working papers on topics related to CSR and CSR reporting. For each academic study, we provide a summary of the research question and the variables of interest, the research design, and the main results. We also indicate the research methods applied and whether the study relates to CSR reporting issues or to CSR activities in general. We group the studies into seven topical areas, each represented by its own summary table, and add a table containing CSR review and summary articles at the end.

REVISION: The Only Prescription is Transparency: The Effect of Charge-Price-Transparency Regulation on Healthcare Prices
Date Posted:Thu, 01 Nov 2018 04:41:46 -0500
We examine the effect of charge-price-transparency regulation (PTR)—a common policy solution intended to curb rising healthcare costs—on hospitals’ prices. We find that although PTR does not affect payments or consumer search, it does cause hospitals to reduce charges by approximately 5%. The reputational costs of perceived overcharging appear to be one impetus for the reduction in charges, suggesting that certain stakeholders who are able to impose costs on hospitals are unaware that hospitals can decouple charges from payments. The ineffectiveness of PTR policies in reducing payments and the apparent inability of some stakeholders to realize this fact could explain why charge-transparency polices have been widely adopted with little opposition. Overall, our findings provide a cautionary note—transparency regulation focusing on an indicator that can be decoupled from the construct of interest might placate some stakeholders without actually solving the underlying problem.

REVISION: Securities Regulation, Household Equity Ownership, and Trust in the Stock Market
Date Posted:Sun, 21 Oct 2018 11:03:54 -0500
Using aggregate data from national accounts, we study whether strengthening and harmonizing securities regulation across the European Union increases household equity ownership. We find a significant increase in the proportion of liquid assets invested in equity, both when a household’s own country adopts the regulation and when other countries adopt the regulation. To directly explore the mechanism through which households’ willingness to directly invest in the equity market increases, we show that the effect of securities regulation is stronger in countries where trust is low and between countries where cultural biases are most pronounced.

REVISION: Securities Regulation and Household Equity Ownership: Evidence from National Accounts
Date Posted:Mon, 16 Jul 2018 10:41:55 -0500
Using national-accounts-based balance sheets, we construct a novel measure of household equity ownership to analyze the effect of strengthening and harmonizing securities regulation across the European Union on household investment in equity. The advantage of using accounting data, rather than the survey data commonly used in prior studies, is that it captures aggregate amounts and is available quarterly by country. We find significant increases in the proportion of liquid assets invested in equity both when a household’s own country adopts the regulation and when other countries adopt the regulation. We further show that securities regulation can substitute for trust in others and mitigate cultural biases in foreign portfolio investment. Overall, our results indicate that securities regulation can increase household equity ownership, particularly where trust in others is low. The results also show that national accounts provide meaningful data on household behavior.

REVISION: Financial Shocks and Corporate Investment Activity: The Role of Financial Covenants
Date Posted:Fri, 04 May 2018 09:11:13 -0500
We examine whether shocks to credit institutions affect the choice among accounting-based covenants in private debt contracts and whether this effect represents a channel through which shocks to lenders affect corporate investment. We exploit plausibly exogenous variation in the payment defaults experienced by lenders outside the borrower’s region and industry. We find that financial institutions respond to payment default shocks by shifting the composition of financial covenants towards performance-based covenants (away from capital-based covenants) in newly signed credit agreements. In turn, the increased reliance on performance covenants constrains borrowers’ future investments, particularly among relationship-based borrowers. We also find that lender-specific shocks after a contract is in place affect investments, and that this effect varies depending on the composition of the covenants in place. Overall, our results are consistent with financial covenants being a channel through ...

REVISION: The Effects of Charge-Price Transparency Regulation on Prices in the Healthcare Industry
Date Posted:Tue, 01 May 2018 03:39:37 -0500
We examine the effects of charge-price-transparency regulation (PTR)—a common policy solution intended to curb rising healthcare costs—on hospitals’ prices. Using micro data on actual healthcare purchases, we find that although PTR causes providers to reduce charges by approximately 6%, these reductions do not lead to lower payments. Further tests suggest that reputational costs of perceived overcharging are one impetus for the reduction in charges, which suggests that some stakeholders able to impose costs on hospitals do not fully understand hospitals’ ability to lower charges without affecting payments. The fact that PTR policies can be implemented without affecting payments could explain why charge transparency polices have been widely adopted (with little industry opposition) while payment transparency policies have not. Overall, our findings provide a cautionary note—transparency polices that are based on an indicator that can be decoupled from the underlying construct of ...

REVISION: Financial Shocks and Corporate Investment Activity: The Role of Financial Covenants
Date Posted:Tue, 17 Apr 2018 14:59:18 -0500
We examine whether shocks to credit institutions affect the choice among accounting-based covenants in private debt contracts and whether this effect represents a channel through which shocks to lenders affect corporate investment. We exploit plausibly exogenous variation in the payment defaults experienced by lenders outside the borrower’s region and industry. We find that financial institutions respond to payment default shocks by shifting the composition of financial covenants towards performance-based covenants (away from capital-based covenants) in newly signed credit agreements. In turn, the increased reliance on performance covenants constrains borrowers’ future investments, particularly among relationship-based borrowers. We also find that lender-specific shocks after a contract is in place affect investments, and that this effect varies depending on the composition of the covenants in place. Overall, our results are consistent with financial covenants being a channel through ...

New: Contracting on GAAP Changes: Large Sample Evidence
Date Posted:Mon, 12 Mar 2018 05:50:50 -0500
We explore revealed preferences for the contractual treatment of changes to GAAP in a large sample of private credit agreements issued by publicly held U.S. firms. We document a significant time-trend toward excluding GAAP changes from the determination of covenant compliance over the period from 1994 to 2012. This trend is positively associated with proxies for standard setters’ shift in focus toward relevance and international accounting harmonization. At the firm level, borrowers facing higher uncertainty are more likely to write contracts that include GAAP changes, but these firms also show a more pronounced time-trend toward excluding GAAP changes. While this evidence is broadly consistent with an efficiency role for GAAP changes in debt contracting, it is also consistent with a shift in standard setters’ focus offering a partial explanation of why fewer contracts rely on GAAP changes in 2012 than in 1994.

REVISION: Proactive Financial Reporting Enforcement and Shareholder Wealth
Date Posted:Fri, 15 Dec 2017 06:14:39 -0600
We examine the effect of increased proactive-financial-reporting-enforcement (PFRE) intensity on shareholder wealth. In a setting where specific industries are periodically targeted for greater regulatory scrutiny, we find that PFRE is associated with increased disclosure, greater resources expended on regulatory compliance, and higher stock-market liquidity. Yet, the market reaction to the announcement of the targeted industries is negative, suggesting that, despite an improvement in transparency, increasing PFRE intensity could have a net-negative effect on shareholder wealth. Supporting this interpretation, firms with stronger preexisting private oversight—where additional public enforcement is presumably least beneficial—experience the largest reductions in equity values.

REVISION: Financial Sector Shocks and Corporate Investment Activity: The Role of Financial Covenants
Date Posted:Tue, 05 Dec 2017 09:08:43 -0600
We examine whether shocks to financial institutions affect the choice and composition of accounting-based covenants in private debt contracts and whether this effect represents a channel through which financial shocks affect corporate investment. We exploit plausibly exogenous variation in the payment defaults experienced by lenders that are not in the borrower’s region and industry. We find that financial institutions respond to payment default shocks by shifting the composition of financial covenants towards performance-based covenants (away from capital-based covenants) in newly signed credit agreements. In turn, the increased reliance on performance covenants constrains borrowers’ future investments, particularly among relationship-based borrowers. We also find that lender-specific shocks after the contract is in place affect investments, and that this effect varies depending on the composition of the covenants in place. Overall, the results are consistent with financial ...

REVISION: Securities Regulation and Household Equity Ownership
Date Posted:Fri, 10 Nov 2017 22:20:00 -0600
Using a novel measure of household equity ownership, available quarterly by country, we analyze the effect of strengthening and harmonizing securities regulation across the European Union on households’ willingness to invest in equity. We find significant increases in the proportion of liquid assets invested in equity, both when a household’s own country adopts the regulation and when other countries adopt the regulation. We further show that securities regulation can substitute for trust in others and mitigate cultural biases in foreign-portfolio investment. Overall, our results indicate that securities regulation can increase household equity ownership, particularly where trust in others is low.

REVISION: The Real Effects of Mandated Information on Social Responsibility in Financial Reports: Evidence from Mine-Safety Records
Date Posted:Thu, 07 Sep 2017 07:39:38 -0500
We examine the real effects of mandatory-social-responsibility disclosures, which require SEC-registered mine owners to include their mine-safety records in their financial reports. These safety records are already publicly available elsewhere, which allows us to isolate and estimate the incremental real effects of including this information in financial reports. Comparing mines owned by SEC-registered issuers with mines that are not, we document that including safety records in financial reports decreases mining-related citations and injuries, and reduces labor productivity. Evidence from stock-market reactions and mutual-fund holdings suggests that increased awareness of safety issues is a likely explanation for the observed real effects.

New: The Effect of Regulatory Harmonization on Cross-Border Labor Migration: Evidence from the Accounting Profession
Date Posted:Tue, 25 Jul 2017 05:34:15 -0500
The paper examines whether international regulatory harmonization increases cross-border labor migration. To study this question, we analyze European Union initiatives that harmonized accounting and auditing standards. Regulatory harmonization should reduce economic mobility barriers, essentially making it easier for accounting professionals to move across countries. Our research design compares the cross-border migration of accounting professionals relative to tightly matched other professionals before and after regulatory harmonization. We find that international labor migration in the accounting profession increases significantly relative to other professions. We provide evidence that this effect is due to harmonization, rather than increases in the demand for accounting services during the implementation of the rule changes. The findings illustrate that diversity in rules constitutes an economic barrier to cross-border labor mobility and, more specifically, that accounting ...

REVISION: Proactive Financial Reporting Enforcement and Firm Value
Date Posted:Tue, 13 Jun 2017 05:14:48 -0500
We examine the effect of increasing the intensity of proactive enforcement of financial reporting regulation on equity values. Using a setting in the United Kingdom where a securities regulator periodically selects specific market sectors for increased scrutiny, we find that an approximately fourfold increase in the likelihood of regulator-initiated reviews of financial reports reduces equity values by 1.5%. This reduction in equity values occurs despite a subsequent increase in stock market liquidity of approximately 5%. Our study provides evidence of an instance in which, despite significant capital market benefits, increasing proactive financial reporting enforcement intensity has an overall negative effect on shareholder wealth.

REVISION: The Effects of Charge-Price Transparency Regulation on Prices in the Healthcare Industry
Date Posted:Tue, 11 Apr 2017 12:09:24 -0500
Using micro data on actual healthcare purchases, we provide evidence on the causal effects of charge-price transparency regulation (PTR). We find that, although PTR causes providers to reduce charges by approximately 6%, these reductions do not lead to lower actual payments. Variation in the estimated treatment effect across hospitals suggests that reputational costs of perceived overcharging, rather than increased consumer search, explain the observed reduction in charges. Taken together, our results indicate that providers can avoid the potential impact of PTR on profitability by altering charges without affecting payments, which suggests that price transparency regulation based only on charges could be a way for policy makers to give the appearance they are addressing rising healthcare costs without imposing significant costs on providers.

REVISION: The Real Effects of Mandated Information on Social Responsibility in Financial Reports: Evidence from Mine-Safety Records
Date Posted:Thu, 02 Mar 2017 10:03:02 -0600
We examine the real effects of mandatory social responsibility disclosures, which require SEC-registered mine owners to include their mine-safety records in their financial reports. These safety records are already publicly available elsewhere, which allows us to isolate and estimate the incremental effects of including this information in financial reports. Comparing mines owned by SEC-registered issuers with mines that are not, we document that including safety records in financial reports decreases mining-related citations and injuries by 11% and 13%, respectively, and reduces labor productivity by approximately 0.9%. Additional evidence from stock market reactions and mutual fund holdings suggests that increased awareness of safety issues is a likely explanation for the observed real effects. Overall, our results illustrate that including information on social responsibility in financial reports can have economically significant real effects—even if that information is also ...

REVISION: Contracting on GAAP Changes: Large Sample Evidence
Date Posted:Wed, 01 Mar 2017 09:34:13 -0600
We explore revealed preferences for the contractual treatment of changes to GAAP in a large sample of private credit agreements issued by publicly held U.S. firms. We document a significant time-trend towards excluding GAAP changes from the determination of covenant compliance over the period from 1994 to 2012. This trend is positively associated with proxies for standard setters’ shift in focus towards relevance and international accounting harmonization. At the firm level, borrowers facing higher uncertainty are more likely to write contracts that include GAAP changes, but these firms also show a more pronounced time-trend towards excluding GAAP changes. While this evidence is broadly consistent with an efficiency role for GAAP changes in debt contracting, it is also consistent with a shift in standard setters’ focus offering a partial explanation of why fewer contracts rely on GAAP changes in 2012 than in 1994.

REVISION: The Real Effects of Mandated Information on Social Responsibility in Financial Reports: Evidence from Mine-Safety Records
Date Posted:Tue, 24 Jan 2017 11:35:19 -0600
We examine the real effects of mandatory social responsibility disclosures, which require SEC-registered mine owners to include their mine-safety records in their financial reports. These safety records are already publicly available elsewhere, which allows us to examine the incremental effects of including this information in financial reports. Comparing mines owned by SEC-registered issuers to mines that are not, we document that including safety records in financial reports decreases mining-related citations and injuries by 11% and 13%, respectively, and reduces labor productivity by approximately 0.9%. Additional evidence suggests that the inclusion in financial reports, rather than unobservable factors associated with regulatory intervention, drives these effects. We also provide evidence that incentive effects from equity markets are one plausible mechanism through which the inclusion of safety information in financial reports leads to real effects. Overall, our results ...

REVISION: The Effect of Regulatory Harmonization on Cross-Border Labor Migration: Evidence from the Accounting Profession
Date Posted:Thu, 22 Dec 2016 09:45:13 -0600
The paper examines whether international regulatory harmonization increases cross-border labor migration. To study this question, we analyze European Union (EU) initiatives that harmonized accounting and auditing standards. Regulatory harmonization should reduce economic mobility barriers, essentially making it easier for accounting professionals to move across countries. Our research design compares the cross-border migration of accounting professionals relative to tightly-matched other professionals before and after regulatory harmonization. We find that international labor migration in the accounting profession increases significantly relative to other professions. We provide evidence that this effect is due to harmonization, rather than increases in the demand for accounting services during the implementation of the rule changes. The findings illustrate that diversity in rules constitutes an economic barrier to cross-border labor mobility and, more specifically, that accounting ...

New: Capital-Market Effects of Securities Regulation: Prior Conditions, Implementation, and Enforcement
Date Posted:Sat, 15 Oct 2016 03:49:29 -0500
We examine the capital-market effects of changes in securities regulation in the European Union (EU) aimed at reducing market abuse and increasing transparency. To estimate causal effects for the population of EU firms, we exploit that for plausibly exogenous reasons, like national legislative procedures, EU countries adopted these directives at different times. We find significant increases in market liquidity, but the effects are stronger in countries with stricter implementation and traditionally more stringent securities regulation. The findings suggest that countries with initially weaker regulation do not catch up with stronger countries, and that countries diverge more upon harmonizing regulation.

REVISION: Contracting on GAAP Changes: Large Sample Evidence
Date Posted:Tue, 04 Oct 2016 13:31:27 -0500
We explore revealed preferences for including versus excluding the changes to GAAP in credit agreements issued by U.S. publicly traded firms over the period from 1994 to 2012. We document a significant time-trend towards excluding GAAP changes from debt contracts. This trend has a positive association with proxies for the standard setters’ shift in focus towards relevance and international accounting harmonization. Borrowers facing higher uncertainty are more likely to write contracts that include GAAP changes, but this group of firms shows a more pronounced trend towards excluding GAAP changes. The evidence is broadly consistent with GAAP changes playing an efficiency role in debt markets. However, changes in the standard setters’ focus can, in part, explain the reduction in this role over the past two decades.

Update: The Effect of Regulatory Harmonization on Cross-Border Labor Migration: Evidence from the Accounting Profession
Date Posted:Tue, 04 Oct 2016 04:08:26 -0500
The paper examines whether international regulatory harmonization increases cross-border labor migration. To study this question, we analyze European Union (EU) initiatives that harmonized accounting and auditing standards. Regulatory harmonization should reduce economic mobility barriers, essentially making it easier for accounting professionals to move across countries. Our research design compares the cross-border migration of accounting professionals relative to tightly-matched other professionals before and after regulatory harmonization. We find that international labor migration in the accounting profession increases significantly relative to other professions. We provide evidence that this effect is due to harmonization, rather than increases in the demand for accounting services during the implementation of the rule changes. The findings illustrate that diversity in rules constitutes an economic barrier to cross-border labor mobility and, more specifically, that accounting ...
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REVISION: The Real Effects of Mandated Information on Social Responsibility in Financial Reports: Evidence from Mine-Safety Records
Date Posted:Wed, 28 Sep 2016 11:01:44 -0500
We examine the real effects of mandatory disclosures on social responsibility, which require SEC-registered mine owners to include their mine-safety records in their financial reports. These safety records are already publicly available elsewhere, which allows us to examine the incremental effects of including information in financial reports. Comparing mines owned by SEC-registered issuers to mines that are not, we document that including safety records in financial reports decreases mining-related citations and injuries by 11% and 13%, respectively, and reduces labor productivity by approximately 0.9%. Additional evidence suggests that the inclusion in financial reports, rather than unobservable factors associated with regulatory intervention, drives these effects. We also provide evidence that feedback effects from equity markets are a mechanism through which the dissemination of information through financial reports leads to real effects. Overall, our results illustrate that ...

REVISION: Proactive Financial Reporting Enforcement and Firm Value
Date Posted:Tue, 27 Sep 2016 07:22:03 -0500
We examine the effect of proactive public financial reporting enforcement on equity values by exploiting a quasi-experimental setting in the United Kingdom where a regulator periodically selects specific market sectors for increased scrutiny. Theoretically, it is unclear whether the benefits to shareholders of an increase in enforcement outweigh the costs. We find that an approximately 150% increase in the likelihood of regulator-initiated reviews of financial reports on average (at the median) reduces equity values by 2.0% (1.7%). Reductions in equity values are greater for firms listed on the self-regulated AIM market and for firms with large outside blockholders, suggesting private contracting can effectively mitigate frictions without regulatory interference. Further evidence suggests that the permanent increases in compliance costs and myopic investment arising from increased enforcement contribute to the observed declines in equity values.

REVISION: The Effect of Regulatory Harmonization on Cross-Border Labor Migration: Evidence from the Accounting Profession
Date Posted:Wed, 21 Sep 2016 10:24:15 -0500
The paper examines whether international regulatory harmonization increases cross-border labor migration. To study this question, we analyze European Union (EU) initiatives that harmonized accounting and auditing standards. Regulatory harmonization should reduce economic mobility barriers, essentially making it easier for accounting professionals to move across countries. Our research design compares the cross-border migration of accounting professionals relative to tightly-matched other professionals before and after regulatory harmonization. We find that international labor migration in the accounting profession increases significantly relative to other professions. We provide evidence that this effect is due to harmonization, rather than increases in the demand for accounting services during the implementation of the rule changes. The findings illustrate that diversity in rules constitutes an economic barrier to cross-border labor mobility and, more specifically, that accounting ...

REVISION: The Effect of Regulatory Harmonization on Cross-Border Labor Migration: Evidence from the Accounting Profession
Date Posted:Wed, 13 Jul 2016 01:04:38 -0500
The paper examines whether international regulatory harmonization increases cross-border labor migration. To study this question, we analyze European Union (EU) initiatives that harmonized accounting and auditing standards. Regulatory harmonization should reduce economic mobility barriers, essentially making it easier for accounting professionals to move across countries. Our research design compares the cross-border migration of accounting professionals relative to tightly-matched other professionals before and after regulatory harmonization. We find that international labor migration in the accounting profession increases significantly relative to other professions. We provide evidence that this effect is due to harmonization, rather than increases in the demand for accounting services during the implementation of the rule changes. The findings illustrate that diversity in rules constitutes an economic barrier to cross-border labor mobility and, more specifically, that accounting ...

REVISION: The Real Effects of Mandated Non-Financial Information in Financial Reports: Evidence from Mine-Safety Records
Date Posted:Wed, 29 Jun 2016 11:58:29 -0500
We examine the real effects of mandatory, non-financial disclosures, which require SEC-registered mine owners to include their mine-safety records in their financial reports. These safety records are already publicly available elsewhere, which allows us to examine the incremental effects of including information in financial reports. Comparing mines owned by SEC-registered issuers to those mines that are not, we document that including safety records in financial reports decreases mining-related citations and injuries by 11% and 13%, respectively, and reduces labor productivity by approximately 0.9%. Additional evidence suggests that the inclusion in financial reports, rather than unobservable factors associated with regulatory intervention, drives these effects. We also provide evidence that feedback effects from equity markets are a mechanism through which the dissemination of information through financial reports leads to real effects. Overall, our results illustrate that ...

REVISION: Accounting Information in Financial Contracting: The Incomplete Contract Theory Perspective
Date Posted:Fri, 10 Jun 2016 10:38:01 -0500
This paper reviews theoretical and empirical work on financial contracting that is relevant to accounting researchers. Its primary objective is to discuss how the use of accounting information in contracts enhances contracting efficiency and to suggest avenues for future research. We argue that incomplete contract theory broadens our understanding of both the role accounting information plays in contracting and the mechanisms through which efficiency gains are achieved. By discussing its rich theoretical implications, we expect incomplete contract theory to prove useful in motivating future research and in offering directions to advance our knowledge of how accounting information affects contract efficiency.

REVISION: The Effects of Charge-Price Transparency Regulation on Prices in the Healthcare Industry
Date Posted:Fri, 06 May 2016 01:03:38 -0500
Using micro data on actual healthcare purchases, we provide evidence on the causal effects of charge-price transparency regulation (PTR). We find that PTR causes providers to reduce charges by approximately 6%. However, despite the strong cross-hospital correlation between charge and actual prices, these reductions do not lead to lower actual payments. Cross-sectional variation in the estimated treatment effect suggests that the reputational costs of perceived overcharging rather than increased consumer search explain the reduction in charges. Our results show that reputational concerns affect hospitals’ charge setting strategies and illustrate how the healthcare industry’s complex, heterogeneous pricing structure makes it difficult to increase consumer welfare by increasing transparency.

REVISION: Capital-Market Effects of Securities Regulation: Prior Conditions, Implementation, and Enforcement
Date Posted:Wed, 06 Apr 2016 06:26:15 -0500
We examine the capital-market effects of changes in securities regulation in the European Union (EU) aimed at reducing market abuse and increasing transparency. To estimate causal effects for the population of EU firms, we exploit that for plausibly exogenous reasons, like national legislative procedures, EU countries adopted these directives at different times. We find significant increases in market liquidity, but the effects are stronger in countries with stricter implementation and traditionally more stringent securities regulation. The findings suggest that countries with initially weaker regulation do not catch up with stronger countries, and that countries diverge more upon harmonizing regulation.

REVISION: Accounting Information in Financial Contracting: The Incomplete Contract Theory Perspective
Date Posted:Tue, 01 Mar 2016 09:48:12 -0600
This paper reviews theoretical and empirical work on financial contracting that is relevant to accounting researchers. Its primary objective is to discuss how the use of accounting information in contracts enhances contracting efficiency and to suggest avenues for future research. We argue that incomplete contract theory broadens our understanding of both the role accounting information plays in contracting and the mechanisms through which efficiency gains are achieved. By discussing its rich theoretical implications, we expect incomplete contract theory to prove useful in motivating future research and in offering directions to advance our knowledge of how accounting information affects contract efficiency.

REVISION: The Real Effects of Mandatory Dissemination of Non-Financial Information through Financial Reports
Date Posted:Thu, 25 Feb 2016 01:53:37 -0600
We examine the real effects of mandatory, non-financial disclosures, which require SEC-registered mine owners to disseminate their mine-safety records through their financial reports. These safety records are already publicly available elsewhere, which allows us to examine the incremental effects of disseminating information through financial reports. Comparing mines owned by SEC-registered issuers to those mines that are not, we document that including safety records in financial reports decreases mining-related citations and injuries by 11 and 13 percent, respectively, and reduces labor productivity by approximately 0.9 percent. Additional evidence suggests that increased dissemination, rather than unobservable factors associated with regulatory intervention, drive these effects. We also provide evidence that feedback effects from equity markets are a potential mechanism through which the dissemination of information leads to real effects. Overall, our results illustrate that ...

REVISION: The Real Effects of Mandatory Dissemination of Non-Financial Information through Financial Reports
Date Posted:Wed, 24 Feb 2016 03:36:03 -0600
We examine the real effects of mandatory, non-financial disclosures, which require SEC-registered mine owners to disseminate their mine-safety records through their financial reports. These safety records are already publicly available elsewhere, which allows us to examine the incremental effects of disseminating information through financial reports. Comparing mines owned by SEC-registered issuers to those mines that are not, we document that including safety records in financial reports decreases mining-related citations and injuries by 11 and 13 percent, respectively, and reduces labor productivity by approximately 0.9 percent. Additional evidence suggests that increased dissemination, rather than unobservable factors associated with regulatory intervention, drive these effects. We also provide evidence that feedback effects from equity markets are a potential mechanism through which the dissemination of information leads to real effects. Overall, our results illustrate that ...

REVISION: The Effect of Regulatory Harmonization on Cross-Border Labor Migration: Evidence from the Accounting Profession
Date Posted:Fri, 22 Jan 2016 05:33:11 -0600
The paper examines whether international regulatory harmonization increases cross-border labor migration. To study this question, we analyze European Union (EU) initiatives that harmonized accounting and auditing standards. Regulatory harmonization should reduce economic mobility barriers, essentially making it easier for accounting professionals to move across countries. Our research design compares the cross-border migration of accounting professionals relative to tightly-matched other professionals before and after regulatory harmonization. We find that international labor migration in the accounting profession increases significantly relative to other professions. We provide evidence that this effect is due to harmonization, rather than increases in the demand for accounting services during the implementation of the rule changes. The findings illustrate that diversity in rules constitutes an economic barrier to cross-border labor mobility and, more specifically, that accounting ...

New: The Effect of Regulatory Harmonization on Cross-Border Labor Migration: Evidence from the Accounting Profession
Date Posted:Thu, 21 Jan 2016 21:04:12 -0600
The paper examines whether international regulatory harmonization increases cross-border labor migration. To study this question, we analyze European Union (EU) initiatives that harmonized accounting and auditing standards. Regulatory harmonization should reduce economic mobility barriers, essentially making it easier for accounting professionals to move across countries. Our research design compares the cross-border migration of accounting professionals relative to tightly-matched other professionals before and after regulatory harmonization. We find that international labor migration in the accounting profession increases significantly relative to other professions. We provide evidence that this effect is due to harmonization, rather than increases in the demand for accounting services during the implementation of the rule changes. The findings illustrate that diversity in rules constitutes an economic barrier to cross-border labor mobility and, more specifically, that accounting ...

Update: The Effect of Regulatory Harmonization on Cross-Border Labor Migration: Evidence from the Accounting Profession
Date Posted:Thu, 21 Jan 2016 02:48:02 -0600
The paper examines whether international regulatory harmonization increases cross-border labor migration. To study this question, we analyze European Union (EU) initiatives that harmonized accounting and auditing standards. Regulatory harmonization should reduce economic mobility barriers, essentially making it easier for accounting professionals to move across countries. Our research design compares the cross-border migration of accounting professionals relative to tightly-matched other professionals before and after regulatory harmonization. We find that international labor migration in the accounting profession increases significantly relative to other professions. We provide evidence that this effect is due to harmonization, rather than increases in the demand for accounting services during the implementation of the rule changes. The findings illustrate that diversity in rules constitutes an economic barrier to cross-border labor mobility and, more specifically, that accounting ...
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REVISION: Accounting Information in Financial Contracting: The Incomplete Contract Theory Perspective
Date Posted:Tue, 05 Jan 2016 03:06:56 -0600
This paper reviews theoretical and empirical work on financial contracting that is relevant to accounting researchers. Its primary objective is to discuss how the use of accounting information in contracts enhances contracting efficiency and to suggest avenues for future research. We argue that incomplete contract theory broadens our understanding of both the role accounting information plays in contracting and the mechanisms through which efficiency gains are achieved. By discussing its rich theoretical implications, we expect incomplete contract theory to prove useful in motivating more research and in offering directions to advance our knowledge of how accounting information affects contract efficiency.

REVISION: The Effect of Regulatory Harmonization on Cross-Border Labor Migration: Evidence from the Accounting Profession
Date Posted:Mon, 07 Dec 2015 06:23:24 -0600
The paper examines whether international regulatory harmonization increases cross-border labor migration. To study this question, we analyze European Union (EU) initiatives that harmonized accounting and auditing standards. Regulatory harmonization should reduce economic mobility barriers, essentially making it easier for accounting professionals to move across countries. Our research design compares the cross-border migration of accounting professionals relative to tightly-matched other professionals before and after regulatory harmonization. We find that international labor migration in the accounting profession increases significantly relative to other professions. We provide evidence that this effect is due to harmonization, rather than increases in the demand for accounting services during the implementation of the rule changes. The findings illustrate that diversity in rules constitutes an economic barrier to cross-border labor mobility and, more specifically, that accounting ...

REVISION: The Real Effects of Mandatory Non-Financial Disclosures in Financial Statements
Date Posted:Tue, 27 Oct 2015 05:40:53 -0500
We examine the real effects of mandatory, non-financial disclosures, introduced into securities regulation under the Dodd-Frank Act, which require firms to disclose their mine-safety records in their financial reports. Most, if not all, of the information included in these disclosures was already publicly available, which allows us to examine the incremental effects of including the information in financial reports. Comparing mines owned by SEC-registered issuers to those mines that are not, we document that the disclosures are associated with an approximately 11 percent decrease in both mining-related citations and injuries. We also find suggestive evidence that productivity declines. Using short-window return tests around disclosures of citations, we show that markets price mine-safety information and that financial statement disclosure appears to incrementally increase investors’ awareness of safety issues. Overall, our results suggest that there are real effects of disclosing ...

REVISION: The Effects of Charge-Price Transparency Regulation on Prices in the Healthcare Industry
Date Posted:Tue, 13 Oct 2015 03:28:34 -0500
Using micro data on actual healthcare purchases, we provide evidence on the causal effects of charge-price transparency regulation (PTR). Exploiting both between- and within-state variation to address endogeneity concerns, we find that PTR causes providers to reduce charges by approximately 6%. However, these reductions do not lead to lower actual payments, even for price sensitive patients or in cases where contracts often link payments directly to charges, indicating little (if any) welfare implications. Cross-sectional variation in the estimated treatment effect suggests that the reputational costs of perceived overcharging rather than increased consumer search explain the reduction in charges. While prior research finds that market-based transparency initiatives can lead to lower prices, our results illustrate how the healthcare industry’s complex, heterogeneous pricing structure makes it difficult to achieve similar benefits through regulation.

REVISION: Accounting Information in Financial Contracting: The Incomplete Contract Theory Perspective
Date Posted:Tue, 13 Oct 2015 02:55:28 -0500
The central question in accounting literature on financial contracting is: how does the reliance on accounting information in contracts facilitate transactions between financiers and those who require financing? Suppose an entrepreneur (or manager) has access to a positive NPV investment project but lacks financing while a financier has funds but no access to such a project. How can the reliance on accounting information enhance the contractual relationship between these two parties and how does the use of accounting information affect the choice and design of financial claims? We discuss the answers to these questions with particular attention to the use of accounting information in debt contracts.

Update: Capital-Market Effects of Securities Regulation: Prior Conditions, Implementation, and Enforcement
Date Posted:Fri, 07 Aug 2015 02:36:40 -0500
This paper examines the capital-market effects of changes in securities regulation. We analyze two key directives in the European Union (EU) that tightened market abuse and transparency regulation. All EU member states were required to adopt these directives, but for plausibly exogenous reasons did so at different times. We exploit this staggered introduction to estimate causal effects of tighter securities regulation for the population of European firms, and find significant increases in market liquidity. Examining cross-sectional variation, we find larger treatment effects in countries that implement and enforce the directives more strictly. They are also stronger in countries with traditionally stricter securities regulation and a better track record of implementing regulation. The cross-sectional results indicate that the same forces that limited the effectiveness of regulation in the past are at play when new rules are introduced, leading to hysteresis in regulatory outcomes. ...
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REVISION: The Effects of Price Transparency Regulation on Prices in the Healthcare Industry
Date Posted:Wed, 20 May 2015 08:53:26 -0500
Using micro data on actual healthcare purchases, we provide evidence on the causal effects of price transparency regulation (PTR). Exploiting both between- and within-state variation to address endogeneity concerns, we find that PTR causes providers to reduce charges by approximately 6%. However, these reductions do not lead to lower actual payments, even for price sensitive patients or in cases where contracts often link payments directly to charges, indicating little (if any) welfare implications. Cross-sectional variation in the estimated treatment effect suggests that the reputational costs of perceived overcharging rather than increased consumer search explain the reduction in charges.

REVISION: Incentives or Standards: What Determines Accounting Quality Changes Around IFRS Adoption?
Date Posted:Mon, 23 Feb 2015 08:32:20 -0600
We examine the impact of managerial financial reporting incentives on accounting quality changes around International Financial Reporting Standards (IFRS) adoption. A novel feature of our single-country setting based on Germany is that voluntary IFRS adoption was allowed and common before IFRS became mandatory. We exploit the revealed preferences in the choice to (not) adopt IFRS voluntarily to determine whether the management of individual firms had incentives to adopt IFRS. For comparability with previous studies, we assess accounting quality through multiple constructs such as earnings management, timely loss recognition, and value relevance. While most existing literature documents accounting quality improvements following IFRS adoption, we find that improvements are confined to firms with incentives to adopt, that is, voluntary adopters. We also find that firms that resist IFRS adoption have closer connections with banks and inside shareholders, consistent with lower incentives ...

REVISION: The Effect of Regulatory Harmonization on Cross-Border Labor Migration: Evidence from the Accounting Profession
Date Posted:Fri, 23 Jan 2015 06:59:54 -0600
The paper examines the effect of international regulatory harmonization on cross-border labor migration. We analyze directives in the European Union (EU) that harmonized accounting and auditing standards. This regulatory harmonization should make it less costly for those who work in the accounting profession to move across countries. Our research design compares the cross-border migration of accounting professionals relative to tightly-matched other professionals before and after regulatory harmonization. We find that, on average, labor migration in the accounting profession increases relative to comparable professions by roughly 15% after harmonization. The findings illustrate that diversity in rules constitutes an important economic barrier to cross-border labor mobility and, more specifically, that accounting harmonization can have a meaningful effect on cross-border migration.

REVISION: The Effect of Regulatory Harmonization on Cross-Border Labor Migration: Evidence from the Accounting Profession
Date Posted:Mon, 19 Jan 2015 10:32:14 -0600
The paper examines the effect of international regulatory harmonization on cross-border labor migration. We analyze directives in the European Union (EU) that harmonized accounting and auditing standards. This regulatory harmonization should make it less costly for those who work in the accounting profession to move across countries. Our research design compares the cross- border migration of accounting professionals relative to tightly-matched other professionals before and after regulatory harmonization. We find that, on average, labor migration in the accounting profession increases relative to comparable professions by roughly 15% after harmonization. The findings illustrate that diversity in rules constitutes an important economic barrier to cross-border labor mobility and, more specifically, that accounting harmonization can have meaningful effect on cross-border migration.

REVISION: The Effects of Price Transparency Regulation on Prices in the Healthcare Industry
Date Posted:Fri, 10 Oct 2014 02:18:58 -0500
We provide empirical evidence on the causal effects of price transparency regulation (PTR) in the healthcare industry. Using micro data on actual healthcare purchases, and exploiting both between- and within-state variation to address endogeneity concerns, we find that PTR reduces the price charged for common, elective medical procedures by approximately 5% and increases the sensitivity of demand to a 1% change in charge prices by 0.5%. However, the effect of PTR on the actual prices paid by insured patients is limited to the relatively small fraction of patients that have the greatest incentives to directly consider the costs of care.

REVISION: The Effects of Price Transparency Regulation on Prices in the Healthcare Industry
Date Posted:Wed, 20 Aug 2014 05:42:12 -0500
We provide empirical evidence on the causal effects of price transparency regulation (PTR) in the healthcare industry. Using micro data on actual healthcare purchases, and exploiting both between- and within-state variation to address endogeneity concerns, we find that PTR reduces the price charged for common, elective medical procedures by approximately 5% and increases the sensitivity of demand to a 1% change in charge prices by 0.5%. However, the effect of PTR on the actual prices paid by insured patients is limited to the relatively small fraction of patients that have the greatest incentives to directly consider the costs of care.

REVISION: Do IFRS Reconciliations Convey Information? The Effect of Debt Contracting
Date Posted:Tue, 12 Aug 2014 03:54:21 -0500
We examine whether UK GAAP to IFRS earnings reconciliations convey information. As a result of debt contracting, mandatory accounting changes are expected to affect the likelihood of violating existing covenants based on rolling GAAP, leading to a redistribution of wealth between shareholders and lenders. Consistent with this prediction, we find significant market reactions to IFRS reconciliation announcements. These market reactions are more pronounced among firms that face a greater likelihood and costs of covenant violation and early announcements. While the association between later announcements and weaker market reactions is consistent with contractual implications of technical changes to earnings, which investors quickly learn to predict, it is inconsistent with IFRS forcing all firms in the sample to reveal firm-specific information through accruals. Thus, by showing that mandatory IFRS also affects debt contracting, we expand on existing IFRS research that focuses on how ...

REVISION: Debt Contracts and the Need for Mandatory Accounting Changes
Date Posted:Sat, 09 Aug 2014 08:33:59 -0500
We describe a mechanism through which accounting standard setters can facilitate the contracting process and improve economic resource allocation. Contracts cannot anticipate all future contingencies and, therefore, cannot specify optimal accounting treatments or necessary adjustments to GAAP in many eventualities. This contractual incompleteness opens the scope for opportunistic behavior in unanticipated states, which, being rationally anticipated at contract initiation, distorts the allocation of economic resources. Standard setters can alleviate the friction by acting as arbiters that complete GAAP ex post. We empirically test whether mandatory GAAP changes play an efficiency role by examining the revealed preferences for including vs. excluding mandatory GAAP changes in debt contracts. We find evidence consistent with standard setters playing such a role, but less so over time. Overall, the evidence suggests that there is an economic rationale for standard setting in debt ...

REVISION: The Effects of Price Transparency Regulation on Prices in the Healthcare Industry
Date Posted:Wed, 12 Mar 2014 09:12:59 -0500
Policymakers have enacted price transparency regulations in over thirty states during the past decade as an attempt to control rising healthcare costs. This paper provides empirical evidence on the causal effects of these regulations. Using micro data on actual healthcare purchases, and exploiting both between- and within-state variation to address endogeneity concerns, we find that price transparency regulations reduce the price charged for common, uncomplicated, elective procedures by an average of approximately 7 percent. Further evidence indicates that the reduction in charge prices is concentrated where competition among providers is most intense and that this reduction is attributable to a decline in the prices charged by the highest priced providers. However, among insured patients, who constitute over 80 percent of U.S. consumers, we find that, despite the observed decline in charge prices, on average, price transparency regulation has no effect on actual payments. For the ...

REVISION: Capital-Market Effects of Securities Regulation: Prior Conditions, Implementation, and Enforcement
Date Posted:Wed, 12 Feb 2014 01:55:36 -0600
This paper examines the economic effects of changes in securities regulation. We analyze two key directives in the European Union (EU) that tightened market abuse and transparency regulation. All EU member states were required to adopt these two directives, but did so at different points in time. Our research design exploits this staggered introduction of the same regulation to identify capital-market effects. We also examine cross-sectional variation in the strictness of implementation and enforcement as well as in prior regulatory conditions. We find that, on average, market liquidity increases as EU countries tighten market abuse and transparency regulation. The effects are larger in countries that implement and enforce the directives more strictly. They are also stronger in countries with traditionally stricter securities regulation and with a better prior track record of implementing regulation and government policies. The results indicate that the same forces that limited the ...

REVISION: Capital-Market Effects of Securities Regulation: Prior Conditions, Implementation, and Enforcement
Date Posted:Wed, 05 Feb 2014 05:03:35 -0600
This paper examines the economic effects of changes in securities regulation. We analyze two key directives in the European Union (EU) that tightened market abuse and transparency regulation. All EU member states were required to adopt these two directives, but did so at different points in time. Our research design exploits this staggered introduction of the same regulation to identify capital-market effects. We also examine cross-sectional variation in the strictness of implementation and enforcement as well as in prior regulatory conditions. We find that, on average, market liquidity increases as EU countries tighten market abuse and transparency regulation. The effects are larger in countries that implement and enforce the directives more strictly. They are also stronger in countries with traditionally stricter securities regulation and with a better prior track record of implementing regulation and government policies. The results indicate that the same forces that limited the ...

New: Mandatory IFRS Reporting and Changes in Enforcement
Date Posted:Sat, 07 Dec 2013 02:06:15 -0600
In recent years, reporting under International Financial Reporting Standards (IFRS) became mandatory in many countries. The capital-market effects around this change have been extensively studied, but their sources are not yet well understood. This study aims to distinguish between several potential explanations for the observed capital-market effects. We find that, across all countries, mandatory IFRS reporting had little impact on liquidity. The liquidity effects around IFRS introduction are concentrated in the European Union (EU) and limited to five EU countries that concurrently made substantive changes in reporting enforcement. There is little evidence of liquidity benefits in IFRS countries without substantive enforcement changes even when they have strong legal and regulatory systems. Moreover, we find similar liquidity effects for firms that experience enforcement changes but do not concurrently switch to IFRS. Thus, changes in reporting enforcement or (unobserved) factors ...

REVISION: Mandatory IFRS Reporting and Changes in Enforcement
Date Posted:Mon, 04 Nov 2013 02:28:16 -0600
In recent years, reporting under International Financial Reporting Standards (IFRS) became mandatory in many countries. The capital-market effects around this change have been extensively studied, but their sources are not yet well understood. This study aims to distinguish between several potential explanations for the observed capital-market effects. We find that, across all countries, mandatory IFRS reporting had little impact on liquidity. The liquidity effects around IFRS introduction are concentrated in the European Union (EU) and limited to five EU countries that concurrently made substantive changes in reporting enforcement. There is little evidence of liquidity benefits in IFRS countries without substantive enforcement changes even when they have strong legal and regulatory systems. Moreover, we find similar liquidity effects for firms that experience enforcement changes but do not concurrently switch to IFRS. Thus, changes in reporting enforcement or (unobserved) factors ...

REVISION: The Effects of Price Transparency Regulation on Prices in the Healthcare Industry
Date Posted:Tue, 22 Oct 2013 09:27:24 -0500
Policymakers have enacted price transparency regulations in over thirty states during the past decade as an attempt to control rising healthcare costs. This paper provides empirical evidence on the effects of these regulations. Using micro data on actual healthcare purchases, and exploiting both between- and within-state variation to address endogeneity concerns, we find that price transparency regulations reduce the price charged for common, uncomplicated, elective procedures by an average of approximately 7%. Further evidence indicates that the reduction in charge prices is concentrated where competition among providers is most intense and that this reduction is attributable to a decline in the prices charged by the highest priced providers. Among insured patients, reductions in payments are concentrated among the most price sensitive patients, as captured by patients’ coinsurance. We also find that insured patients that change providers are more likely to switch to a lower cost ...

REVISION: Proper Inferences or a Market for Excuses? The Capital-Market Effects of Mandatory IFRS Adoption
Date Posted:Sat, 12 Oct 2013 08:42:21 -0500
Barth and Israeli (2013) raise five serious concerns regarding the research design and interpretation of Christensen, Hail, and Leuz (2013). They claim: (i) the evidence stands in stark contrast to Daske, Hail, Leuz, and Verdi (2008) and fails to replicate its prior findings; (ii) the research design using fixed effects leaves out main effects and two-way interactions which likely biases the estimated liquidity effects around IFRS adoption and changes in enforcement; (iii) the vast majority of sample observations do not contribute to the identification which is misleading in terms of the scope and the conclusions that can be drawn from the study; (iv) the timing of IFRS adoption and enforcement changes is measured imprecisely leading to low power tests; and (v) the evidence from Japan is irrelevant to the study. In this note, we show that all five claims are incorrect or misleading. Our discussion also more broadly describes how to properly interpret the fixed-effect specifications ...

REVISION: Mandatory IFRS Reporting and Changes in Enforcement
Date Posted:Mon, 09 Sep 2013 11:25:56 -0500
In recent years, reporting under International Financial Reporting Standards (IFRS) became mandatory in many countries. The capital-market effects around this change have been extensively studied, but their sources are not yet well understood. This study aims to distinguish between several potential explanations for the observed capital-market effects. We find that, across all countries, mandatory IFRS reporting had little impact on liquidity. The liquidity effects around IFRS introduction are ...

REVISION: Proper Inferences or a Market for Excuses? The Capital-Market Effects of Mandatory IFRS Adoption
Date Posted:Mon, 02 Sep 2013 12:28:21 -0500
Barth and Israeli (2013) raise five serious concerns regarding the research design and interpretation of Christensen, Hail, and Leuz (2013). They claim: (i) the evidence stands in stark contrast to Daske, Hail, Leuz, and Verdi (2008) and fails to replicate its prior findings; (ii) the research design using fixed effects leaves out main effects and two-way interactions which likely biases the estimated liquidity effects around IFRS adoption and changes in enforcement; (iii) the vast majority of ...

REVISION: Debt Contracts and the Need for Mandatory Accounting Changes
Date Posted:Fri, 02 Aug 2013 08:43:16 -0500
We describe a mechanism through which accounting standard setters can facilitate the contracting process and improve economic resource allocation. Contracts cannot anticipate all future contingencies and, therefore, cannot specify optimal accounting treatments or necessary adjustments to GAAP in many eventualities. This contractual incompleteness opens the scope for opportunistic behavior in unanticipated states, which, being rationally anticipated at contract initiation, distorts the ...

REVISION: Debt Contracts and the Need for Mandatory Accounting Changes
Date Posted:Fri, 02 Aug 2013 08:43:12 -0500
We describe a mechanism through which accounting standard setters can facilitate the contracting process and improve economic resource allocation. Contracts cannot anticipate all future contingencies and, therefore, cannot specify optimal accounting treatments or necessary adjustments to GAAP in many eventualities. This contractual incompleteness opens the scope for opportunistic behavior in unanticipated states, which, being rationally anticipated at contract initiation, distorts the ...

REVISION: Mandatory IFRS Reporting and Changes in Enforcement
Date Posted:Thu, 20 Jun 2013 14:44:58 -0500
In recent years, reporting under International Financial Reporting Standards (IFRS) became mandatory in many countries. The capital-market effects around this change have been extensively studied, but their sources are not yet well understood. This study aims to distinguish between several potential explanations for the observed capital-market effects. We find that, across all countries, mandatory IFRS reporting had little impact on liquidity. The liquidity effects around IFRS introduction are ...

REVISION: Does Fair Value Accounting for Non-Financial Assets Pass the Market Test?
Date Posted:Fri, 07 Jun 2013 15:23:42 -0500
The choice between fair value and historical cost accounting is the subject of long-standing controversy among accounting academics and regulators. Nevertheless, the market-based evidence on this subject is very limited. We study the choice of fair value versus historical cost accounting for non-financial assets in setting where market forces rather than regulators determine the outcome. In general, we find a very limited use of fair value accounting. However, the observed variation is ...

REVISION: Mandatory IFRS Reporting and Changes in Enforcement
Date Posted:Tue, 05 Mar 2013 06:32:21 -0600
In recent years, reporting under International Financial Reporting Standards (IFRS) became mandatory in many countries. The capital-market effects around this change have been extensively studied, but their sources are not yet well understood. This study aims to distinguish between several potential explanations for the observed capital-market effects. We find that, across all countries, mandatory IFRS reporting had little impact on liquidity. The liquidity effects around IFRS introduction are ...

REVISION: Does Fair Value Accounting for Non-Financial Assets Pass the Market Test?
Date Posted:Wed, 27 Feb 2013 14:27:05 -0600
The choice between fair value and historical cost accounting is the subject of long-standing controversy among accounting academics and regulators. Nevertheless, the market-based evidence on this subject is very limited. We study the choice of fair value versus historical cost accounting for non-financial assets in a setting where market forces rather than regulators determine the outcome. In general, we find a very limited use of fair value accounting. However, the observed variation is ...

REVISION: Does Fair Value Accounting for Non-Financial Assets Pass the Market Test?
Date Posted:Wed, 13 Feb 2013 12:46:34 -0600
The choice between fair value and historical cost accounting is the subject of long-standing controversy among accounting academics and regulators. Nevertheless, the market-based evidence on this subject is very limited. We study the choice of fair value versus historical cost accounting for non-financial assets in setting where market forces rather than regulators determine the outcome. In general, we find a very limited use of fair value accounting. However, the observed variation is ...

REVISION: Does Fair Value Accounting for Non-Financial Assets Pass the Market Test?
Date Posted:Mon, 12 Nov 2012 16:28:09 -0600
The choice between fair value and historical cost accounting is the subject of long-standing controversy among accounting academics and regulators. Nevertheless, the market-based evidence on this subject is very limited. We study the choice of fair value versus historical cost accounting for non-financial assets in a setting where market forces rather than regulators determine the outcome. In general, we find a very limited use of fair value accounting. However, the observed variation is ...

REVISION: Mandatory IFRS Reporting and Changes in Enforcement
Date Posted:Mon, 08 Oct 2012 19:06:53 -0500
In recent years, a number of countries have made reporting under International Financial Reporting Standards (IFRS) mandatory. The capital-market effects around this change have been extensively studied, but their sources are not yet well understood. This study presents new evidence that aims to distinguish between several potential explanations for the observed capital-market effects. We find that, across all countries, mandatory IFRS reporting had little impact on liquidity. The liquidity ...

REVISION: Capital-Market Effects of Securities Regulation: Hysteresis, Implementation, and Enforcement
Date Posted:Wed, 05 Sep 2012 18:28:24 -0500
This paper examines capital market effects of changes in securities regulation. We analyze two key directives in the European Union (EU) that tightened market abuse and transparency regulation and its enforcement. All EU member states were required to adopt these two directives, but did so at different points in time. Our research design exploits this differential timing of the same regulatory change to identify the capital-market effects. We also use cross-sectional variation in the ...

Update: Mandatory IFRS Reporting and Changes in Enforcement
Date Posted:Tue, 14 Aug 2012 10:45:39 -0500
In recent years, a large number of countries have made reporting under International Financial Reporting Standards (IFRS) mandatory. The capital-market effects of this change have been extensively studied, but their sources are not yet well understood and still heavily debated. This paper presents new evidence that aims to distinguish between several potential explanations for these capital-market effects. We show that, across all countries, mandatory IFRS reporting had little impact on liquidit
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REVISION: Does Fair Value Accounting for Non-Financial Assets Pass the Market Test?
Date Posted:Wed, 06 Jun 2012 04:58:54 -0500
Whether fair value dominates historical cost accounting in a market for accounting practices is an important question subject to much controversy among academics and regulators. IFRS adoption offers a unique setting to study managers’ preferences for fair value vs. historical cost accounting for non-financial assets when market forces, rather than regulators, determine the choice. We find that, with few important exceptions, managers pre-commit to historical cost accounting for plant, ...

REVISION: Does Fair Value Accounting for Non-Financial Assets Pass the Market Test?
Date Posted:Wed, 30 May 2012 16:34:10 -0500
We study managers’ revealed preferences for fair value or historical cost accounting for non-financial assets when market forces, rather than regulators, determine the choice. We document that almost all managers pre-commit to historical cost accounting for plant, equipment, and intangible assets, suggesting that fair value for illiquid non-financial assets is associated with net firm-specific costs. However, for the more liquid assets groups, property and investment property, the observed ...

REVISION: Why Do Firms Rarely Adopt IFRS Voluntarily? Academics Find Significant Benefits and the Costs Appear
Date Posted:Mon, 28 May 2012 17:53:11 -0500
Kim and Shi (this issue) document that voluntary IFRS adoption is associated with significant benefits and argue that the effect is causal – a conclusion that is similar to many published papers on IFRS adoption. Yet voluntary IFRS adopters constitute only a small percentage of the global population of firms, which implies that either practitioners behave irrationally or the benefits are incorrectly estimated by academics. In this discussion I argue that the error is on the part of academics, ...

REVISION: Why Do Firms Rarely Adopt IFRS Voluntarily? Academics Find Significant Benefits and the Costs Appear
Date Posted:Thu, 15 Mar 2012 07:42:33 -0500
Kim and Shi (this issue) document that voluntary IFRS adoption is associated with significant benefits and argue that the effect is causal – a conclusion that is similar to many published papers on IFRS adoption. Yet voluntary IFRS adopters constitute only a small percentage of the global population of firms, which implies that either practitioners behave irrationally or the benefits are incorrectly estimated by academics. In this discussion I argue that the error is on the part of academics, ...

REVISION: Mandatory IFRS Reporting and Changes in Enforcement
Date Posted:Thu, 15 Mar 2012 04:42:28 -0500
In recent years, a large number of countries have made reporting under International Financial Reporting Standards (IFRS) mandatory. The capital-market effects of this change have been extensively studied, but their sources are not yet well understood and still heavily debated. This paper presents new evidence that aims to distinguish between several potential explanations for these capital-market effects. We show that, across all countries, mandatory IFRS reporting had little impact on ...

REVISION: Why Do Firms Rarely Adopt IFRS Voluntarily? Academics Find Significant Benefits and the Costs Appear
Date Posted:Fri, 09 Mar 2012 12:23:41 -0600
Kim and Shi (this issue) document that voluntary IFRS adoption is associated with significant benefits and argue that the effect is causal – a conclusion that is similar to many published papers on IFRS adoption. Yet voluntary IFRS adopters constitute only a small percentage of the global population of firms, which implies that either practitioners behave irrationally or the benefits are incorrectly estimated by academics. In this discussion I argue that the error is on the part of academics, ...

REVISION: Mandatory IFRS Reporting and Changes in Enforcement
Date Posted:Wed, 07 Mar 2012 13:38:50 -0600
In recent years, a large number of countries have made reporting under International Financial Reporting Standards (IFRS) mandatory. The capital-market effects of this change have been extensively studied, but their sources are not yet well understood and still heavily debated. This paper presents new evidence that aims to distinguish between several potential explanations for these capital-market effects. We show that, across all countries, mandatory IFRS reporting had little impact on ...

REVISION: Capital-Market Effects of Securities Regulation: Hysteresis, Implementation, and Enforcement
Date Posted:Tue, 07 Feb 2012 18:31:52 -0600
This paper examines capital market effects of changes in securities regulation. We analyze two key directives in the European Union (EU) that tightened market abuse and transparency regulation and its enforcement. All EU member states were required to adopt these two directives, but did so at different points in time. Our research design exploits this differential timing of the same regulatory change to identify the capital-market effects. We also use cross-sectional variation in the ...

REVISION: Capital-Market Effects of Securities Regulation: Hysteresis, Implementation, and Enforcement
Date Posted:Tue, 03 Jan 2012 01:31:21 -0600
This paper examines capital market effects of changes in securities regulation. We analyze two key directives in the European Union (EU) that tightened market abuse and transparency regulation and its enforcement. All EU member states were required to adopt these two directives, but did so at different points in time. Our research design exploits this differential timing of the same regulatory change to identify the capital-market effects. We also use cross-sectional variation in the ...

REVISION: Capital-Market Effects of Securities Regulation: Hysteresis, Implementation, and Enforcement
Date Posted:Mon, 02 Jan 2012 01:11:38 -0600
This paper examines capital market effects of changes in securities regulation. We analyze two key directives in the European Union (EU) that tightened market abuse and transparency regulation and its enforcement. All EU member states were required to adopt these two directives, but did so at different points in time. Our research design exploits this differential timing of the same regulatory change to identify the capital-market effects. We also use cross-sectional variation in the ...

REVISION: Capital-Market Effects of Securities Regulation: The Role of Prior Regulation, Implementation and En
Date Posted:Mon, 31 Oct 2011 18:22:33 -0500
This paper examines capital market effects of changes in securities regulation. We analyze two key directives in the European Union (EU) that tightened market abuse and transparency regulation and its enforcement. All EU member states were required to adopt these two directives but did so at different points in time. Our research design exploits this differential timing of the same regulatory change to identify the capital-market effects. We also use cross-sectional variation in the strictness ...

REVISION: Capital-Market Effects of Securities Regulation: The Role of Prior Regulation, Implementation and En
Date Posted:Tue, 25 Oct 2011 13:32:21 -0500
This paper examines capital market effects of changes in securities regulation. We analyze two key directives in the European Union (EU) that tightened market abuse and transparency regulation and its enforcement. All EU member states were required to adopt these two directives but did so at different points in time. Our research design exploits this differential timing of the same regulatory change to identify the capital-market effects. We then use cross-sectional variation in the strictness ...

REVISION: Capital Versus Performance Covenants in Debt Contracts
Date Posted:Mon, 26 Sep 2011 18:41:58 -0500
Building on contracting theory, we argue that financial covenants control the conflicts of interest between lenders and borrowers via two different mechanisms. Capital covenants control agency problems by aligning debtholder-shareholder interests. Performance covenants serve as tripwires that limit agency problems via the transfer of control to lenders in states where the value of their claim is at risk. Companies trade off these mechanisms. Capital covenants impose costly restrictions on ...

REVISION: Capital-Market Effects of Securities Regulation: The Role of Implementation and Enforcement
Date Posted:Wed, 13 Jul 2011 01:11:38 -0500
This paper examines capital market effects of changes in securities regulation. We analyze two key capital market directives in the European Union (EU) that tightened market abuse and transparency regulation and, in particular, their enforcement. All EU member states were required to adopt these two directives but did so at different points in time. Our research design exploits this differential timing of the same regulatory change for identification and uses cross-sectional variation in the ...

REVISION: Capital Versus Performance Covenants in Debt Contracts
Date Posted:Thu, 30 Jun 2011 01:38:41 -0500
Building on contracting theory, we argue that financial covenants control the conflicts of interest between lenders and borrowers via two different mechanisms. Capital covenants control agency problems by aligning debtholder-shareholder interests. Performance covenants serve as tripwires that limit agency problems via the transfer of control to lenders in states where the value of their claim is at risk. Companies trade off these mechanisms. Capital covenants impose costly restrictions on ...

REVISION: Capital Versus Performance Covenants in Debt Contracts
Date Posted:Tue, 28 Jun 2011 16:03:23 -0500
We study the contracting role of financial covenants classified into two types. We argue that capital covenants control agency problems by maintaining equity capital sufficient to align debtholder-shareholder objectives ex ante, whereas performance covenants serve as tripwires that address agency problems by facilitating control transfers and re-negotiations ex post. We find that capital and performance covenants are used in different contracting environments. Performance covenants are strong ...

REVISION: Capital-Market Effects of Securities Regulation: The Role of Implementation and Enforcement
Date Posted:Tue, 08 Mar 2011 07:33:54 -0600
This paper examines capital market effects of changes in securities regulation. We analyze two key capital market directives in the European Union (EU) that tightened market abuse and transparency regulation and, in particular, their enforcement. All EU member states were required to adopt these two directives but did so at different points in time. Our research design exploits this differential timing of the same regulatory change for identification and uses cross-sectional variation in the ...

REVISION: Capital versus Performance Covenants in Debt Contracts
Date Posted:Wed, 26 Jan 2011 12:30:29 -0600
We study the contracting role of financial covenants classified into two types. We argue that capital covenants control agency problems by maintaining equity capital sufficient to align debtholder-shareholder objectives ex ante, whereas performance covenants serve as tripwires that address agency problems by facilitating control transfers and re-negotiations ex post. We find that capital and performance covenants are used in different contracting environments. Performance covenants are strong ...

REVISION: Capital-Market Effects of Securities Regulation: The Role of Implementation and Enforcement
Date Posted:Sun, 23 Jan 2011 11:55:46 -0600
This paper examines capital market effects of changes in securities regulation. We analyze two key capital market directives in the European Union (EU) that tightened market abuse and transparency regulation and, in particular, their enforcement. All EU member states were required to adopt these two directives but did so at different points in time. Our research design exploits this differential timing of the same regulatory change for identification and uses cross-sectional variation in the ...

REVISION: Does Fair Value Accounting for Non-Financial Assets Pass the Market Test?
Date Posted:Wed, 15 Sep 2010 11:54:05 -0500
We study managers’ revealed preferences for fair value or historical cost accounting for non-financial assets when market forces, rather than regulators, determine the choice. We document that almost all managers pre-commit to historical cost accounting for plant, equipment, and intangible assets, suggesting that fair value for illiquid non-financial assets is associated with net firm-specific costs. However, for the more liquid assets groups, property and investment property, the observed ...

REVISION: Does fair value accounting for non-financial assets pass the market test?
Date Posted:Wed, 21 Oct 2009 21:46:28 -0500
We examine whether companies choose fair value over historical cost when both valuation methods become available and when consistency in their application is expected. While prior research establishes the value relevance of fair value revaluations, the evidence is largely conditional on a company's discretionary choice to revalue assets. Little is known, however, about companies’ choice of fair value over historical cost and its determinants. We study a setting where companies need to ...

REVISION: Do IFRS Reconciliations Convey Information? The Effect of Debt Contracting
Date Posted:Sat, 17 Oct 2009 20:06:37 -0500
We examine whether UK GAAP to IFRS earnings reconciliations convey information. As a result of debt contracting, mandatory accounting changes are expected to affect the likelihood of violating existing covenants based on rolling GAAP, leading to a redistribution of wealth between shareholders and lenders. Consistent with this prediction, we find significant market reactions to IFRS reconciliation announcements. These market reactions are more pronounced among firms that face a greater ...

REVISION: Do IFRS Reconciliations Convey Information? The Effect of Debt Contracting
Date Posted:Fri, 16 Oct 2009 11:10:01 -0500
We examine whether UK GAAP to IFRS earnings reconciliations convey information. As a result of debt contracting, mandatory accounting changes are expected to affect the likelihood of violating existing covenants based on rolling GAAP, leading to a redistribution of wealth between shareholders and lenders. Consistent with this prediction, we find significant market reactions to IFRS reconciliation announcements. These market reactions are more pronounced among firms that face a greater ...

REVISION: Do IFRS Reconciliations Convey Information? The Effect of Debt Contracting
Date Posted:Mon, 06 Jul 2009 11:26:08 -0500
We examine whether UK GAAP to IFRS earnings reconciliations convey information. As a result of debt contracting, mandatory accounting changes are expected to affect the likelihood of violating existing covenants based on rolling GAAP, leading to a redistribution of wealth between shareholders and lenders. Consistent with this prediction, we find significant market reactions to IFRS reconciliation announcements. These market reactions are more pronounced among firms that face a greater ...

REVISION: Do IFRS Reconciliations Convey Information? The Effect of Debt Contracting
Date Posted:Wed, 01 Jul 2009 20:23:39 -0500
We examine whether UK GAAP to IFRS earnings reconciliations convey information. As a result of debt contracting, mandatory accounting changes are expected to affect the likelihood of violating existing covenants based on rolling GAAP, leading to a redistribution of wealth between shareholders and lenders. Consistent with this prediction, we find significant market reactions to IFRS reconciliation announcements. These market reactions are more pronounced among firms that face a greater ...

REVISION: Who Uses Fair-Value Accounting for Non-Financial Assets After IFRS Adoption?*
Date Posted:Thu, 05 Mar 2009 11:01:58 -0600
We examine whether and why companies prefer fair value to historical cost when they can choose between the two valuation methods. With the exception of investment property owned by real estate companies, historical cost by far dominates fair value in practice. Indeed, fair value accounting is not used for plant, equipment, and intangible assets. We find that companies using fair value accounting rely more on debt financing than companies that use historical cost. This evidence is consistent ...

REVISION: Who Uses Fair-Value Accounting for Non-Financial Assets After IFRS Adoption?*
Date Posted:Sat, 28 Feb 2009 04:31:40 -0600
We examine whether and why companies prefer fair value to historical cost when they can choose between the two valuation methods. With the exception of investment property owned by real estate companies, historical cost by far dominates fair value in practice. Indeed, fair value accounting is not used for plant, equipment, and intangible assets. We find that companies using fair value accounting rely more on debt financing than companies that use historical cost. This evidence is consistent ...

REVISION: *Who Uses Fair-Value Accounting for Non-Financial Assets Following IFRS Adoption?
Date Posted:Wed, 17 Sep 2008 18:51:05 -0500
This study examines whether and why fair value is preferred to historical cost accounting in practice. We study companies' choices in a setting where they can freely choose between these two valuation methods. We find that historical cost by far dominates the choice of fair value with the exception of investment property owned by companies with primary activity in real estate. More specifically, for plant, equipment, and intangible assets close to none of the companies examined use fair value ...

REVISION: Do IFRS/UK-GAAP Reconciliations Convey New Information?
Date Posted:Thu, 15 May 2008 08:52:16 -0500
Following the mandatory adoption of International Financial Reporting Standards (IFRS) across Europe, all UK listed firms were required to publish IFRS reconciliations for the final set of accounts they published under UK-GAAP. In this setting we examine whether the mandatory IFRS reconciliations convey new information beyond the existing local GAAP and how firms exercise their discretion in timing the disclosure of this information. We show that IFRS reconciliations are associated with ...

REVISION: Incentives or Standards: What Determines Accounting Quality Changes Around IFRS Adoption?
Date Posted:Thu, 13 Mar 2008 21:22:49 -0500
We examine the impact of incentives on accounting quality changes around IFRS adoption. In particular, we examine earnings management and timely loss recognition, constructs often used to assess accounting standards quality. While existing literature documents accounting quality improvements following IFRS adoption, we find that improvements are confined to firms with incentives to adopt. Further, we find that firms that resist IFRS have closer connections with banks and inside shareholders, ...

REVISION: Incentives or Standards: What Determine Accounting Quality Changes Around IFRS Adoption?
Date Posted:Tue, 25 Dec 2007 23:21:49 -0600
We document accounting quality improvements following voluntary IFRS adoption. However, we find no evidence of improvements subsequent to mandatory adoption by firms that resist IFRS adoption. We exploit a unique setting in Germany where firms could voluntarily adopt IFRS before mandatory compliance in 2005. This setting enables us to identify the incentives of firms based on their own assessments of net benefits from IFRS adoption. We examine earnings management and timely loss recognition, ...

REVISION: Incentives or Standards: What Determine Accounting Quality Changes Around IFRS Adoption?
Date Posted:Sun, 09 Sep 2007 20:46:18 -0500
We document accounting quality improvements following voluntary IFRS adoption. However, we find no evidence of such improvements subsequent to mandatory adoption by firms that resist IFRS adoption. We exploit a unique setting in Germany where firms could voluntarily adopt IFRS before mandatory compliance in 2005. This setting enables us to identify the incentives of firms based on their own assessments of net benefits from IFRS adoption. We examine earnings management and timely loss ...

REVISION: Do IFRS/UK-GAAP Reconciliations Convey New Information?
Date Posted:Mon, 02 Jul 2007 03:31:13 -0500
Following the mandatory adoption of International Financial Reporting Standards (IFRS) across Europe, all UK listed firms were required to publish IFRS reconciliations for the final set of accounts they published under UK-GAAP. In this setting we examine whether the mandatory IFRS reconciliations convey new information beyond the existing local GAAP and how firms exercise their discretion in timing the disclosure of this information. We show that IFRS reconciliations are associated with ...