Mark G. Maffett

REVISION: Importing Activists: Determinants and Consequences of Increased Cross-border Shareholder Activism
Date Posted:Tue, 21 Sep 2021 07:37:53 -0500
Shareholder activism is now an important global phenomenon. We use a sample of nearly 7,000 activist shareholder campaigns across 56 countries to address two principal research questions related to the rise of activism. First, we develop a measure of corporate governance regulation that captures the extent to which a country’s laws facilitate minority-shareholder engagement, a necessary condition for successful intervention, and show that our measure explains cross-country variation in the emergence of activism. Second, we exploit changes in these regulations to examine how an increase in the threat of activism affects corporate outcomes, both for targeted firms and for firms not explicitly targeted by activists. Our evidence suggests that regulatory changes that facilitate investor activism result in increased profitability, higher payouts, and reduced investments. These effects are concentrated in countries where the preexisting governance regulations are weaker and the ...

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: Importing Activists: Determinants and Consequences of Increased Cross-border Shareholder Activism
Date Posted:Thu, 06 May 2021 02:59:08 -0500
We use a comprehensive sample of nearly 7,000 shareholder activism campaigns across 56 countries to examine how corporate governance regulations interact with activism to drive changes in real corporate-sector outcomes. We develop a novel country-level framework of regulatory characteristics that serve as necessary precursors for minority shareholders to influence firm governance. We find that the incidence of both foreign and domestic activism, as measured by the number of campaigns, increases by over 60% (95%) following reforms that increase shareholder voting rights (board independence). Using these shareholder-empowering changes to governance regulation as shocks to the threat of activism, and the presence of independent institutional investors to identify high-activism-risk firms, we find that firms facing a high threat of activism (including non-targeted firms) increase profitability, reduce investment, and increase payouts. These effects are concentrated in countries where the ...

REVISION: Importing Activists: Determinants and Consequences of Increased Cross-border Shareholder Activism
Date Posted:Tue, 29 Dec 2020 05:59:02 -0600
We use a comprehensive sample of over 7,000 shareholder activism campaigns across 55 countries to examine how corporate governance regulations interact with activism to drive meaningful change in real corporate sector outcomes. We develop a country-level framework of regulatory characteristics that serve as necessary precursors for minority shareholders to influence firm governance, and find that the incidence of both foreign and domestic activism in a given country, as measured by the number of campaigns, increases by more than 80% following reforms that increase shareholder voting rights and board independence. Using these shareholder-empowering changes to governance regulation as shocks that increase the threat of activism, and the presence of independent institutional investors to identify high-activism-risk firms, we find that firms facing a high threat of activism reduce investment and increase payouts. We also find similar effects for firms not directly targeted by activists, ...

REVISION: Reversing the Resource Curse: Foreign Corruption Regulation and Economic Development
Date Posted:Tue, 22 Dec 2020 03:12:51 -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: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: Reversing the Resource Curse: Foreign Corruption Regulation and Economic Development
Date Posted:Mon, 19 Oct 2020 12:18:45 -0500
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: 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: 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: Public Oversight and Reporting Credibility: Evidence from the PCAOB Audit Inspection Regime
Date Posted:Thu, 02 Jan 2020 11:11:14 -0600
This paper studies the impact of public audit oversight on financial reporting credibility. We analyze changes in market responses to earnings news after public audit oversight is introduced, exploiting that the regime onset depends on fiscal year-ends, auditors, and the rollout of auditor inspections. We find that investors respond more strongly to earnings news following public audit oversight. Corroborating these findings, we find an increase in volume responses to 10-K filings after the new regime. Our results show that public audit oversight can enhance reporting credibility and that this credibility is priced in capital markets.

REVISION: Public Oversight and Reporting Credibility: Evidence from the PCAOB Audit Inspection Regime
Date Posted:Wed, 11 Dec 2019 10:07:27 -0600
This paper studies the impact of public audit oversight on financial reporting credibility. We analyze changes in market responses to earnings news after public audit oversight is introduced, exploiting that the regime onset depends on fiscal-year ends, auditors, and the rollout of auditor inspections. We find that investors respond more strongly to earnings news following public audit oversight. Corroborating these findings, we find an increase in volume responses to 10-K filings after the new regime. Our results show that public audit oversight can enhance reporting credibility and that this credibility is priced in capital markets.

REVISION: Public Oversight and Reporting Credibility: Evidence from the PCAOB Audit Inspection Regime
Date Posted:Wed, 06 Nov 2019 10:07:48 -0600
This paper studies the impact of public audit oversight on financial reporting credibility. We analyze changes in market responses to earnings news after public audit oversight is introduced, exploiting that the regime onset depends on fiscal-year ends, auditors, and the rollout of auditor inspections. We find that investors respond more strongly to earnings news following public audit oversight. Corroborating these findings, we find an increase in volume responses to 10-K filings after the new regime. Our results show that public audit oversight can enhance reporting credibility and that this credibility is priced in capital markets.

New: Public Audit Oversight and Reporting Credibility: Evidence from the PCAOB Audit Inspection Regime
Date Posted:Sat, 02 Nov 2019 09:58:35 -0500
This paper studies the impact of public audit oversight on financial reporting credibility. We analyze changes in market responses to earnings news after public audit oversight is introduced, exploiting that the regime onset depends on fiscal-year ends, auditors, and the roll-out of auditor inspections. We find that investors respond more strongly to earnings news following public audit oversight. Corroborating these findings, we find an increase in volume responses to 10-K filings after the new regime. Our results show that public audit oversight can enhance reporting credibility and that this credibility is priced in capital markets.

REVISION: Public Audit Oversight and Reporting Credibility: Evidence from the PCAOB Audit Inspection Regime
Date Posted:Wed, 23 Oct 2019 11:03:37 -0500
This paper studies the impact of public audit oversight on financial reporting credibility. We analyze changes in market responses to earnings news after public audit oversight is introduced, exploiting that the regime onset depends on fiscal-year ends, auditors, and the rollout of auditor inspections. We find that investors respond more strongly to earnings news following public audit oversight. Corroborating these findings, we find an increase in volume responses to 10-K filings after the new regime. Our results show that public audit oversight can enhance reporting credibility and that this credibility is priced in capital markets.

REVISION: Regulatory Cooperation and Foreign Portfolio Investment
Date Posted:Sun, 06 Oct 2019 10:08:46 -0500
We investigate the effect of cross-border regulatory cooperation in the enforcement of securities laws on global-mutual-fund portfolio allocations. Our research design exploits a shock to the Securities and Exchange Commission's oversight of foreign firms cross-listed on a US stock exchange around the signing of the Multilateral Memorandum of Understanding (MMoU), a non-binding, information-sharing arrangement between global securities regulators. In signatory countries, foreign investment in US-cross-listed firms increases by $110 billion relative to non-cross-listed firms. The strongest effects are for investors facing greater information asymmetries, those from countries closely linked to the US, and non-US foreign investors, suggesting significant spillover effects from international regulatory cooperation.

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: 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: 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: Public Audit Oversight and Reporting Credibility: Evidence from the PCAOB Inspection Regime
Date Posted:Fri, 18 Jan 2019 04:27:41 -0600
This paper studies the effects of reporting credibility in capital markets and whether public regulatory oversight of the audit profession enhances reporting credibility. We analyze whether market responses to earnings news increase after the introduction of the Public Company Accounting Oversight Board (PCAOB), as predicted by information economics if such oversight enhances reporting credibility. We use a generalized difference-in-differences analysis, exploiting in our design that the new regime affects firms at different points in time, depending on their fiscal year ends, auditors, and the rollout of auditor inspections. We find that investors respond more strongly to earnings news following public audit oversight. Corroborating these findings, we also find an increase in volume responses to firms’ 10-K filings once the new regime is in place. Overall, our results show that public audit oversight can enhance the credibility of audited financial reports, which in turn is priced ...

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: Public Audit Oversight and Reporting Credibility: Evidence from the PCAOB Inspection Regime
Date Posted:Mon, 24 Dec 2018 04:48:20 -0600
This paper studies the effects of reporting credibility in capital markets and whether public regulatory oversight of the audit profession enhances reporting credibility. We analyze whether market responses to earnings news increase after the introduction of the Public Company Accounting Oversight Board (PCAOB), as predicted by information economics if such oversight enhances reporting credibility. We use a generalized difference-in-differences analysis, exploiting in our design that the new regime affects firms at different points in time, depending on their fiscal year ends, auditors, and the rollout of auditor inspections. We find that investors respond more strongly to earnings news following public audit oversight. Corroborating these findings, we also find an increase in volume responses to firms’ 10-K filings once the new regime is in place. Overall, our results show that public audit oversight can enhance the credibility of audited financial reports, which in turn is priced ...

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: Regulatory Cooperation and Foreign Portfolio Investment
Date Posted:Wed, 12 Sep 2018 08:07:25 -0500
We investigate the effect of cross-border regulatory cooperation on global mutual fund portfolio allocations, focusing on the Multilateral Memorandum of Understanding (MMoU), a non-binding information sharing arrangement between global securities regulators. Connections between the US Securities and Exchange Commission (SEC) and other foreign regulators increase the SEC’s ability to pursue US cross-listed firms. We find that foreign investment in US-cross- listed firms domiciled in the signatory country increases significantly relative to non-cross-listed firms from that country. We find the strongest effects of the MMoU for non-US investors trading on non-US exchanges, which suggests that there are significant spillover effects associated with regulatory cooperation. This increase in foreign investment is particularly pronounced for investors from geographically, linguistically, and culturally distant countries where information asymmetry is high, and also for dedicated investors ...

REVISION: Regulatory Cooperation and Foreign Portfolio Investment
Date Posted:Thu, 23 Aug 2018 07:50:39 -0500
We investigate the effect of cross-border regulatory cooperation on global mutual fund portfolio allocations, focusing on the Multilateral Memorandum of Understanding (MMoU), a non-binding information sharing arrangement between global securities regulators. Connections between the US Securities and Exchange Commission (SEC) and other foreign regulators increase the SEC’s ability to pursue US cross-listed firms. We find that foreign investment in US-cross- listed firms domiciled in the signatory country increases significantly relative to non-cross-listed firms from that country. We find the strongest effects of the MMoU for non-US investors trading on non-US exchanges, which suggests that there are significant spillover effects associated with regulatory cooperation. This increase in foreign investment is particularly pronounced for investors from geographically, linguistically, and culturally distant countries where information asymmetry is high, and also for dedicated investors ...

REVISION: Regulatory Cooperation and Foreign Portfolio Investment
Date Posted:Wed, 08 Aug 2018 10:11:41 -0500
We investigate the effect of cross-border regulatory cooperation on global mutual fund portfolio allocations, focusing on the Multilateral Memorandum of Understanding (MMoU), a non-binding information sharing arrangement between global securities regulators. Connections between the US Securities and Exchange Commission (SEC) and other foreign regulators increase the SEC’s ability to pursue US cross-listed firms. We find that foreign investment in US-cross- listed firms domiciled in the signatory country increases significantly relative to non-cross-listed firms from that country. We find the strongest effects of the MMoU for non-US investors trading on non-US exchanges, which suggests that there are significant spillover effects associated with regulatory cooperation. This increase in foreign investment is particularly pronounced for investors from geographically, linguistically, and culturally distant countries where information asymmetry is high, and also for dedicated investors ...

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: 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: Equity-Market Trading Restrictions and Credit Prices
Date Posted:Tue, 27 Feb 2018 10:50:44 -0600
We examine how equity-market trading restrictions affect credit prices. Using short-sale constraints (SSCs) as a proxy for trading restrictions, we examine two specific sources of variation — the randomized Regulation SHO experiment and time-series variation in short-selling bans during the 2008 financial crisis. In both analyses, we find that greater SSCs are associated with significantly higher credit-default-swap (CDS) spreads. Changes in the term structure of CDS spreads suggest that this increase is attributable to a decrease in the availability of default-risk-relevant information. Further, using a default-model-prediction framework, we document that it is more difficult to accurately assess default risk when short selling is constrained, which corroborates information risk as a channel through which SSCs lead to higher credit prices.

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: 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: Equity-Market Trading Restrictions and Credit Prices: Evidence from Short-Sale Constraints Around the World
Date Posted:Mon, 30 Oct 2017 03:23:17 -0500
We examine how equity-market trading restrictions affect credit prices. Using short-sale constraints (SSCs) as a proxy for trading restrictions, we examine three specific sources of variation — the randomized Regulation SHO experiment, time-series variation in short-selling bans during the 2008 financial crisis, and country-level variation in short borrowing. Across all three analyses, we find that greater SSCs are associated with significantly higher credit-default-swap spreads. Using a default-model-prediction framework, we document that it is more difficult to accurately assess default risk when short selling is constrained, which corroborates information risk as a channel through which SSCs lead to higher credit prices.

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.

REVISION: Public Audit Oversight and Reporting Credibility: Evidence from the PCAOB Inspection Regime
Date Posted:Thu, 03 Aug 2017 08:45:14 -0500
This paper examines how regulatory oversight of the audit profession affects investors’ assessments of reporting credibility and trust in financial reporting. We analyze whether market responses to earnings news increase after the introduction of the Public Company Accounting Oversight Board (PCAOB), as predicted by theory if such oversight enhances reporting credibility. We use a generalized difference-in-differences design and exploit the fact that the new regime affects firms at different points in time, depending on their fiscal year-ends, auditors, and the rollout of auditor inspections, to disentangle regime effects from other macro and regulatory changes. We find that investors respond more strongly to earnings news following PCAOB oversight. Corroborating these findings, we also find an increase in volume responses to firms’ 10-K filings after the new regime is in place. Overall, our results are consistent with regulatory oversight of the audit profession increasing investor ...

REVISION: Public Audit Oversight and Reporting Credibility: Evidence from the PCAOB Inspection Regime
Date Posted:Mon, 31 Jul 2017 12:54:23 -0500
This paper examines how regulatory oversight of the audit profession affects investors’ assessments of reporting credibility and trust in financial reporting. We analyze whether market responses to earnings news increase after the introduction of the Public Company Accounting Oversight Board (PCAOB), as predicted by theory if such oversight enhances reporting credibility. We use a generalized difference-in-differences design and exploit the fact that the new regime affects firms at different points in time, depending on their fiscal year-ends, auditors, and the rollout of auditor inspections, to disentangle regime effects from other macro and regulatory changes. We find that investors respond more strongly to earnings news following PCAOB oversight. Corroborating these findings, we also find an increase in volume responses to firms’ 10-K filings after the new regime is in place. Overall, our results are consistent with regulatory oversight of the audit profession increasing investor ...

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 Effect of Equity-Market Frictions on Default-Risk Assessment: Evidence from Short-Sale Constraints around the World
Date Posted:Fri, 31 Mar 2017 00:40:55 -0500
We examine how equity-market frictions that restrict pessimistic trading, such as short-sale constraints, affect assessments of default risk. We find that these frictions decrease the usefulness of equity-market variables for identifying defaulting firms but increase their usefulness for identifying non-defaulting firms. Accounting information significantly improves the accuracy of default-risk assessments in the presence of pessimistic-trading frictions, particularly where a country’s institutional infrastructure promotes transparent financial reporting. Yet, the net effect of pessimistic-trading frictions is a reduction in the accuracy of default-risk assessments based on publicly available sources of information. Using an exogenous shock, we document that short-sale constraints lead to higher credit spreads. Overall, our results demonstrate a negative externality of equity-market-based pessimistic-trading restrictions on debt markets arising from a reduction of ...

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: 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: Public Audit Oversight and Reporting Credibility: Evidence from the PCAOB Inspection Regime
Date Posted:Tue, 20 Dec 2016 10:45:33 -0600
This paper examines how audit oversight by a public-sector regulator affects investors’ assessments of reporting credibility. We analyze whether market responses to unexpected earnings releases increase following the introduction of the Public Company Accounting Oversight Board (PCAOB), as predicted by theory if the new regime enhances reporting credibility. To identify the effects, we use a difference-in-differences design that exploits the staggered introduction of the inspection regime, which affects firms at different points in time depending on their fiscal year-ends, auditors, and the timing of PCAOB inspections. We find that market responses to unexpected earnings increase significantly following the introduction of the PCAOB inspection regime. Corroborating these findings, we also find an increase in abnormal volume responses to firms’ 10-K filings after the new regime is in place. Overall, our results are consistent with public audit oversight increasing the credibility of ...

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: Pessimistic-Trading Restrictions and the Information Environment: Evidence from Short-Sale Constraints and Default Prediction around the World
Date Posted:Thu, 25 Aug 2016 10:14:56 -0500
We examine how pessimistic-trading restrictions, such as short-sale constraints, affect firms’ information environments. Although prior research finds that such restrictions reduce equity price informativeness, other non-equity-market-based sources of information, such as firm’s financial statements, could offset this loss of information. We assess the availability of firm-specific information based on the accuracy of a public-information-based default prediction model. We find that, while short-sale constraints both decrease the usefulness of equity-market variables for predicting firm default and increase the usefulness of equity-market variables for predicting non-defaults, the net effect of pessimistic-trading restrictions is a reduction in the informativeness of equity-market-based default predictors. Accounting and other non-equity-market-based sources of information significantly mitigate this informational cost. However, using an exogenous shock, we document that short-sale ...

REVISION: Transparency, Liquidity, and Valuation: International Evidence on When Transparency Matters Most
Date Posted:Thu, 25 Aug 2016 09:21:06 -0500
We examine the relation between firm-level transparency, stock market liquidity, and valuation across a variety of international settings. We document lower transaction costs and greater liquidity (as measured by lower bid-ask spreads and fewer zero-return days) for firms with greater transparency (as measured by less evidence of earnings management, better accounting standards, higher quality auditors, more analyst following and more accurate analyst forecasts). The relation between transparency and liquidity is more pronounced in periods of high volatility, when investor protection, disclosure requirements, and media penetration are poor, and when ownership is more concentrated, suggesting that firm-level transparency matters more when overall investor uncertainty is greater. Increased liquidity is associated with lower implied cost of capital and with higher valuation as measured by Tobin’s Q. Finally, a mediation analysis suggests that liquidity is a significant channel through ...

REVISION: Transparency, Liquidity, and Valuation: International Evidence on When Transparency Matters Most
Date Posted:Wed, 24 Aug 2016 20:59:38 -0500
We examine the relation between firm-level transparency, stock market liquidity, and valuation across a variety of international settings. We document lower transaction costs and greater liquidity (as measured by lower bid-ask spreads and fewer zero-return days) for firms with greater transparency (as measured by less evidence of earnings management, better accounting standards, higher quality auditors, more analyst following and more accurate analyst forecasts). The relation between transparency and liquidity is more pronounced in periods of high volatility, when investor protection, disclosure requirements, and media penetration are poor, and when ownership is more concentrated, suggesting that firm-level transparency matters more when overall investor uncertainty is greater. Increased liquidity is associated with lower implied cost of capital and with higher valuation as measured by Tobin’s Q. Finally, a mediation analysis suggests that liquidity is a significant channel through ...

REVISION: Post-Listing Performance and Private Sector Regulation: The Experience of the AIM
Date Posted:Thu, 18 Aug 2016 23:52:56 -0500
We investigate the post-listing experience of companies raising capital on the London Stock Exchange’s Alternative Investment Market (AIM). The AIM is unique in that it is privately regulated and relies on Nominated Advisors (Nomads) who compete to bring new listings and provide ongoing regulatory oversight. We find that AIM firms significantly underperform firms on regulated exchanges in terms of post-listing returns and failure rates. The underperformance is similar to that of firms listing on the OTC Bulletin Board prior to SEC regulation. Underperformance is associated with abnormally high pre-listing accruals and post-listing reversals, and is more pronounced for firms raising capital. The choice of a “high quality” auditor or Nomad partially mitigates underperformance, suggesting that AIM firms have a limited ability to bond through commitments to more stringent oversight. Negative returns are particularly pronounced for firms with high proportions of retail investors.

REVISION: Foreign Institutional Ownership and the Global Convergence of Financial Reporting Practices
Date Posted:Thu, 18 Aug 2016 23:52:21 -0500
This paper investigates whether foreign institutional investors affect the global convergence of financial reporting practices. Using several measures of reporting convergence, we show that U.S. institutional ownership is positively associated with subsequent changes in emerging market firms’ accounting comparability to their U.S. industry peers. We identify this association using an instrumental variable approach that exploits exogenous variation in U.S. institutional investment generated by the JGTRRA Act of 2003. Further, we provide evidence of a specific mechanism — the switch to a Big Four audit firm — through which U.S. institutional investors affect reporting convergence. Finally, we show that, for emerging market firms, an increase in comparability to U.S. firms is associated with an improvement in the properties of foreign analysts' forecasts.

REVISION: Financial Reporting Opacity and Informed Trading by International Institutional Investors
Date Posted:Thu, 18 Aug 2016 23:51:45 -0500
Using cross-country data on trading by international mutual funds, I find that firms with more opaque information environments, as captured by firm- and country-level measures of the availability of financial reporting information, experience more privately informed trading by institutional investors. The association between firm-level opacity and informed trading is most pronounced where country-level disclosure infrastructures are less developed and for those investors for whom the incentives and opportunities to acquire private information are greatest. A difference-in-differences analysis of the returns earned by institutions in opaque stocks suggests that this information advantage is economically significant.

REVISION: Transparency, Liquidity, and Valuation: International Evidence on When Transparency Matters Most
Date Posted:Thu, 18 Aug 2016 23:49:55 -0500
We examine the relation between firm-level transparency, stock market liquidity, and valuation across a variety of international settings. We document lower transaction costs and greater liquidity (as measured by lower bid-ask spreads and fewer zero-return days) for firms with greater transparency (as measured by less evidence of earnings management, better accounting standards, higher quality auditors, more analyst following and more accurate analyst forecasts). The relation between transparency and liquidity is more pronounced in periods of high volatility, when investor protection, disclosure requirements, and media penetration are poor, and when ownership is more concentrated, suggesting that firm-level transparency matters more when overall investor uncertainty is greater. Increased liquidity is associated with lower implied cost of capital and with higher valuation as measured by Tobin’s Q. Finally, a mediation analysis suggests that liquidity is a significant channel through ...

REVISION: Foreign Institutional Ownership and the Global Convergence of Financial Reporting Practices
Date Posted:Mon, 15 Aug 2016 12:16:36 -0500
This paper investigates whether foreign institutional investors affect the global convergence of financial reporting practices. Using several measures of reporting convergence, we show that U.S. institutional ownership is positively associated with subsequent changes in emerging market firms’ accounting comparability to their U.S. industry peers. We identify this association using an instrumental variable approach that exploits exogenous variation in U.S. institutional investment generated by the JGTRRA Act of 2003. Further, we provide evidence of a specific mechanism — the switch to a Big Four audit firm — through which U.S. institutional investors affect reporting convergence. Finally, we show that, for emerging market firms, an increase in comparability to U.S. firms is associated with an improvement in the properties of foreign analysts' forecasts.

REVISION: Earnings Comovement and Accounting Comparability: The Effects of Mandatory IFRS Adoption
Date Posted:Mon, 15 Aug 2016 12:14:44 -0500
We examine changes in cross-country financial statement comparability around mandatory IFRS adoption and the effects of these changes on firms’ information environments, as captured by analyst properties and bid-ask spreads. First, we show that cross-country earnings comovement is negatively associated with favorable properties of the firm-level information environment. In contrast, we show that cross-country accounting comparability is positively associated with favorable properties of the information environment. We further document that, whereas IFRS adoption increased cross-country earnings comovement, it did not increase accounting comparability relative to a control sample of non-adopting firms. Finally, we show directly that the increases in earnings comovement experienced by IFRS adopters have negative effects on firms’ information environments. This finding provides novel evidence that increases in earnings comovement associated with IFRS adoption diminished financial ...

REVISION: Transparency, Liquidity, and Valuation: International Evidence on When Transparency Matters Most
Date Posted:Mon, 15 Aug 2016 12:14:13 -0500
We examine the relation between firm-level transparency, stock market liquidity, and valuation across a variety of international settings. We document lower transaction costs and greater liquidity (as measured by lower bid-ask spreads and fewer zero-return days) for firms with greater transparency (as measured by less evidence of earnings management, better accounting standards, higher quality auditors, more analyst following and more accurate analyst forecasts). The relation between transparency and liquidity is more pronounced in periods of high volatility, when investor protection, disclosure requirements, and media penetration are poor, and when ownership is more concentrated, suggesting that firm-level transparency matters more when overall investor uncertainty is greater. Increased liquidity is associated with lower implied cost of capital and with higher valuation as measured by Tobin’s Q. Finally, a mediation analysis suggests that liquidity is a significant channel through ...

REVISION: Transparency, Liquidity, and Valuation: International Evidence on When Transparency Matters Most
Date Posted:Fri, 12 Aug 2016 11:11:27 -0500
We examine the relation between firm-level transparency, stock market liquidity, and valuation across a variety of international settings. We document lower transaction costs and greater liquidity (as measured by lower bid-ask spreads and fewer zero-return days) for firms with greater transparency (as measured by less evidence of earnings management, better accounting standards, higher quality auditors, more analyst following and more accurate analyst forecasts). The relation between transparency and liquidity is more pronounced in periods of high volatility, when investor protection, disclosure requirements, and media penetration are poor, and when ownership is more concentrated, suggesting that firm-level transparency matters more when overall investor uncertainty is greater. Increased liquidity is associated with lower implied cost of capital and with higher valuation as measured by Tobin’s Q. Finally, a mediation analysis suggests that liquidity is a significant channel through ...

REVISION: Transparency and Liquidity Uncertainty in Crisis Periods
Date Posted:Fri, 12 Aug 2016 11:09:16 -0500
We document, for a global sample, that firms with greater transparency (based on accounting standards, auditor choice, earnings management, analyst following and forecast accuracy) experience less liquidity volatility, fewer extreme illiquidity events and lower correlations between firm-level liquidity and both market liquidity and market returns. Results are robust to numerous sensitivity analyses, including controls for endogeneity and propensity matching. Results are particularly pronounced during crises, when liquidity variances, covariances and extreme illiquidity events increase substantially, but less so for transparent firms. Finally, liquidity variance, covariance and the frequency of extreme illiquidity events are all negatively correlated with Tobin’s Q.

REVISION: Post-Listing Performance and Private Sector Regulation: The Experience of the AIM
Date Posted:Tue, 26 Jul 2016 10:05:42 -0500
We investigate the post-listing experience of companies raising capital on the London Stock Exchange’s Alternative Investment Market (AIM). The AIM is unique in that it is privately regulated and relies on Nominated Advisors (Nomads) who compete to bring new listings and provide ongoing regulatory oversight. We find that AIM firms significantly underperform firms on regulated exchanges in terms of post-listing returns and failure rates. The underperformance is similar to that of firms listing on the OTC Bulletin Board prior to SEC regulation. Underperformance is associated with abnormally high pre-listing accruals and post-listing reversals, and is more pronounced for firms raising capital. The choice of a “high quality” auditor or Nomad partially mitigates underperformance, suggesting that AIM firms have a limited ability to bond through commitments to more stringent oversight. Negative returns are particularly pronounced for firms with high proportions of retail investors.

REVISION: Economic Effects of Transparency in International Equity Markets: A Review and Suggestions for Future Research
Date Posted:Tue, 26 Jul 2016 08:01:54 -0500
In this paper we discuss the existing accounting literature on the real effects of financial reporting transparency in international equity markets, present aspects of an international setting that make it a fruitful environment for investigating these effects and suggest directions for future research.

REVISION: Financial Reporting Opacity and Informed Trading by International Institutional Investors
Date Posted:Tue, 26 Jul 2016 08:00:37 -0500
Using cross-country data on trading by international mutual funds, I find that firms with more opaque information environments, as captured by firm- and country-level measures of the availability of financial reporting information, experience more privately informed trading by institutional investors. The association between firm-level opacity and informed trading is most pronounced where country-level disclosure infrastructures are less developed and for those investors for whom the incentives and opportunities to acquire private information are greatest. A difference-in-differences analysis of the returns earned by institutions in opaque stocks suggests that this information advantage is economically significant.

REVISION: Earnings Comovement and Accounting Comparability: The Effects of Mandatory IFRS Adoption
Date Posted:Sat, 23 Jul 2016 05:12:44 -0500
We examine changes in cross-country financial statement comparability around mandatory IFRS adoption and the effects of these changes on firms’ information environments, as captured by analyst properties and bid-ask spreads. First, we show that cross-country earnings comovement is negatively associated with favorable properties of the firm-level information environment. In contrast, we show that cross-country accounting comparability is positively associated with favorable properties of the information environment. We further document that, whereas IFRS adoption increased cross-country earnings comovement, it did not increase accounting comparability relative to a control sample of non-adopting firms. Finally, we show directly that the increases in earnings comovement experienced by IFRS adopters have negative effects on firms’ information environments. This finding provides novel evidence that increases in earnings comovement associated with IFRS adoption diminished financial ...

Update: Transparency and Liquidity Uncertainty in Crisis Periods
Date Posted:Thu, 21 Jul 2016 15:18:34 -0500
We document, for a global sample, that firms with greater transparency (based on accounting standards, auditor choice, earnings management, analyst following and forecast accuracy) experience less liquidity volatility, fewer extreme illiquidity events and lower correlations between firm-level liquidity and both market liquidity and market returns. Results are robust to numerous sensitivity analyses, including controls for endogeneity and propensity matching. Results are particularly pronounced during crises, when liquidity variances, covariances and extreme illiquidity events increase substantially, but less so for transparent firms. Finally, liquidity variance, covariance and the frequency of extreme illiquidity events are all negatively correlated with Tobin’s Q.
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Update: Transparency, Liquidity, and Valuation: International Evidence on When Transparency Matters Most
Date Posted:Thu, 21 Jul 2016 15:16:26 -0500
We examine the relation between firm-level transparency, stock market liquidity, and valuation across a variety of international settings. We document lower transaction costs and greater liquidity (as measured by lower bid-ask spreads and fewer zero-return days) for firms with greater transparency (as measured by less evidence of earnings management, better accounting standards, higher quality auditors, more analyst following and more accurate analyst forecasts). The relation between transparency and liquidity is more pronounced in periods of high volatility, when investor protection, disclosure requirements, and media penetration are poor, and when ownership is more concentrated, suggesting that firm-level transparency matters more when overall investor uncertainty is greater. Increased liquidity is associated with lower implied cost of capital and with higher valuation as measured by Tobin’s Q. Finally, a mediation analysis suggests that liquidity is a significant channel through ...
New PDF Uploaded

REVISION: Foreign Institutional Ownership and the Global Convergence of Financial Reporting Practices
Date Posted:Wed, 20 Jul 2016 11:39:03 -0500
This paper investigates whether foreign institutional investors affect the global convergence of financial reporting practices. Using several measures of reporting convergence, we show that U.S. institutional ownership is positively associated with subsequent changes in emerging market firms’ accounting comparability to their U.S. industry peers. We identify this association using an instrumental variable approach that exploits exogenous variation in U.S. institutional investment generated by the JGTRRA Act of 2003. Further, we provide evidence of a specific mechanism — the switch to a Big Four audit firm — through which U.S. institutional investors affect reporting convergence. Finally, we show that, for emerging market firms, an increase in comparability to U.S. firms is associated with an improvement in the properties of foreign analysts' forecasts.

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: 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: Foreign Institutional Ownership and the Global Convergence of Financial Reporting Practices
Date Posted:Thu, 03 Mar 2016 13:22:51 -0600
This paper investigates whether foreign institutional investors affect the global convergence of financial reporting practices. Using several measures of reporting convergence, we show that U.S. institutional ownership is positively associated with subsequent changes in emerging market firms’ accounting comparability to their U.S. industry peers. We identify this association using an instrumental variable approach that exploits exogenous variation in U.S. institutional investment generated by the JGTRRA Act of 2003. Further, we provide evidence of a specific mechanism — the switch to a Big Four audit firm — through which U.S. institutional investors affect reporting convergence. Finally, we show that, for emerging market firms, an increase in comparability to U.S. firms is associated with an improvement in the properties of foreign analysts' forecasts.

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: Pessimistic-Trading Frictions and the Information Environment: Evidence from Short-Sale Constraints and Default Prediction around the World
Date Posted:Wed, 17 Feb 2016 12:02:15 -0600
This paper examines how equity market frictions that restrict pessimistic trading affect a firm’s information environment. Specifically, we analyze how short-sale constraints affect the availability of negative firm-specific information. First, we document that the overall informativeness of equity-market-based predictors of a firm’s likelihood of default is lower where short selling is more constrained. This informational cost is driven primarily by a reduced ability to accurately identify defaulting firms in the presence of short-sale constraints. Our results also reveal a novel informational benefit of restrictions on pessimistic trading in that short-sale constraints actually improve the usefulness of equity prices in identifying non-defaulting firms. A firm’s accounting information significantly mitigates the informational cost of short-sale constraints, particularly where a country’s institutional infrastructure promotes transparent financial reporting. Second, using an ...

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: Short-Sale Constraints and the Informativeness of Stock Price for Default Prediction
Date Posted:Tue, 13 Oct 2015 07:42:06 -0500
This paper examines how short-sale constraints affect the usefulness of stock price in assessing a firm’s likelihood of default. We document that the overall informativeness of equity-market-based default predictors is lower where short selling is more constrained. This informational cost is driven primarily by a reduced ability to accurately identify defaulting firms in the presence of short-sale constraints. In contrast, our results suggest that short-sale constraints actually improve the usefulness of price in identifying non-defaulting firms, particularly during periods of high economic uncertainty. In addition, we find that accounting information mitigates both of these informational costs, particularly where reporting transparency is high. However, using an exogenous shock to short-sale constraints, we document that short-sale constraints are associated with higher credit prices, which suggests that the reduced informativeness of equity price is not fully offset by alternative ...

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: Public Audit Oversight and Reporting Credibility: Evidence from the PCAOB Inspection Regime
Date Posted:Wed, 23 Sep 2015 23:40:07 -0500
This paper examines how audit oversight by a public-sector regulator affects investors’ assessments of reporting credibility. We analyze whether the introduction of the Public Company Accounting Oversight Board (PCAOB) and its inspection regime have strengthened capital-market responses to unexpected earnings releases, as theory predicts when reporting credibility increases. To identify the effects, we use a difference-in-differences design that exploits the staggered introduction of the inspection regime, which affects firms at different points in time depending on their fiscal year-ends, auditors, and the timing of PCAOB inspections. We find that capital-market responses to unexpected earnings increase significantly following the introduction of the PCAOB inspection regime. Corroborating these findings, we also find an increase in abnormal volume responses to firms’ 10-K filings after the new regime. Overall, our results are consistent with public audit oversight increasing the ...

REVISION: Public Audit Oversight and Reporting Credibility: Evidence from the PCAOB Inspection Regime
Date Posted:Tue, 08 Sep 2015 02:12:39 -0500
This paper examines how audit oversight by a public-sector regulator affects investors’ assessments of reporting credibility. We analyze whether the introduction of the Public Company Accounting Oversight Board (PCAOB) and its inspection regime have strengthened capital-market responses to unexpected earnings releases, as theory predicts when reporting credibility increases. To identify the effects, we use a difference-in-differences design that exploits the staggered introduction of the inspection regime, which affects firms at different points in time depending on their fiscal year-ends, auditors, and the timing of PCAOB inspections. We find that capital-market responses to unexpected earnings increase significantly following the introduction of the PCAOB inspection regime. Corroborating these findings, we also find an increase in abnormal volume responses to firms’ 10-K filings after the new regime. Overall, our results are consistent with public audit oversight increasing the ...

REVISION: Public Audit Oversight and Reporting Credibility: Evidence from the PCAOB Inspection Regime
Date Posted:Sun, 09 Aug 2015 09:57:38 -0500
This paper examines how audit oversight by a public-sector regulator affects investors’ assessments of reporting credibility. We analyze whether the introduction of the Public Company Accounting Oversight Board (PCAOB) and its inspection regime have strengthened capital-market responses to unexpected earnings releases, as theory predicts when reporting credibility increases. To identify the effects, we use a difference-in-differences design that exploits the staggered introduction of the inspection regime, which affects firms at different points in time depending on their fiscal year-ends, auditors, and the timing of PCAOB inspections. We find that capital-market responses to unexpected earnings increase significantly following the introduction of the PCAOB inspection regime. Corroborating these findings, we also find an increase in abnormal volume responses to firms’ 10-K filings after the new regime. Overall, our results are consistent with public audit oversight increasing the ...

REVISION: Short-Sale Constraints and the Information Environment: Evidence from Default Prediction around the World
Date Posted:Thu, 30 Jul 2015 06:31:04 -0500
This paper examines how short-sale constraints affect a firm’s information environment. We assess the availability of firm-specific information based on the accuracy of an empirical estimate of a firm’s likelihood of default. Using a reduced-form default prediction model that includes only equity-market-based predictors, we find evidence of both an informational cost and benefit of short-sale constraints. Where short selling is more constrained, predictive accuracy is lower for defaulting firms but is higher for non-defaulting firms. The consideration of accounting information significantly mitigates the informational cost of short-sale constraints in identifying defaulting firms as well as the informational cost of actively-practiced short selling in identifying non-defaulting firms. Examination of a shock to short-sale constraints indicates that constraining short selling leads to higher credit spreads, suggesting that the net effect of short-sale constraints is a reduction in the ...

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: Short-Sale Constraints and Default Prediction around the World
Date Posted:Sat, 07 Mar 2015 06:15:03 -0600
We find that default prediction is less accurate in countries where short selling is more constrained. However, the number of solvent firms incorrectly classified as likely to default is also lower in these countries when economic uncertainty is high. Non-equity-market-based default predictors partially mitigate the observed loss in predictive accuracy of market-based predictors where short selling is more constrained. Short-sale constraints are associated with higher credit spreads, suggesting that the net effect of short-sale constraints is a decrease in the availability of default-risk-relevant information and less efficient resource allocation through credit markets.

REVISION: Financial Reporting Opacity and Informed Trading by International Institutional Investors
Date Posted:Thu, 19 Feb 2015 03:44:14 -0600
Using cross-country data on trading by international mutual funds, I find that firms with more opaque information environments, as captured by firm- and country-level measures of the availability of financial reporting information, experience more privately informed trading by institutional investors. The association between firm-level opacity and informed trading is most pronounced where country-level disclosure infrastructures are less developed and for those investors for whom the incentives and opportunities to acquire private information are greatest. A difference-in-differences analysis of the returns earned by institutions in opaque stocks suggests that this information advantage is economically significant.

REVISION: Foreign Institutional Ownership and the Global Convergence of Financial Reporting Practices
Date Posted:Thu, 12 Feb 2015 04:16:35 -0600
This paper investigates whether foreign institutional investors affect the global convergence of financial reporting practices. Using several measures of reporting convergence, we show that U.S. institutional ownership is positively associated with subsequent changes in emerging market firms’ accounting comparability to their U.S. industry peers. We identify this association using an instrumental variable approach that exploits exogenous variation in U.S. institutional investment generated by the JGTRRA Act of 2003. Further, we provide evidence of a specific mechanism — the switch to a Big Four audit firm — through which U.S. institutional investors affect reporting convergence. Finally, we show that, for emerging market firms, an increase in comparability to U.S. firms is associated with an improvement in the properties of foreign analysts' forecasts.

REVISION: Short-Sale Constraints and Default Prediction around the World
Date Posted:Tue, 30 Dec 2014 04:56:29 -0600
Default prediction is more accurate in countries where short selling is less constrained. However, when economic uncertainty is high, more non-defaulting firms are incorrectly classified as likely to default in these countries. Non-equity-market-based sources of default-risk information improve the accuracy of default prediction, particularly where short selling is more constrained. Short-sale constraints are associated with higher credit spreads, suggesting that the net effect of constraining short selling is a decrease in the availability of default-risk-relevant information and less efficient resource allocation through credit markets.

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: Foreign Institutional Ownership and the Global Convergence of Financial Reporting Practices
Date Posted:Tue, 09 Sep 2014 05:41:14 -0500
This paper investigates whether foreign institutional investors directly affect the global convergence of financial reporting practices. Using several measures of reporting convergence, we show that U.S. institutional ownership is positively associated with subsequent changes in emerging market firms’ accounting comparability with their U.S. industry peers. We identify this association using an instrumental variable approach that exploits exogenous variation in U.S. institutional investment generated by the JGTRRA act of 2003. Further, we provide evidence of one specific mechanism – the switch to a big four audit firm – through which U.S. institutional investors affect reporting convergence. Finally, we highlight an economic benefit of global reporting convergence by showing that an increase in emerging market firms’ comparability with their U.S. industry peers is associated with an improvement in the properties of foreign analysts’ forecasts.

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: The Effect of Short-Sale Constraints on Default Prediction around the World
Date Posted:Thu, 29 May 2014 10:21:29 -0500
We examine how short-sale constraints affect the accuracy of default prediction. Consistent with short selling improving the informational efficiency of stock prices, on average, we show that overall predictive accuracy is greater in countries where short selling is less constrained. However, in countries with fewer short-sale constraints, predictive accuracy with respect to non-default observations is lower, particularly during periods of high macroeconomic uncertainty, which suggests an informational cost of short selling. Consistent with prices being less efficient where short selling is constrained, the incorporation of financial statement data mitigates the loss in predictive accuracy, particularly where transparency is high.

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: Foreign Institutional Ownership and the Global Convergence of Financial Reporting Practices
Date Posted:Thu, 30 Jan 2014 04:39:36 -0600
We investigate whether institutional investors affect the convergence of financial reporting practices worldwide. Using the De Franco et al. (2011) accounting comparability measure, we document that an interquartile shift in U.S. mutual fund ownership is associated with a 15.4% increase in emerging market firms’ comparability with their U.S. industry peers. We identify the effect of U.S. ownership on comparability using an instrumental variable approach, which exploits variation in U.S. mutual fund ownership generated by the 2003 JGTRRA act, and by demonstrating that the effect varies predictably with U.S. institutions’ monitoring incentives. Consistent with U.S. ownership increasing comparability, we show that, relative to domestic analysts, foreign analysts’ forecast errors and dispersion decrease following increases in U.S. ownership. Finally, we provide evidence that the appointment of U.S. independent directors to the board and audit committee and the hiring of an international ...

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: Default Prediction Around the World: The Effect of Constraints on Pessimistic Trading
Date Posted:Tue, 23 Jul 2013 13:07:10 -0500
Research examining cross-country differences in the ability of market participants to accurately assess a firm’s likelihood of default using publicly available sources of information is virtually non-existent. This paper examines one potential source of such variation, constraints on pessimistic trading (i.e., trades made in anticipation of future price declines). On average, predictive accuracy is significantly greater in countries where pessimistic trading is less constrained. This ...

REVISION: Foreign Institutional Ownership and the Global Convergence of Financial Reporting Practices
Date Posted:Fri, 03 May 2013 12:16:58 -0500
This paper investigates whether institutional investors have significant influence on the convergence of financial reporting practices worldwide. Using the accounting comparability measure developed in De Franco et al. (2011) as a proxy for reporting convergence, we show that an interquartile shift in U.S. mutual fund ownership is associated with a 15.4% increase in emerging market firms’ comparability with their U.S. industry peers. To more directly identify this association, we adopt a ...

REVISION: Post-Listing Performance and Private Sector Regulation: The Experience of the AIM
Date Posted:Sun, 24 Feb 2013 05:51:45 -0600
We investigate the post-listing experience of companies raising capital on the London Stock Exchange’s Alternative Investment Market (AIM). The AIM is unique in that it is privately regulated and relies on Nominated Advisors (Nomads) who compete to bring new listings and provide ongoing regulatory oversight. We find that AIM firms significantly underperform firms on regulated exchanges in terms of post-listing returns and failure rates. The underperformance is similar to that of firms ...

REVISION: The Effect of Foreign Institutional Investment on Financial Reporting Comparability
Date Posted:Wed, 07 Nov 2012 14:21:42 -0600
This paper investigates whether institutional investors have a significant influence on the comparability of their investee firms’ financial reporting. Using the comparability measure developed in De Franco et al. (2011), we show that emerging market firms with a higher level of U.S. mutual fund ownership experience an increase in their financial statement comparability with their U.S. industry peers. To address the possibility of reverse causality and omitted variables, we adopt a ...

REVISION: Post-Listing Performance and Private Sector Regulation: The Experience of the AIM
Date Posted:Wed, 10 Oct 2012 04:12:58 -0500
We investigate the post-listing experience of companies raising capital on the London Stock Exchange’s Alternative Investment Market (AIM). The AIM is unique in that it is privately regulated and relies on Nominated Advisors (Nomads) who compete to bring new listings and provide ongoing regulatory oversight. We find that AIM firms significantly underperform firms on regulated exchanges in terms of post-listing returns and failure rates. The underperformance is similar to that of firms ...

REVISION: Post-Listing Performance and Private Sector Regulation: The Experience of the AIM
Date Posted:Tue, 25 Sep 2012 06:08:20 -0500
We investigate the post-listing experience of companies raising capital on London’s Alternative Investment Market (AIM). The AIM is unique in that it is privately regulated and relies on Nominated Advisors (Nomads) who compete to bring new listings and provide ongoing regulatory oversight. We find that AIM firms significantly underperform firms on regulated exchanges in terms of post-listing returns and failure rates. The underperformance is similar to that of firms listing on the OTC ...

REVISION: Financial Reporting Opacity and Informed Trading by International Institutional Investors
Date Posted:Tue, 25 Sep 2012 06:06:21 -0500
Using cross-country data on trading by international mutual funds, I find that firms with more opaque information environments, as captured by firm- and country-level measures of the availability of financial reporting information, experience more privately informed trading by institutional investors. The association between firm-level opacity and informed trading is most pronounced where country-level disclosure infrastructures are less developed and for those investors for whom the ...

REVISION: Who Benefits from Corporate Opacity? International Evidence from Informed Trading by Institutional I
Date Posted:Sat, 28 Jan 2012 04:05:37 -0600
Utilizing cross-country data on trading by international mutual funds, I find firms with more opaque information environments, as captured by firm and country-level measures of the quality of firm’s financial reporting disclosures, experience more privately informed trading by institutional investors. The association between firm-level opacity and informed trading is most pronounced when country-level disclosure regulation is weak and when institutions have the greatest opportunities and ...

REVISION: Transparency and Liquidity Uncertainty in Crisis Periods
Date Posted:Wed, 28 Dec 2011 02:37:15 -0600
We document, for a global sample, that firms with greater transparency (based on accounting standards, auditor choice, earnings management, analyst following and forecast accuracy) experience less liquidity volatility, fewer extreme illiquidity events and lower correlations between firm-level liquidity and both market liquidity and market returns. Results are robust to numerous sensitivity analyses, including controls for endogeneity and propensity matching. Results are particularly pronounced ...

REVISION: Transparency, Liquidity, and Valuation: International Evidence on When Transparency Matters Most
Date Posted:Wed, 28 Dec 2011 02:19:10 -0600
We examine the relation between firm-level transparency, stock market liquidity, and valuation across a variety of international settings. We document lower transaction costs and greater liquidity (as measured by lower bid-ask spreads and fewer zero-return days) for firms with greater transparency (as measured by less evidence of earnings management, better accounting standards, higher quality auditors, more analyst following and more accurate analyst forecasts). The relation between ...

REVISION: Transparency and Liquidity Uncertainty in Crisis Periods
Date Posted:Wed, 02 Nov 2011 16:23:37 -0500
We document, for a global sample, that firms with greater transparency (based on accounting standards, auditor choice, earnings management, analyst following and forecast accuracy) experience less liquidity volatility, fewer extreme illiquidity events and lower correlations between firm-level liquidity and both market liquidity and market returns. Results are robust to numerous sensitivity analyses, including controls for endogeneity and propensity matching. Results are particularly pronounced ...

REVISION: Transparency, Liquidity, and Valuation: International Evidence
Date Posted:Wed, 02 Nov 2011 16:07:43 -0500
We examine the relation between firm-level transparency, stock market liquidity, and valuation across a variety of international settings. We document lower transaction costs and greater liquidity (as measured by lower bid-ask spreads and fewer zero-return days) for firms with greater transparency (as measured by less evidence of earnings management, better accounting standards, higher quality auditors, more analyst following and more accurate analyst forecasts). The relation between ...

REVISION: Who Benefits from Corporate Opacity? International Evidence from Informed Trading by Institutional I
Date Posted:Wed, 27 Jul 2011 09:28:27 -0500
Utilizing cross-country data on trading by international mutual funds, I find firms with more opaque information environments, as captured by firm and country-level measures of the quality of firm’s financial reporting disclosures, experience more privately informed trading by institutional investors. The association between firm-level opacity and informed trading is most pronounced when country-level disclosure regulation is weak and when institutions have the greatest opportunities and ...

REVISION: Economic Effects of Transparency in International Equity Markets: A Review and Suggestions for Futur
Date Posted:Sat, 02 Jul 2011 03:15:45 -0500
In this paper we discuss the existing accounting literature on the real effects of financial reporting transparency in international equity markets, present aspects of an international setting that make it a fruitful environment for investigating these effects and suggest directions for future research.

REVISION: Economic Effects of Transparency in International Equity Markets: A Review and Suggestions for Futur
Date Posted:Fri, 01 Apr 2011 21:16:58 -0500
In this paper we discuss the existing accounting literature on the real effects of financial reporting transparency in international equity markets, present aspects of an international setting that make it a fruitful environment for investigating these effects and suggest directions for future research.

Update: Earnings Comovement and Accounting Comparability: The Effects of Mandatory IFRS Adoption
Date Posted:Mon, 21 Mar 2011 09:24:02 -0500
We examine changes in cross-country financial statement comparability around mandatory IFRS adoption and the effects of these changes on firms’ information environments, as captured by analyst properties and bid-ask spreads. First, we show that cross-country earnings comovement is negatively associated with favorable properties of the firm-level information environment. In contrast, we show that cross-country accounting comparability is positively associated with favorable properties of the info
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REVISION: Listing Choices and Self-Regulation: The Experience of the AIM
Date Posted:Tue, 15 Mar 2011 10:29:31 -0500
We compare companies listing on the London AIM to regulated exchanges in the US and UK. The AIM is unique in that it is privately-regulated and relies on Nominated Advisors to provide oversight rather than traditional regulators. We find that AIM firms perform poorly on a variety of dimensions. Their post-listing returns significantly underperform stocks on other exchanges. Liquidity is low and there is evidence of substantial information asymmetry. Results are similar across subsets of firms ...

REVISION: Who Benefits from Corporate Opacity? International Evidence from Informed Trading by Institutional I
Date Posted:Tue, 15 Mar 2011 10:20:23 -0500
Utilizing cross-country data on trading by international mutual funds, I find firms with more opaque information environments, as captured by firm and country-level measures of the quality of firm’s financial reporting disclosures, experience more privately informed trading by institutional investors. The association between firm-level opacity and informed trading is most pronounced when country-level disclosure regulation is weak and when institutions have the greatest opportunities and ...

REVISION: Who Benefits from Corporate Opacity? International Evidence from Informed Trading by Institutional I
Date Posted:Sun, 13 Mar 2011 17:47:27 -0500
Utilizing cross-country data on trading by international mutual funds, I find firms with more opaque information environments, as captured by firm and country-level measures of the quality of firm’s financial reporting disclosures, experience more privately informed trading by institutional investors. The association between firm-level opacity and informed trading is most pronounced when country-level disclosure regulation is weak and when institutions have the greatest opportunities and ...

REVISION: Transparency, Liquidity, and Valuation: International Evidence
Date Posted:Sat, 26 Feb 2011 21:44:50 -0600
We examine the relation between firm-level transparency, stock market liquidity, and valuation across a variety of international settings. We document lower transaction costs and greater liquidity (as measured by lower bid-ask spreads and fewer zero-return days) for firms with greater transparency (as measured by less evidence of earnings management, better accounting standards, higher quality auditors, more analyst following and more accurate analyst forecasts). The relation between ...

REVISION: Transparency and Liquidity Uncertainty in Crisis Periods
Date Posted:Sun, 30 Jan 2011 14:23:15 -0600
We document, for a global sample, that firms with greater transparency (based on accounting standards, auditor choice, earnings management, analyst following and forecast accuracy) experience less liquidity volatility, fewer extreme illiquidity events and lower correlations between firm-level liquidity and both market liquidity and market returns. Results are robust to numerous sensitivity analyses, including controls for endogeneity and propensity matching. Results are particularly pronounced ...

REVISION: Transparency and Liquidity Uncertainty in Crisis Periods
Date Posted:Sun, 16 Jan 2011 21:44:08 -0600
We document that firms with greater transparency (based on accounting standards, auditor choice, earnings management, analyst following and analyst forecast accuracy) experience less liquidity volatility, fewer extreme illiquidity events and lower correlations between firm-level liquidity and both market liquidity and market returns. Results are robust to a wide range of sensitivity analyses, including controls for endogeneity and propensity matching. Results are particularly pronounced ...

REVISION: Listing Choices and Self-Regulation: The Experience of the AIM
Date Posted:Sun, 16 Jan 2011 21:42:19 -0600
We compare companies listing on the London AIM to regulated exchanges in the US and UK. The AIM is unique in that it is privately-regulated and relies on Nominated Advisors to provide oversight rather than traditional regulators. We find that AIM firms perform poorly on a variety of dimensions. Their post-listing returns significantly underperform stocks on other exchanges. Liquidity is low and there is evidence of substantial information asymmetry. Results are similar across subsets of firms ...

REVISION: Listing Choices and Self-Regulation: The Experience of the AIM
Date Posted:Thu, 13 Jan 2011 15:27:22 -0600
We compare companies listing on the London AIM to regulated exchanges in the US and UK. The AIM is unique in that it is privately-regulated and relies on Nominated Advisors to provide oversight rather than traditional regulators. We find that AIM firms perform poorly on a variety of dimensions. Their post-listing returns significantly underperform stocks on other exchanges. Liquidity is low and there is evidence of substantial information asymmetry. Results are similar across subsets of firms ...

REVISION: Economic Effects of Transparency in International Equity Markets: A Review and Suggestions for Futur
Date Posted:Thu, 30 Sep 2010 10:20:08 -0500
In this paper we discuss the existing accounting literature on the real effects of financial reporting transparency in international equity markets, present aspects of an international setting that make it a fruitful environment for investigating these effects and suggest directions for future research.

REVISION: Earnings Comovement and Accounting Comparability: The Effects of Mandatory IFRS Adoption
Date Posted:Wed, 15 Sep 2010 09:09:04 -0500
We examine changes in cross-country financial statement comparability around mandatory IFRS adoption and the effects of these changes on firms’ information environments, as captured by analyst properties and bid-ask spreads. First, we show that cross-country earnings comovement is negatively associated with favorable properties of the firm-level information environment. In contrast, we show that cross-country accounting comparability is positively associated with favorable properties of the ...

REVISION: Transparency and Liquidity Uncertainty in Crisis Periods
Date Posted:Sat, 04 Sep 2010 20:54:29 -0500
We document that firms with greater transparency (based on accounting standards, auditor choice, earnings management, analyst following and analyst forecast accuracy) experience less liquidity volatility, fewer extreme illiquidity events and lower correlations between firm-level liquidity and both market liquidity and market returns. Results are robust to a wide range of sensitivity analyses, including controls for endogeneity and propensity matching. Results are particularly pronounced ...

REVISION: Transparency, Liquidity, and Valuation: International Evidence
Date Posted:Sat, 21 Aug 2010 01:17:06 -0500
We examine the relation between firm-level transparency, stock market liquidity, and valuation across a variety of international settings. We document lower transaction costs and greater liquidity (as measured by lower bid-ask spreads and fewer zero-return days) for firms with greater transparency (as measured by less evidence of earnings management, better accounting standards, higher quality auditors, more analyst following and more accurate analyst forecasts). The relation between ...

REVISION: Transparency and Liquidity Uncertainty in Crisis Periods
Date Posted:Wed, 24 Mar 2010 10:53:43 -0500
We examine the effects of firm-level transparency on the variability and covariability of liquidity across a wide range of countries, with a particular focus on crisis periods. We find that firms with greater transparency, as measured by quality of accounting standards, quality of auditor, level of earnings management, analyst following and analyst forecast accuracy, are characterized by less volatility in liquidity, as well as lower correlations between firm level liquidity and market ...

REVISION: Transparency and Liquidity Uncertainty in Crisis Periods
Date Posted:Sun, 07 Mar 2010 02:09:47 -0600
We find, for a global sample, that more transparent firms (as measured by characteristics of their accounting and analyst following), exhibit less volatility in liquidity, fewer instances of extreme illiquidity events, and lower correlations between firm-level liquidity and both market liquidity and market returns, consistent with Brunnermeier and Pedersen (2009). Results are particularly pronounced during crisis periods, when liquidity variances, extreme illiquidity events, liquidity ...

REVISION: Transparency, Liquidity, and Valuation: International Evidence
Date Posted:Sat, 17 Oct 2009 21:24:49 -0500
We examine the relation between firm-level transparency, stock market liquidity, and valuation across a variety of international settings. We document lower transaction costs and greater liquidity (as measured by lower bid-ask spreads and fewer zero return days) for firms with greater transparency (as measured by less evidence of earnings management, better accounting standards, higher quality auditors, more analyst following and more accurate analyst forecasts). The relation between ...

REVISION: Transparency, Liquidity, and Valuation: International Evidence
Date Posted:Thu, 08 Jan 2009 16:24:53 -0600
We examine the relation between transparency, stock market liquidity, and valuation for a global sample of firms. Following the prior literature, we argue that transaction costs will be higher and investors will be less willing to transact if they perceive significant issues with respect to transparency, particularly in international settings where potential information effects are more pronounced. Consistent with expectations, we document lower transaction costs and greater liquidity (as ...