Working Papers
Green Image Management in Supply Chains: Strategic Disclosure of Corporate Suppliers
with Yilin Shi, Jing Wu, and Yu Zhang. R&R at Journal of Accounting and Economics
Abstract: This paper examines how firms manage their disclosure of customer-supplier relationships to create a favorable green image in their supply chain. Our study finds strong evidence that firms strategically disclose relationships with environmentally responsible ("good") suppliers while withholding relationships with "bad" suppliers, ceteris paribus. This strategic disclosure is particularly pronounced for firms with a worse ESG rating, a greater concern for their brand image, and a higher level of institutional ownership. Additionally, it tends to increase as public awareness of climate change grows and decreases as regulations on environmental information transparency strengthen. Furthermore, we find that firms engaging in strategic disclosure of "green" suppliers experience higher future stock returns and asset turnover, indicating that investors and consumers may not fully understand the implications of such disclosure.
Understanding Reputation Damage to Firm Culture: Insights from Employee Perceptions Post Financial Misconduct
with Siew Hong Teoh and Christos Makridis
Media Coverage: NYU School of Law, PCCE; Duke The FinReg Blog; Columbia Law School's Blue Sky Blog
Conferences: The First CUHK-RCFS Conference on Corporate Finance and Financial Intermediation, 2019;
30th Annual Conference on Financial Economics & Accounting, 2019
Financial Accounting and Reporting Section Midyear Meeting, 2020
Abstract: We investigate changes in employee perceptions of their firm and managers following the revelation of financial misconduct using employee ratings and comments on Glassdoor.com. We find that employee overall ratings of their company decline by 0.23 standard deviation, and ratings of culture, senior leadership, career opportunity, work-life balance, and employee recommendations also decline, ranging from 0.09 to 0.28 standard deviation. Ratings decline are more pronounced for employees with longer tenure, middle-aged, and full-time status, and for announcements receiving high media attention. Using a machine learning method to analyze employee comments, we find that employees provide fewer positive comments and more negative ones on the topic of firm culture. Employees also mention their intention to leave more frequently in their negative comments and general feedback comments. Collectively, the evidence suggests more negative employee perceptions about their firm following financial misconduct announcements, consistent with reputation damage to the firm culture. These negative sentiments suggest higher labor retention costs and lower productivity after a financial misconduct incident.
Financial Reporting Quality and International Trade
UCLA Dissertation Year Fellowship
Conferences: DSFI, Western Region AAA Meeting, 2020 (Best Student Paper Award); The Trans-Atlantic Doctoral Conference, 2021
Workshop: The University of Utah; Dartmouth College; UPenn Wharton; London Business School; University of Minnesota; The Chinese University of Hong Kong; The University of Hong Kong; The Chinese University of Hong Kong (Shen Zhen)
Abstract: This paper examines the effects of financial reporting quality on exports and imports. I begin by using survey data from executives to measure accounting quality and conduct country-sector-level analyses. I find that a one standard deviation increase in financial reporting quality in a country is associated with increases in manufacturing exports and imports of 3.6 percent and 4.5 percent, respectively. I then exploit a reporting regulation change in China and use administrative firm-level international trade data to conduct differences-in-differences and triple-difference analyses. These results show that treated firms export 15.3 percent more after the financial reporting reform. They also export to more countries and export more types of goods after the reform. Next, I provide evidence for potential mechanisms for these effects; specifically, improvements in financial reporting quality (i) facilitate communication among people of different cultures, (ii) decrease information asymmetry between trade partners, and (iii) help firms raise external capital. This paper extends understanding of the real economic effects of financial disclosure and provides a potential link between information transparency and global economic growth.
The Effects of Exchange Rate Movements on Publicly Traded US Corporations
with Ivo Welch
Abstract: Previous literature struggled to find strong effects of exchange-rate exposure on US stock returns. Our paper brings firm-specific export data to reinvestigate this exchange-rate puzzle and finds surprisingly large exchange-rate effects on exports, sales, profits, and stock returns. These were not offset by (financial or operational) hedging, and they seem to have not only been due to export changes but also due to changes in the domestic competitive environment. The effects increased over time and were stronger for larger and more export-oriented firms.
Corporate Income Tax Rates and Household Consumption
with Eric Allen and Henry Friedman
Abstract: We use staggered changes in U.S. state-level corporate income tax (CIT) rates to examine the effects of CIT on household consumption. Using household-level consumption data from Nielsen, we find that a one percentage point increase in CIT decreases household consumption by 0.8-0.9 percent. The effects of CIT are mainly driven by tax increases rather than rate reductions. When examining the types of consumption affected, we find that households adjust their consumption of short-term staples after the CIT increases. In addition, we show that dual-income households, white-collar workers, and ethnic minority families are more strongly affected by CIT rate changes than other households. Since household consumption is crucial for U.S. economic output and growth, our paper extends the understanding of the economic consequences and incidence of corporate taxes. Our results on heterogeneous effects of CIT rate changes across consumption categories and household types has policy implications for regulators considering CIT changes.
Publications
The Dog that Didn't Bark: Limited Price Efficiency and Strategic Nondisclosure
with Frank Zhou. March, 2020, Journal of Accounting Research
Abstract: The theory posits that investors can rationally infer the implications of strategic nondisclosure for firm value, pressuring managers to voluntarily disclose information. This study documents that the lack of an earnings guidance predicts an abnormal return of -41 basis points around the subsequent quarterly earnings announcement, suggesting that investors do not fully incorporate the implications of nonguidance. Further analysis shows that limitations in price efficiency, driven by investors' limited attention and short-selling constraints, explain the mispricing of nonguidance. Consistent with this mispricing lowering the capital market pressure for disclosure, we find that limited attention and short-selling constraints are associated with a lower likelihood of issuing guidance.
The Black-White Gap in Non-Cognitive Skills among Elementary School Children
with Todd Elder. January, 2021, American Economic Journal: Applied Economics
Abstract: Using data from two Early Childhood Longitudinal Study cohorts, we find large black-white gaps in teacher-reported measures of non-cognitive skills. We show that these measures likely understate true racial disparities in non-cognitive skills because of systematic differences across schools in what teacher reports represent. Correcting for the resulting bias nearly doubles the size of the estimated gaps, to roughly the same magnitude as analogous gaps in achievement test scores. We then use the British Cohort Study of 1970 to provide suggestive evidence that non-cognitive skills account for large black-white disparities in adult outcomes, including arrest rates and educational attainment.
Work in Progress
Employment Diversity, Firm Productivity and Other Outcomes, with Henry Friedman
Research proposal and data access were approved by the U.S. Census Bureau and the IRS. Preliminary results have been obtained.
Accounting Fraud and Customer/Supplier Relationships, with Judson Caskey
Research proposal and data access were under review by the U.S. Census Bureau and the IRS.