Accounting Standards, Emerging Technologies (Information technology, Blockchain, etc.), Financial Regulation and Enforcement, Law and Accounting
“Blockchain-Induced Supply Chain Transparency and Firm Performance: The Role of Capacity Utilization”, with Jedson Pinto (University of Texas, Dallas), Daniel Rabetti (National University of Singapore), and Gil Sadka (University of Texas, Dallas)
Abstract: This study empirically investigates how blockchain adoption affects firm profitability with a spe- cific focus on the role of capacity utilization. Employing a quasi-experimental design triggered by regulatory changes across the United States, we test the theory presented by Cui, Gaur, and Liu (2024), suggesting that blockchain adoption increases profitability when capacity is large and reduces profitability when capacity is low. Using industry-level data on capacity utilization, we find evidence supporting this theory. Further tests indicate that blockchain-enabled transparency affects firms’ prof- itability by reducing costs, with no significant effect on firms’ sales. Finally, we find that competition across manufacturers and buyers is an essential factor in understanding the impact of blockchain technologies on firms. Collectively, our study is one of remarkably few large sample empirical papers examining the implications of blockchain adoption for firm performance.
“Impact of ASC 606 on the Cost of Debt: Lessons for Principles-Based Accounting Standards”, with Kyungran Lee (Neoma Business School) and Gil Sadka (University of Texas, Dallas), Revise & Resubmit at Review of Accounting Studies
Abstract: This paper examines the consequences of adopting principles-based accounting standards on the cost of debt using a quasi-natural experiment surrounding the adoption of ASC 606. We find that affected firms compared to unaffected firms experience increases in uncertainty regarding future earnings captured by both higher analyst absolute forecast error and analyst forecast dispersion. Consequently, the cost of debt rises for the affected firms compared to the unaffected firms as covenants are used less in debt contracts due to decreased effectiveness of earnings-based covenants. The effect is concentrated in firms with high pre-ASC 606 revenue/operating income volatility and is mitigated by relationship lending. We also show that the increased cost of debt dissipates over time, consistent with learning and adapting to new standards by the debt market. Our analyses imply a costly transition from rules-based to principles-based accounting standards, but also suggest that the costs may not be permanent.
“The effect of ASC 606 on management forecasts: a lesson for principles-based accounting standard”, with Yue Chen (Chinese University of Hong Kong), Michael Kimbrough (University of Maryland), and Kyungran Lee (Neoma Business School), Revise & Resubmit at The Accounting Review
Abstract: ASC 606 is a principles-based accounting standard that significantly transformed revenue recognition and expanded mandatory disclosure of pertinent information related to contracts with customers. This study examines the effect of ASC 606 on management forecasts. Using a Difference-in-Differences (DID) design surrounding the adoption of ASC 606, we find a significant reduction in the frequency of management forecasts among firms materially affected by the standard. We document pronounced declines in forecasts of top-line items (e.g., revenues), range forecasts, and good news forecasts. Diagnostic tests indicate that the ASC 606-induced reduction in management forecasts is most likely a result of the standard’s expanded disclosure requirements (substitution effect), rather than the standard’s revenue recognition practices. Our study has implications for the effect of principles-based accounting standards - which typically expand mandatory disclosure - on voluntary disclosure.
“Unexpected Consequences of Insider Trading Deregulation on the Stock Market: Evidence from U.S. vs. Newman” (Job Market Paper)
Abstract: This paper examines the effect of insider trading deregulation on the stock market using a unique and plausibly exogenous U.S. court ruling that impairs the ability of the SEC/DOJ to prosecute insider trading defendants in court. The analysis shows that liquidity increases after the court ruling and the stock market reacts positively to the court ruling. However, liquidity deteriorates in pre-earnings announcement periods and ERC increases after the court ruling. In sum, this paper shows that the effect of insider trading deregulation on the stock market is nuanced and could be positive in some dimensions. While the paper does not argue that insider trading should be less regulated, it has implications for U.S. regulators who care about insider trading regulation to maintain a fair market as well as liquidity to maintain an efficient market.
“Information Technology Spendings and Accounting Performance Measures” (with Kalash Jain and Sunho Yoo)
Preliminary results available