We examine whether and how the time-oriented tendency embedded in languages influences income smoothing. Separating languages into weak- versus strong-future time reference (FTR) groups, we find that firms in weak-FTR countries tend to smooth earnings more. We also find that relationships with major stakeholders (i.e., debtholders, suppliers, and employees) amplify the effect of the FTR of languages on income smoothing. Additional analyses suggest that income smoothing driven by the FTR of languages enhances earnings informativeness. These findings provide new insights on the role that language plays in financial reporting decisions and on how relationships with major stakeholders influence the relation between an important feature of language and corporate income smoothing behavior.
This paper investigates the impact of accounting and auditing enforcement releases (AAERs) on the compensation policies of non-accused firms. The investigation focuses on releases in which the SEC mentions top executives’ pursuit of wealth through compensation schemes (i.e., compensation-mentioned-releases or CMRs). Using a sample of AAERs from 1992 to 2021, I find that peer firms learn from these CMRs and significantly reduce their CEO’s delta and vega following CMRs. Peer firms also decrease their performance share grants and extend the vesting periods for option grants, resulting in a decrease in the convex payoff structure of CEO pay. Furthermore, I find evidence that peer firms reduce their CEO’s risk-taking incentives to circumvent litigation and prevent misreporting and shareholder scrutiny. Overall, the findings indicate that information describing one firm’s misreporting could affect the compensation policies of other firms, suggesting that regulatory enforcement accompanied by public awareness can effectively shape corporate behaviors.
We propose an empirical measure of the types of financial misreporting based on misreporting incentives. We identify three distinct types: (1) misreporting driven by top executives’ wealth pursuits, (2) misreporting induced by capital market pressure, and (3) misreporting by subordinates due to inadequate management oversight. Our measure is developed by conducting a detailed analysis of the textual data from SEC Accounting and Auditing Enforcement Releases (AAERs). We also provide rigorous empirical validations. Additionally, we create a composite misreporting severity score that incorporates the three misreporting incentives. Using our measure of misreporting incentives, we help reconcile previous mixed findings on the link between equity incentives and financial misreporting. Furthermore, in predicting market reactions to misreporting, our misreporting severity score outperforms a measurement that does not integrate misreporting incentives. Our measures can be practical tools for investigating a wide range of research questions related to the causes and consequences of financial misreporting.
Using a regression discontinuity design in a sample of U.S. congressional special elections, we investigate how donor firms’ political wins impact the adaptive responses of their product-market peers in their political activities, with a particular focus on the appointment of politicians to their boardroom. By analyzing closely contested special elections, we find that when donor firms had donated to a candidate who narrowly won a special election, their peer firms were 41% more likely to appoint politicians to their boards in the following year than peers of the donor firms that had supported a narrowly defeated candidate. This adaptive response is more pronounced among peer firms facing greater political risks and operating in industries with more intense competition for government sales. Donor firms’ political wins also lead peer firms to increase their product differentiation from those donor firms. We interpret these patterns as evidence of a competitive-dynamics mechanism, where peer firms perceive donor firms’ political wins as a threat that could disadvantage them in the regulatory environment, prompting them to strengthen their boards with political capital to navigate potential regulatory changes and mitigate perceived risks. Our findings enrich scholarly understandings of corporate political activities and director selections.
We propose that CEOs make political contributions with their own money to reduce the likelihood that they are personally subject to SEC enforcement. Unlike firm contributions, CEO contributions spike during misconduct periods. Moreover, the increased contributions are directed toward individual candidates, especially those who have SEC oversight through committee assignments. While CEO contributions are only associated with differential enforcement against the CEO, firm contributions are only associated with differential enforcement against the firm. Collectively, our results suggest that CEO contributions may be indicative of personal regulatory capture, a possibility not considered in prior studies. Our results have considerable regulatory implications for the monitoring and disclosure of executive engagement in the U.S. political system.
Best Paper Award at Music City Accounting Research Conference 2022 hosted by Vanderbilt Owen Graduate School of Management
Best Paper Award at The Mediterranean Accounting Conference (TMAC) 2025
Media Coverage: Columbia Law School: Blue Sky Blog on corporate governance
We investigate the influence of customer-base concentration on supplier firms’ financial reporting quality in an international setting. Using a large sample of 110,447 firm-year observations from 61 countries for the period of 2003-2018, we find that firms with a more concentrated customer base have higher-quality financial reporting. We further explore the country of origin of major customers and find that this positive relation is mostly driven by foreign major customers rather than domestic major customers. However, the impact of foreign major customers on financial reporting quality is reduced with a higher level of institutional distance between the customer and the supplier. In addition, we find that the documented positive relation is stronger when suppliers are in countries with a lower degree of trust, a lower level of legal enforcement, and lower monitoring quality from other stakeholders. Overall, our results support the notion that major customers perform an important disciplinary role on suppliers and promote the financial reporting quality of suppliers.