Working Papers:

1. Are Lessons Well Learned? Evidence from SEC Enforcement Releases 

SEC Accounting and Auditing Enforcement Releases (AAERs) sometimes demonstrate wealth pursuing through compensation schemes as a motive for misreporting (henceforth, compensation-mentioned releases or CMRs). Do firms revise their CEO compensation after CMRs to prevent future misreporting? Conventional Bayesian learning suggests that firms update the misreporting probability as more information becomes available. However, the availability heuristic suggests that firms assess the misreporting probability subjectively based on how easily they recall these releases. I examine the equity-based compensation of non-accused firms and find firms that proactively benchmark their CEO compensation against fraudulent firms named in CMRs significantly reduce their CEOs’ risk-taking incentives, manifested in replacing option grants with restricted stock grants. Changes are greater when firms are closer (both in geography and social identity) to CMRs, which is consistent with the availability heuristic hypothesis. The findings suggest that narratives on misreporting motives in AAERs can affect corporate policies, which provide implications for resource-constrained regulators and corporate policy-makers. 


Conventional agency theory suggests that equity-based pay-for-performance sensitivity (i.e., delta) effectively mitigates agency conflict between incumbent shareholders and CEOs. However, rational choice theory in criminology suggests the opposite for the shareholder-CEO conflict that manifests as misreporting motivated by a CEO’s intention to pursue equity wealth (henceforth, wealth-pursuing misreporting). Does delta curb or aggravate such shareholder-CEO conflict? This question is difficult to address because a CEO’s misreporting intention is difficult to measure. To tackle this empirical challenge, we identify wealth-pursuing misreporting from the unstructured textual data in SEC Accounting and Auditing Enforcement Releases (AAERs). Consistent with rational choice theory, we find that the propensity for wealth-pursuing misreporting is strongly and positively associated with delta. Our findings have broad implications for using delta as a corporate governance tool to mitigate the shareholder-CEO conflict regarding financial reporting.


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.

We provide evidence suggesting that CEOs engage in the political system through individual contributions to reduce the risk and costs associated with the CEO being personally charged as part of an SEC enforcement action. CEOs of firms with regulatory infractions almost double their personal political contributions during violation years. These increased contributions are directed towards candidates rather than parties, and specifically toward candidates that have SEC oversight, consistent with influence acquisition. In addition, we find that unlike private litigation, changes in CEO contributions reduce public legal jeopardy by lowering the likelihood that the CEO is named in the SEC enforcement release and by lessening the CEO’s monetary fines, disgorgement, and future employment restrictions. Collectively, our results suggest that CEO political contributions are a potential driver of regulatory capture, a finding that is in stark contrast to the notion that such contributions are benign and ideologically motivated.

5. “Customer-Base Concentration and Financial Reporting Quality: International Evidence”  (with Xi Fu, Xiaoxi Wu, and Zhifang Zhang)

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. 

6. “Political Networking: Consequences for Cross-Border Acquisitions of Peer Firms”  (with Zhiyan Wu)

Using a regression discontinuity design in a sample of U.S. congressional special elections, we investigate how political networking by one firm (networking firm) will affect the cross-border acquisition activity by its peers (peer firms) which compete in the same product market. Relying on the victory or failure of political campaigns with a narrow margin of votes, we find that when the networking firm had donated to a politician who just marginally won a special election, the cross-border acquisition activity by its peer firms in the following year is 18.75% higher than that of the peer firms when the networking firm had donated to a politician who just lost a special election by a small margin. The effect appears even stronger when the product similarity between the networking firm and peer firms is higher and when the winning politicians secured senior positions in the congress. Our findings contribute to the political networking literature and inform a behavioral understanding of corporate cross-border acquisition activity. 

7. “Tit for Tat: Appointing Politicians to the Boardroom in Response to the Competitive Threats in the Contexts of Political Connections”  (with Zhiyan Wu)

Corporate governance scholars have long recognized that firms appoint politicians to the boardroom as a means to manage their dependency on the government. We shift attention from a resource-dependence perspective to a competitive-dynamics perspective, theorizing that firms’ appointment of politicians as directors can be a response to the competitive threat arising from the political connections built by the rivals. We also develop hypotheses about the boundary conditions of such a competitive response, with a particular focus on sales to the government (motivation to respond) and political action committees (capability to respond). Using a regression discontinuity design with the population of US publicly traded firms from 1990 to 2020, we find strong support for our theory. The findings of this research help reconceptualize corporate political activity as a context characterized by the understudied competitive dynamics among firms.