1. Cao, W., Jia, Y., and Zeng, Y. (2024). Measuring misreporting incentives and severity. Management Science, Accepted
Best Paper Award at Nordic Accounting Conference
Summary: This study introduces an innovative empirical framework to classify financial misreporting based on different misreporting incentives. Financial misreporting poses significant risks to capital market integrity and investor confidence, with prior literature offering conflicting views on its causes and effects. To address these inconsistencies, we identify three types of misreporting incentives and introduce a composite misreporting severity score that integrates these incentives: wealth-pursuing (motivated by executives’ financial gains), market-induced (driven by capital market pressures), and subordinate-driven (resulting from inadequate oversight of lower-level managers). These classifications were developed by analyzing textual data from SEC Accounting and Auditing Enforcement Releases (AAERs), providing detailed insights into corporate misconduct arising from various agency conflicts. This research advances academic understanding of corporate misconduct and offers practical tools for future studies on misreporting.
Topical Areas: Financial Reporting Quality, Textual Analysis
2. He, X., Yin H., Zeng, Y., Zhang, H., Zhao, H. (2019), Facial structure and achievement drive: evidence from financial analysts. Journal of Accounting Research, 57(4): 1013-1057
Wiley recognized this paper by awarding it Top Cited Article and Top Downloaded Paper, based on its citations and downloads within the first 12 months after its acceptance and publication, respectively.
Summary: This study bridges accounting, biology, and neuroscience by examining the relationship between facial width-to-height ratio (fWHR) and financial analysts’ performance. While previous research linked fWHR to innate masculine behaviors influenced by testosterone, this study provides new insights by supporting the achievement drive hypothesis. It suggests that individuals with higher fWHR exhibit calculated masculine behaviors like aggression and risk-taking driven by a stronger motivation to achieve, influenced by prenatal and pubertal testosterone exposure affecting both facial structure and goal-directed behaviors. Using a large sample of Chinese financial analysts, we find that analysts with higher fWHR demonstrated superior performance and exerted more effort compared to their peers. This evidence supports the achievement drive hypothesis, as high-fWHR analysts leverage their drive into effective information gathering and analysis. This research contributes to understanding the impact of biological traits on capital market performance and advances discussions in neuroscience and behavioral finance. Additionally, this study, alongside my work on CEO facial masculinity, has gained considerable recognition, reflected in citations across multiple fields, including Neuroscience, Biology, Psychology, Anthropology, Engineering, Machine Learning, Strategic Management, and Finance. They have also inspired two emerging streams in accounting research:(1) neuroaccounting and (2) noisy versus soft information via physical traits.
Topical Areas: Neuroaccounting, Financial Intermediaries, Individual Influences in Capital Markets
3. Young, S., and Zeng, Y. (2015). Accounting comparability and the accuracy of peer-based valuation models. The Accounting Review, 90(6), 2571-2601.
The Expert Group on the International Accounting Standards (IAS) Regulation has discussed this paper in a discussion document for a meeting agenda
Summary: This study utilizes the mandatory adoption of International Financial Reporting Standards (IFRS) in Europe as a natural experiment to examine how enhanced accounting comparability impacts the accuracy of peer-based firm valuation using pricing multiples. The IFRS adoption serves as an exogenous shock, allowing us to isolate changes in accounting comparability from other factors like economic integration. Valuation multiples, a common method for estimating firm value, depend heavily on selecting appropriate comparables. However, differences in accounting practices across countries can undermine this comparability, leading to less accurate valuations. Our findings reveal that improved accounting comparability after IFRS adoption significantly enhances valuation accuracy, particularly by improving the selection of comparable peers. This research is one of the first to empirically show that cross-border accounting comparability improves peer-based valuation, challenging the neoclassical view that economic factors alone determine valuation accuracy. It highlights how accounting comparability—defined as the consistent presentation and interpretation of economic factors—plays a crucial role in financial statement analysis. The study contributes to both valuation literature and international accounting convergence.
Topical Areas: Financial Reporting Quality, Equity Valuation, International Accounting
4. Jia, Y., Van Lent, L., and Zeng, Y. (2014). Masculinity, testosterone, and financial misreporting. Journal of Accounting Research, 52(5): 1195-1246.
This paper is in the top 5% of all research outputs scored by Altmetric (a measure of the quality and quantity of online attention).
Summary: This study adopts a neuroscience perspective to address a long-standing debate in economics and business about the impact of managerial characteristics on corporate decision-making. We challenge the foundations of neoclassical economic theory by providing evidence of the "manager effect" on corporate financial reporting. A key challenge in the study was to identify an exogenous, reliable measure of managerial traits. Recent advances in neuroscience suggest that a man's facial masculinity, particularly the facial width-to-height ratio (fWHR), is linked to masculine behaviors influenced by pubertal testosterone exposure, which affects both facial features and brain structures that shape later behaviors. Inspired by these findings, I proposed using publicly available CEO photographs to measure fWHR as an exogenous proxy of CEO traits. Our study demonstrates that a male CEO's fWHR is positively associated with the likelihood of financial misreporting by a firm. This research provides compelling evidence challenging neoclassical economic assumptions and has opened new avenues in neuroaccounting and behavioral finance, linking biological markers to corporate decision-making.
Topical Areas: Individual Influences in Capital Markets, Financial Reporting Quality, Neuroaccounting
1. Hung, C.Y., Li, H., van Lent, L., Zeng, Y., 2024. Seeing people: the selective attention of financial analysts in their research output
Topical Areas: Financial Intermediaries, Individual Influences in Capital Markets, Textual Analysis
2. Zeng, Y., Bae, J., Kang, J., 2024. Friends or foes: How does the media influence the abandonment of quarterly earnings guidance?
Topical Areas: Financial Intermediaries, Corporate Disclosure, Behavioral Influences in Capital Markets