RESEARCH
1. “Impairment Incentives of Early-Stage Exploration Firms” (sole-authored)
ABSTRACT: This study explores a setting that is particularly revealing about impairment incentives. The flexible accounting standard, IFRS 6, available in Australia provides a richer setting to examine the discretion to report impairment among early-stage exploration firms. As the reporting behaviors and incentives are less constrained by accounting rules, more information and new insights can be disseminated among early-stage exploration firms. Using a hand-collected dataset of a 21-year sample period, I find that operating costs have a negative effect on the propensity to impair. I provide robust evidence of firms using different strategies to smooth earnings. Firms are likely to impair in the year of mineral asset sales, due plausibly to tax incentives. Firms are less timely to report impairment in response to the 2008 metal price collapse understanding the perceived temporary nature of the commodity price change. Revealed from the hand-collected dataset, I only observe a handful of firms reporting impairment reversals.
Paper to be presented at AAA Denver in Aug, 2023.
2. “Are Net Zero Pledges Credible? The Case of U.S. Oil and Gas Companies” (with Shiva Rajagopal, Hemang Desai, and Bin Li) – Management Science. Vol 69, Issue 6, April 2023 pubsonline.informs.org/doi/abs/10.1287/mnsc.2023.4765
We study pledges of publicly traded U.S. oil exploration and production (E&P) firms to reduce carbon emissions. Of the 69 firms in the sample, 18 have committed to net-zero carbon targets, 14 have announced significant emissions cuts, while the remaining 37 firms have not announced any formal commitment to reduce emissions. We find that firms that produce more hydrocarbons and firms owned by Blackrock are more likely to commit to net-zero or significant emission cuts. E&P firms are likely to announce emission cuts or net-zero pledges after Engine No.1 proposed its slate of directors for Exxon’s board. The stock market does not appear to react to such pledges, on average. However, it appears that the transition path matters as the market reacts negatively to post-2030 pledges relative to those firms that commit to achieving net-zero by 2030. The market also reacts positively to pledges by firms where CEO pay is linked to emission reduction goals. Finally, the market appears to penalize firms without any formal commitment to reduce emissions after Engine No.1’s proxy fight with Exxon.
3. “Green Bonds: New Label, Same Projects” (with Jeffrey Wurgler)
ABSTRACT: Many observers view green bonds as a promising capital market response to environmental concerns. We examine a large sample of U.S. green bond issues and track the extent to which the proceeds are associated with incremental environmental benefits over and above the assets and businesses that the issuer has traditionally considered. In fact, we find that numerous green bond issuers—30.1% of corporate issuers and 40.3% of municipal issuers—simply use the proceeds of green bonds to refinance ordinary (non-green-labelled) debt. Most of the remaining issuers apply green bond proceeds to expand projects in which they were already heavily engaged or initiate new projects of little green novelty. We conclude that U.S. green bonds are, more likely than not, associated with business as usual, and are associated with a meaningful response to environmental concerns.
4. “A Missing Piece in Cash Conversion Cycle: Deferred Revenue” (with Stephannie Larocque)
The cash conversion cycle (CCC) is a widely used measure of a firm’s working capital efficiency that captures the net time interval between the acquisition of productive resources and the receipt of cash from customers (i.e., days of inventory plus days of receivables less days of payables). We propose a new measure of the CCC that also captures cash received in advance from customers (i.e., deferred revenue), an increasingly important activity in the overall economy. Our proposed CCC measure is 29 days, or 22 percent, shorter than the traditional CCC measure, based on means across a large sample of firms, with the difference more prominent in some industries (such as software and publishing) and increasing over the last two decades. We validate our proposed CCC measure by showing that it, and in particular the deferred revenue component of our measure, isassociated with firms’ financing activities. Building on prior literature related to the CCC, we find that incorporating deferred revenue in the cash conversion cycle is relevant to tests of the association of the CCC with firms’ discretionary spending and valuation. Thus, we propose to update / revise this measure of the velocity of cash conversion enabling to comprehensively captures the timing of the receipt of cash payments from customers for the 47 percent of the firms on Compustat/CRSP that report deferred revenue during our sample period.
This paper was recently invited for presentations at Cambridge, LSE, Amsterdam & IESE - currently under review
5. “Who Can Improve Valuation in Exploration Firms – Specialist Auditors or Geologists?” (with Joshua Ronen)
ABSTRACT: This study examines whether the presence of specialist auditors and geologists on the board of directors is associated with firm value. Toward that end, using hand-collected data of small and homogenous Australian exploration firms over a 21-year sample period, we use a newly defined auditor industry specialization and examine its association with firm value. We also examine whether and which characteristics of geologists, as industry experts serving on the board, are associated with firm valuation. We document a positive association between the engagement of specialist Big 4 auditors and geologists with established industry accomplishments, and Tobin’s Q. We find stronger evidence of a positive association betweenspecialist auditors and firm value in exploration firms with accomplished geologists on the board.
Work in progress: Regulatory issues related to ESG.
INDUSTRY RESEARCH
“Carbon Emission Trading – A New Source of Forestry Investment Return” Investment & Pensions Europe (sole-authored) - 10/2004
“Look Beyond the Styles of Commodity Trading Advisors” The Journal of Wealth Management (sole-authored) - 09/2004
“Commodity Investments help Diversify Portfolios” Financial Advisors (sole-authored) - 08/2004
“What you should know about Commodity Indexes” Financial Advisors (sole-aurthored) - 04/2004
“The Clash of the Titans – Comparing Global Mega-Cap Indexes” Dow Jones Indexes Research (with Herb Blank) - 11/2002