Research

“SEC Attention, A to Z" Working Paper. Conditionally accepted at Contemporary Accounting Research.

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I use downloads of regulatory filings by Securities and Exchange Commission (SEC) employees as a novel measure of SEC attention and find that SEC employees are significantly less likely to review the regulatory filings of firms whose names fall later in the alphabet. This result is consistent with SEC employees paying more attention to firms that have more prominent placement at the top of alphabetically sorted lists. Importantly, the attention effects of alphabetical order have material implications for firm compliance. Using shocks to alphabetical order caused by firm name changes as well as changes in the alphabetical composition of other firms, I find that alphabetically induced increases in SEC attention significantly decrease the probability that firms have accounting irregularities, experience securities litigation, or engage in behavior that results in an SEC enforcement action. Further tests show that alphabetical ordering determines a firm’s priority when the SEC follows up on common shocks among peer firms and that the SEC is more surprised by the restatements of end-of-the-alphabet firms. Overall, this study highlights the “human” element of regulatory attention and the importance of this attention in preventing costly noncompliance. 

“Practical Issues to Consider When Working with Big Data”. Review of Accounting Studies 27 (2022), 1117-1124.

Increasing access to alternative or “big data” sources has given rise to an explosion in the use of these data in economics-based research. However, in our enthusiasm to use the newest and greatest data, we as researchers may jump to use big data sources before thoroughly considering the costs and benefits of a particular dataset. This article highlights four practical issues that researchers should consider before working with a given source of big data. First, big data may not be conceptually different from traditional data. Second, big data may only be available for a limited sample of individuals, especially when aggregated to the unit of interest. Third, the sheer volume of data coupled with high levels of noise can make big data costly to process while still producing measures with low construct validity. Last, papers using big data may focus on the novelty of the data at the expense of the research question. I urge researchers, in particular PhD students, to carefully consider these issues before investing time and resources into acquiring and using big data.

“Updating Accounting Systems: Longitudinal Evidence from the Health Care Sector” (with Eva Labro). Management Science 66 (2020), 5485-6064.

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This paper provides evidence on the determinants and economic outcomes of updates of accounting systems (AS) over a 24-year time-span in a large sample of U.S. hospitals. We provide evidence that hospitals update their AS in response to three types of pressures: economic pressures, such as increases in the quality of accounting information driven by vendor rollouts of improved AS; coercive pressures imposed by regulators mandating certain practices, such as internal control practices imposed by Sarbanes-Oxley Section 404; and mimetic pressures for hospitals to conform their AS to those of their peers, such as local county and prominent “celebrity” peers. We find that only economically driven updates lead to economic benefits in the form of lower operating expenses and higher revenues. In contrast, we find some evidence that AS updates prompted by coercive regulatory pressures actually impose economic costs in the form of higher operating expenses.

"Do Managers Really Guide Through the Fog? On the Challenges in Assessing the Causes of Voluntary Disclosure"  (with Travis Dyer and Mark Lang). Journal of Accounting and Economics 62 (2016), 270-276.

Guay, Samuels, and Taylor (2016) document that firms with longer and more complex 10-Ks provide relatively more voluntary disclosure, which they interpret as evidence that managers use voluntary disclosure to mitigate negative effects of complex mandatory disclosure. We review the results of Guay et al. and focus on two main challenges to inferring causality: (1) the coincidence of upward over-time trends in annual report length, complexity, and voluntary disclosure, and (2) the potential for omitted correlated variables, such as changes in firm economics, to drive changes in 10-K textual characteristics and voluntary disclosure.

Working Papers: 

"Differential Treatment and Local Information Advantage: Revelations from Translation Differences" (with Tina Lang, Forester Wong, and T.J. Wong). Working Paper. Revising for fifth round review.

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We develop an empirical proxy for companies’ differential communication to local and foreign investors using translation differences in public disclosure. We use a field experiment to validate that our proxy is associated with differences in the information firms provide in response to private inquiries from local and foreign investors, and document that differential communication is associated with increases in information asymmetry. It is also linked to decreases in the relative information quality of foreign analysts, even in cases when foreign demand for information is high and communication costs are low. These and a variety of supporting tests lead us to conclude that firms use differential communication intentionally because of in-group favoritism, and when catering to different investor groups in order to maximize stock price. This study highlights the role of differential communication as one driver of local information advantage. 

"Consistency is Key: How Costing Information Consistency Helps Hospitals Manage Costs" (with Eva Labro and Ginger Scanlon). Working Paper. Invited for revise and resubmit.

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Health care costs in the United States make up a larger proportion of gross domestic product than in any other developed country and continue to rise. We examine whether the use of consistent costing information across hospitals (“costing information consistency”, or CIC) provides one avenue to reduce these costs. We empirically measure CIC at the hospital level by identifying how many other hospitals in the hospital group to which the hospital belongs also use the same costing system vendor. Using M&A activity among costing system vendors as an instrument for exogenous changes in hospital CIC, we find that increased cost comparability from CIC leads to economically significant decreases in hospital costs. These cost reductions appear to be achieved without compromising quality of care. We find no significant association between CIC and declines in patient satisfaction, mortality, or readmission rates. Reductions in expenses as the result of CIC are concentrated in non-clinical services such as administration, medical records, and housekeeping.  

"Potential Activism and the Threat of Public Campaigns" (with Carmen Payne-Mann and Forester Wong). Working Paper.

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Prior literature has used 13D and 13G filings to classify activist and non-activist investments. We argue this ignores an important governance mechanism-the threat of public campaigns-and propose a simple method to identify Potentially Activist stakes. We show that these stakes are more likely to switch to explicitly activist positions and see more in-person interactions between firms and investors than non-activist stakes. Levels of short-and long-run returns, executive turnover, and M&A activity after potentially activist investments fall between those of nonactivist and activist investments, while investors holding potentially activist stakes are more likely to vote in line with management recommendations. These results demonstrate a "middle path" where investors push for changes privately while avoiding costly public fights. 

"Textual Feedback as a Control Mechanism: Evidence from Patient Comments" (with Carolyn Deller, Henry Eyring, and Shelley Li). Working Paper.

We examine textual feedback using tens of thousands of patient comments and their corresponding numerical ratings of medical care providers. Patient comments incrementally explain care providers’ current overall numerical ratings beyond granular subcomponent ratings. Moreover, care providers appear to use the information in written comments to improve performance in the future; after controlling for numerical ratings, care providers’ future performance improves when they receive textual feedback that is more negative, specific, or salient, although specific comments appear to have a greater impact when they are not negative. We examine nuance in these average results by tying the content of comments to directly related outcomes. Comments about wait times are associated with longer future wait times when the feedback is not negative, specific, or salient, perhaps because care providers have already maximized performance on this dimension. Further, care providers who receive patient comments about medical mistakes experience a reduction in future mortality rates regardless of the manner in which the feedback is given, suggesting stylistic attributes of comments do not matter when they include information that is inherently negative, salient, and specific. Our results suggest that patient comments provide valuable feedback to care providers, even though patients have a disadvantage in terms of medical knowledge and expertise.