Research

PUBLICATIONS AND ACCEPTED PAPERS

1. "Public and private enforcement of non-GAAP reporting" with Dain Donelson, Colin Koutney, and Chris X. Zhao

Journal of Accounting and Public Policy 52, July-August 2025

• • Presented at George Mason University; Hong Kong Baptist University; Texas A&M University; University of Cyprus; and the University of Texas at Austin

Abstract: This study provides evidence on the frequency and effectiveness of public and private enforcement of non-GAAP reporting. Although investors place weight on non-GAAP measures, there is little evidence on the extent and effectiveness of non-GAAP enforcement. The SEC uses comment letters to oversee non-GAAP reporting. While most firms appear to enhance future non-GAAP disclosures after receiving a comment letter, we also find that firms that receive non-GAAP comment letters are more likely than control firms to receive future non-GAAP comment letters, with the same comments often repeated. In addition, non-GAAP enforcement in the form of SEC AAERs and securities class action lawsuits is very rare. However, we find limited evidence of investor harm from managers’ non-GAAP exclusions that are incremental to analysts’ exclusions. This result suggests investors are skeptical of managers’ non-GAAP exclusions. 

2. "The Merits of Securities Litigation and Corporate Reputation" with Dain Donelson and Christopher Yust 

  Contemporary Accounting Research, Vol. 41 (1): 424-458, Spring 2024
Code for final dataset

• • Presented at Michigan State, the 2023 Penn State Accounting Conference, and the Texas A&M Capital Markets Reading Group

Abstract: We explore how securities litigation affects corporate reputation. Experts remain concerned that nonmeritorious securities class actions—those that will be dismissed or settled for nuisance amounts—cause reputational damage. While several prior studies find reputational costs for nonmeritorious cases, they generally use indirect measures based on returns or total market losses, which are mechanically associated with securities litigation elements. In contrast, we first use a relatively direct reputation measure from Fortune’s “Most Admired Companies” list. We find significant reputational damage after meritorious litigation, with the strongest cases having the largest effects. However, we find no evidence of reputational damage after nonmeritorious litigation. We then find similar inferences using market-based measures of reputational damage—changes in earnings response coefficients and institutional investor holdings—that are not mechanically linked to securities fraud elements. We also find that Fortune’s reputational damage measure is associated with more negative returns around the litigation filing date. We show possible mechanisms for our results as initial legal filings contain information allowing market participants to assess case merits. Our results imply reputational damage is primarily due to fraud, which securities litigation helps reveal to the market, rather than litigation itself. Thus, reputational damage is not an issue in over 70% of securities class actions due to the high frequency of nonmeritorious cases.

3. "Getting Back to the Source: A New Approach to Measuring Ex Ante Litigation Risk using Plaintiff-Lawyer Views of SEC Filings" with Christopher Yust

Journal of Financial and Quantitative Analysis, Vol 59 (3): 1213-1256, May 2024
Data

• Featured on Columbia Law School's CLS Blue Sky Blog on Corporations and the Capital Markets

Abstract: This study introduces a new measure of ex ante litigation risk using scrutiny of SEC filings by the source of securities litigation - plaintiffs' lawyers - to reduce measurement error, relative to existing measures. We show that plaintiff-lawyer views proxy for the largely unobservable factors that make firms more likely to face litigation risk. Lagged views precede the public bad news revelation that triggers litigation and predict future realized litigation risk (i.e., securities class actions filings and plaintiff-lawyer investigations) and stock market outcomes. Finally, we provide new insights into the plaintiff-lawyer case selection process that otherwise cannot be observed.

4. "How do auditors respond to competition? Evidence from the bidding process" with Nicholas Hallman and Jaime Schmidt

Journal of Accounting and Economics, Vol. 73 (2-3), April-May 2022
Data

• • Presented at University of Texas at Austin; 2018 Deloitte/University of Kansas Auditing Symposium;  the 2018 International Symposium on Audit Research, the University of California, Irvine, the University of Texas at San Antonio, the University of Colorado Boulder, and the University of Illinois Urbana-Champaign

Abstract: Prior research provides mixed evidence about whether competition among auditors impairs or improves audit quality. An impediment to this stream of research is the inability of researchers to observe the audit engagement bidding process. We develop a method of detecting bidding by applying a machine learning algorithm to non-incumbent (i.e., competitor) auditor views of public companies’ SEC filings. We validate our method using a proprietary sample where all instances of bidding are known. We then examine the as- sociations between bidding, audit quality, and audit pricing. Contrary to concerns that competitive pressure may cause auditors to compromise their independence, we find that incumbent auditors perform higher quality audits during bidding years. This improvement in audit quality occurs regardless of whether the bidding ultimately results in an auditor change and persists for several years when the incumbent auditor wins reappointment. We also find that bidding is associated with modest audit fee concessions.

5. "Measuring accounting fraud and irregularities using public and private enforcement" with Dain Donelson, John McInnis, and Christopher Yust

The Accounting Review, Vol 96 (6): 183-213, November 2021
Online Appendix
Python code to download the Stanford securities class action data

• Presented at the University of Texas at Austin, Texas A&M University, and the University of Rochester.

• Featured on Harvard Law School's Forum on Corporate Governance

Abstract: Most accounting studies use only public enforcement actions (SEC cases) to measure accounting fraud. However, private cases (securities class actions) also play an important enforcement role. We discuss the legal standards and processes for both public and private enforcement regimes, emphasize the importance of screening cases for credible fraud allegations, and show both yield credible fraud measures. Further, we demonstrate these research design choices affect inferences from prior research and a hypothetical research setting. Finally, we show common measures of accounting irregularities using Audit Analytics to proxy for fraud result in significant false positives and negatives and develop a fraud prediction model for use in future research. We recommend using both public and private enforcement with appropriate screening when examining accounting fraud to reduce Type I and II errors, or reporting the sensitivity of findings across regimes. This is particularly important given the reduction in accounting-related enforcement after 2005. 

6. "Does media coverage cause meritorious shareholder litigation? Evidence from the stock option backdating scandal" with Dain Donelson and Christopher Yust

Journal of Law and Economics, Vol. 64 (3): 567-601, August 2021
Online Appendix

• Presented at the 2018 AAA Annual Meeting

• Featured on Harvard Law School's Forum on Corporate Governance , the University of Iowa's College of Business News and Iowa Ledger

Abstract: This study examines the role of media coverage in meritorious shareholder litigation. Asserting a causal effect of the media on litigation is normally difficult because of the endogenous nature of media coverage. However, we use the Wall Street Journal’s coverage of stock option backdating to overcome these issues. Using a matched sample of firms with similar probabilities of backdating and related government investigations, we find consistent evidence of a causal relation between media coverage and meritorious litigation. We also find a negative abnormal market reaction to the articles and conduct a variety of analyses to show that it was the content of the articles, rather than the coverage itself, that resulted in litigation. Our results demonstrate that the media serves an important role in corporate accountability that both disincentivizes misconduct and holds firms accountable.

7. "Do political connections induce more or less opportunistic financial reporting? Evidence from close elections involving SEC-influential politicians" with Ross Jennings and Yong Yu

Contemporary Accounting Research, Vol. 38 (2): 1177-1203, Summer 2021

• Presented at the University of Texas at Austin

Abstract: This study explores close US congressional elections involving politicians who have influence over the SEC to examine the effect of firms' political connections on their financial reporting. This question is important in understanding the overall effect of political connections on financial reporting. Our difference-in-differences tests reveal no evidence that firms experiencing a relative increase in political connections report more opportunistically after close elections in anticipation of preferential treatment by the SEC in its enforcement actions. In contrast, we find evidence that these firms report less opportunistically in response to an increase in their connections with SEC-influential politicians. Further tests show that our findings are unlikely to be driven by capital market pressure, managerial equity incentives, or corporate governance. Overall, our results are consistent with political connections mitigating opportunistic reporting through enhanced scrutiny by the SEC of politically connected firms' financial reporting. Our findings provide new insights into the interactions among political connections, SEC oversight, and financial reporting by showing how politically connected firms alter their financial reporting in anticipation of differential treatment by the SEC.

SELECTED WORKING PAPERS

1. "How Information from Securities Class Action Filings is Impounded into Stock Prices " with Dain Donelson and Christopher Yust

2. "Audits of Non-GAAP Earnings: Evidence from Adjusted EBITDA in Segment Disclosures" with Matthew Ege and Benjamin Whipple

3. "Crypto-Asset Markets and SEC Enforcement Actions" with Ken Merkley and Brian Williams

4. “Does the Audit Market Penalize Auditors for Issuing Adverse Internal Control Opinions?” with Matthew Ege and David Stroud

5. "Improving Audit Quality through Learning from Audit Failures: Evidence from the Big 4 Accounting Firms" with Zongyu Li, David Stroud, and Dechun Wang 

6. “Product Experience and Analyst Research: Evidence from Seeking Alpha” with Hengda Jin and Brady Twedt

7. “Investor Engagement on Corporate Earnings Conference Calls: Evidence from Investor Comments” with Lucile Faurel, Artur Hugon, and Partha Mohanram