Publications
Publications
The Real Effects of Supply Chain Transparency Regulation: Evidence from Section 1502 of the Dodd-Frank Act
with Bok Baik, Omri Even-Tov, and Russell Han
Journal of Accounting Research, 2024, 62(2), 551–587.
The Real Effects of Supply Chain Transparency Regulation: Evidence from Section 1502 of the Dodd-Frank Act
with Bok Baik, Omri Even-Tov, and Russell Han
Journal of Accounting Research, 2024, 62(2), 551–587.
Journal of Accounting Research, 2024, 62(2), 551-587
Abstract: Section 1502 of the Dodd-Frank Act requires SEC-registered issuers to conduct supply chain due diligence and submit conflict minerals disclosures (CMDs) that indicate whether their products contain tantalum, tin, tungsten, or gold (3TG) sourced from the Democratic Republic of the Congo (DRC) or its neighboring countries ("covered countries"). Consistent with the reputational cost hypothesis, we find that heightened public attention to CMDs increase responsible sourcing. After Section 1502 takes effect, we find higher demand for 3TG products processed in certified smelters, decreased conflicts in covered countries' mining regions relative to other regions, and reduced sensitivity of conflict risk to conflict minerals' price spikes. Finally, we find that conflicts decrease in Eastern DRC territories with prevalent 3T (tantalum, tin, and tungsten) mines but increase in territories with prevalent gold mines. Overall, our findings highlight the real effects of enhanced supply chain transparency regulation.
The Role of Business Press in Security Pricing: Initial Evidence from Korean Stock Market
with Woo-Jong Lee, Meeok Cho, and Sehee Kim
Korean Accounting Journal, 2020, 29(5), 311–351.
Korean Accounting Journal, 2020, 29(5): 311-351
Abstract: Prior studies document that media plays a significant role in the financial market by discovering and disseminating company information. However, whether and to what extent the media improves price efficiency remain unaddressed in Korea. Analyzing an unprecedented dataset of Korean business press articles from 2000 to 2017, we report that business press coverage is positively related to idiosyncratic volatility of stock returns, seemingly indicating the incorporation of firm-specific information into stock prices. We then ask whether or not the business articles convey relevant information consistent with firm fundamentals. Based on fundamental value-to-price ratios as a proxy for stock mispricing, we find robust evidence that 1) media coverage is in fact significantly associated with stock mispricing, 2) the mispricing in media-covered stocks is salient only for undervalued firms, and 3) the business articles covering undervalued stocks tend to use negative tones. These findings collectively suggest that the pessimistic tone of the Korean business press is associated with stock undervaluation. Our findings are consistent with prior literature that documents a sentiment effect of media coverage (e.g., Tetlock 2007). The initial evidence reported in this study not only provides practical insights for managers, market participants, and regulators, but also opens a new research avenue for future research.
The Effect of Private Pressure on Corporate Disclosures: Evidence from a Randomized Field Experiment
with Mary Adenle, Fred Asante, and Tendai Masaya
Second-round review, The Accounting Review.
Abstract: Section 1502 of the Dodd-Frank Act requires SEC filers to disclose their use of conflict minerals, with the goal of improving supply-chain transparency. We conduct a randomized field experiment to test whether private, outsider-initiated pressure transmitted through firms’ grievance mechanisms affects mandatory conflict minerals disclosures. We anonymously alert firms to the presence of a U.S.-sanctioned entity in their supply chains. Treated firms are significantly more likely to modify their subsequent disclosures, either by removing the sanctioned entity from their reports or by providing an explanatory narrative disclosure. Firms receiving an illustrative disclosure example are more likely to explain rather than remove. Cross-sectional analyses show that disclosure responses vary with firms’ external visibility and stakeholder exposure, consistent with reputational cost considerations. Many firms engage substantively with the anonymous inquiry. Overall, our findings provide causal evidence that private pressure, even absent public diffusion, shapes firms’ disclosure choices in a setting characterized by managerial discretion and weak regulatory enforcement.
Stakeholder Attention to Accounting Disclosures During Geopolitical Crises
with Seppo Ikäheimo and Roope Keloharju
Revise and resubmit, Journal of Accounting and Public Policy.
Abstract: This study examines the role of accounting disclosures during geopolitical crises, exploiting Russia's sudden annexation of Crimea in 2014 as the empirical setting. Using SEC EDGAR server log data, we identify which stakeholder groups access crisis-related 8-K and 10-K filings, when they do so, and what content they prioritize. First, while technology-service intermediaries and retail investors account for most downloads, institutional investors, media, government agencies, and other non-investor groups represent approximately 15% of total downloads. Second, attention is geographically concentrated, with 75% originating from the U.S. and the remainder from economies with economic and financial ties with Russia. Third, stakeholders differ in content focus by disclosure channel: intermediaries and media disproportionately engage with currency-related 8-K content, while institutional investors and government users show greater relative engagement with sanctions content in 10-K filings. Lastly, using a difference-in-differences design, we find that geographic segment disclosures act as an attention-directing signal, with firms disclosing Russia exposure experiencing disproportionate increases in 10-K downloads among intermediaries, media, institutional investors, and government users. Together, these results show that the accounting disclosure system functions as a crisis-time information infrastructure serving a broad group of stakeholders.
Geopolitical Risk in Corporate Risk Networks
with Roope Keloharju, Alex Kim, and Jingoo Kwon
Second-round review, Management Science.
Abstract: Geopolitical risk reaches a firm through multiple channels, so its economic significance depends not only on how saliently it is disclosed but also on how it is interrelated with a firm’s other risks. Using over three million risk factor disclosures from SEC 10-K filings between 2010 and 2024, we develop network-based measures of geopolitical risk along three dimensions: whether the firm’s geopolitical risk profile resembles the cross-sectional average, how closely geopolitical risk is connected to other risk topics, and whether geopolitical risk is linked to the firm’s most systemically important risk topics. First, we find significant cross-industry heterogeneity in how geopolitical risk is interrelated with other risk topics. However, environmental and cybersecurity risks are the two topics most strongly and consistently related to geopolitical risk. Second, a firm’s risk network structure moderates the effect of geopolitical risk on future investment and valuation. The investment decline is sharpest for firms whose geopolitical risk is connected to their most broadly interconnected risks and the valuation decline is largest for firms whose geopolitical risk reaches broadly across their other disclosed risks. Third, using the Russian invasion of Ukraine as a plausibly exogenous shock, we show that a significant geopolitical event can reconfigure firms’ risk networks. Firms whose geopolitical risk was more interrelated with natural-resource and macroeconomic risks pre-war were most likely to report war-attributed asset impairments. Overall, this paper highlights that researchers as well as practitioners should adopt a network-based conceptualization of geopolitical risk to account for its full impact.
Managerial Incentives for Employee Health and Safety
with Bok Baik and Russell Han
Revise and resubmit, European Accounting Review.
Abstract: Managerial incentives linked to workplace health and safety outcomes are an increasingly popular category of environmental, social, and governance-based incentives. In this study, we seek to determine whether workplace safety incentives (WSI) represent efficient contracting as opposed to “window dressing” or “rent extraction” by examining whether firms’ usage of WSI reflects cost-benefit considerations and whether WSI materially benefits employee health and safety performance. We find that firms facing greater opportunity costs from downtime and potential public scrutiny are more likely to use WSI, whereas those with alternative governance mechanisms are less likely to use it. Additionally, we document WSI’s role in mitigating on-the-job employee injuries and illnesses, improving workplace safety ratings across multiple agencies, and reducing regulatory fines. Further, we show that WSI is more effective in stricter regulatory climates and when workers’ compensation premium is costlier. A variety of supplementary analyses and placebo tests further substantiate WSI’s effectiveness. Taken together, our findings lend credence to WSI’s role in efficient contracting.
Abstract: Using the Russo–Ukrainian war as our setting, we find that geopolitical threats increase investor information gathering and residual short interest. Most firms delay voluntary disclosure of their exposure until after the invasion begins, creating a temporal misalignment between investor information demand and firms’ disclosure supply. Firms with short-term investors or operating in high-litigation industries communicate primarily through current reports, while firms with long-term investors or operating in low-litigation industries convey information through conference calls. More transparent firms experience more negative abnormal returns and higher analysts’ forecast errors at the onset of the war, even after controlling for exposure, but incur fewer impairments as the war unfolds.
Public Tax Disclosure and the Governance of Charitable Assets: Evidence from Private Foundations
with Roope Keloharju and Tendai Masaya
Revise and resubmit, Contemporary Accounting Research.
Abstract: We examine whether mandatory public tax disclosure affects the governance of charitable assets in private foundations by exploiting the Pension Protection Act of 2006 (PPA), which made Form 990-T publicly inspectable for foundations required to file it. This made taxable unrelated business activity reported on Form 990-T jointly observable with already-public Form 990-PF information, thereby increasing the external verifiability of reported asset classifications and payout behavior. Foundations not required to file Form 990-T were not directly subject to the public-inspection requirement, supporting a difference-in-differences (DiD) design. We predict that affected foundations will increase charitable distributions and reported noncharitable-use assets, with the response concentrated among foundations near the minimum distribution threshold and among those for whom public disclosure represents the largest incremental change in external observability. We find that treated foundations increase charitable distributions by approximately 8.5%, or $168,000 annually for the median foundation. The evidence is consistent with two complementary mechanisms. Foundations with pre-period payout behavior near the 5% minimum distribution threshold increase reported noncharitable-use assets by 2% on average, consistent with reclassification from charitable-use to noncharitable-use assets, while foundations distributing well above the threshold increase giving, consistent with a visibility or reputational response. Treated foundations also increase personnel and professional-service expenses, with in-house compensation rising by 28% and legal fees by 21%, while external consulting remains unchanged, consistent with more durable organizational investment in governance capacity. Robustness tests are difficult to reconcile with a penalty avoidance explanation as the treatment effect is concentrated among foundations with no prior penalty exposure and declines monotonically with pre-period violation severity. These findings provide evidence that mandatory public tax disclosure is associated with changes in private foundation payout and reporting behavior, consistent with increased external verifiability of foundation reporting in a setting where external monitoring beyond tax authorities is limited.
New Revenue Recognition and Non-GAAP Revenue Disclosures: Evidence from ASC 606
with Bok Baik, Songyi Han, and Sangwoo Sohn
Abstract: This study investigates the interaction between mandatory accounting standards and voluntary disclosure by examining how the adoption of ASC 606 (Revenue from Contracts with Customers) influences the reporting of non-GAAP revenue measures. When mandatory standards improve the precision of the baseline GAAP signal, the marginal benefit of filtering out remaining transitory noise to reflect core performance becomes even greater. As a result, we predict that the adoption of ASC 606 will increase both the frequency of non-GAAP revenue disclosure and the informativeness of disclosed non-GAAP revenue adjustment. Using a difference-in-differences analysis, we find that the adoption of ASC 606 increases the likelihood of non-GAAP revenue disclosure. Furthermore, we find that these disclosures reduce stock market uncertainty and information asymmetry after ASC 606 adoption. Our findings suggest that non-GAAP revenue disclosures provide a more informative and reliable signal to investors and highlight how the interplay between GAAP and non-GAAP information shapes the corporate information environment.
Abstract: This paper examines the effects of mandatory auditor rotation on audit quality. Although the mandate was introduced to improve transparency in corporate accounting reports and audit quality, there is limited evidence of its effectiveness in enhancing audit quality. This study seeks to fill this gap by using audit adjustments, an improved measure of audit quality. Specifically, audit adjustments measure the adjustments made to financial statements following an audit. We find that mandatory auditor rotations have a positive effect on audit quality. We provide evidence consistent with an improvement in the independence and peer effects of auditors driving the positive effect of mandatory auditor rotation on audit quality. Moreover, we find that mandatory auditor rotations affect the decision-making of auditors and treated companies in the years before and of the mandate. Last, we find that mandatory auditor rotation affects audit hours suggesting a channel through which the mandate improves audit quality.
Abstract: We investigate whether minimum wage increases reduce employment stickiness. Using a cross-country panel dataset of statutory minimum wage changes, we find that minimum wage increases are associated with a reduction in employment stickiness. Subsample analyses further show that our result is more pronounced among low-technology firms, financially distressed firms, and firms with low liquidity. Moreover, our result is stronger when minimum wage growth exceeds inflation and in countries with stricter employment protection legislation. These patterns are consistent with managers allocating labor resources more carefully in response to rising wage floors. In addition, we find that reductions in employment stickiness translate into higher labor investment efficiency, improved labor productivity, and a lower likelihood of future layoffs, consistent with our main findings. Overall, we contribute to the ongoing debate on the labor-market consequences of minimum wage increases by providing novel evidence that minimum wage policies may enhance managerial efficiency in workforce planning.
Abstract: In this study, we examine whether and how negative media coverage affect managers’ disclosure decisions. Specifically, we conduct an empirical analysis of whether negative media coverage upon a firm may induce the firm’s manager to voluntarily disclose information about the firm to prevent an underpricing of the firm. We find that managers respond to negative media coverage with voluntary disclosures. Next, we find a positive association between voluntary disclosures and future performance. Lastly, we find evidence of managers’ voluntary disclosures attenuating the mispricing caused by negative media coverage. Taken together, this research provides empirical evidence on managers providing voluntary disclosures in response to negative media coverage.
Abstract: Timeliness enhances the decision usefulness of accounting information for investors. To contribute to the health of capital markets, firms should meet time requirements. Yet, a significant number of firms are late in filing their financial statements. We focus on the nature of the delays by foreign private issuers. The results show that accounting issues contribute to the greatest delays. We also examine short-window market reactions to the foreign issuers’ non-timely notifications. Results show the market penalizes foreign issuers when they file late. This paper sheds light on foreign issuers’ non-timeliness and its capital market consequences.