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.

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.

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. 

Abstract: I study how the recent geopolitical tensions between Russia and Ukraine affect the demand and supply of SEC issuers’ relevant information. As Russia accumulates an unprecedented number of troops near the Ukrainian border on March 3, 2021, stakeholders start acquiring filings with information on firm-specific geopolitical risk exposures. Despite the increases in demand for information on firm-specific exposures, most firms supply novel information about their exposures only after Russia invades Ukraine on February 24, 2022. This implies that the geopolitical threat of war increases demand for information, but firms tend to delay the supply of information until the realization of war. Disclosure behavior varies across channels such as current reports, quarterly reports, conference calls, and management guidance. Cross-sectional analyses reveal that managers’ communications take into consideration potential shareholder exits when choosing their disclosure channel. Next, identifying a subsample of firms with revenues in Russia via the country’s tax register, I examine whether historical segment revenue disclosures on Russian exposure led to greater stakeholder responses when Russia invaded Ukraine. Controlling for firms’ proportions of revenues from Russia, I find that firms with the segment revenue disclosures suffer greater negative abnormal returns and analysts’ forecast inaccuracies at the onset of the war, despite incurring fewer impairments as the war unfolds. These findings are both important and timely and add to our understanding of the interplay between geopolitics, corporate disclosures, and capital market consequences in the United States.

Abstract: Dodd-Frank Act Section 1502 requires SEC filers to disclose their use of conflict minerals sourced from the Democratic Republic of the Congo and adjoining countries. Congress intended this requirement to raise public awareness of conflict minerals supply chains, promote due diligence, and thereby inhibit the exploitation of the conflict minerals trade by armed groups. We use these disclosures to examine the effect of private pressure through grievance mechanisms that allow stakeholders to voice concerns about sourcing practices. Using a randomized field experiment, we find that anonymously alerting firms about a sanctioned entity in their supply chains causes them to remove the entity from their conflict minerals disclosures (CMD) or explain why it remains there. Providing a disclosure example explaining why a firm may have a sanctioned entity in its CMD increases firms’ likelihood of explaining rather than removing the entity from their own disclosures. We also find that our inquiries cause many firms to investigate and address the conflict mineral concern. Lastly, we find that the stock market rewards firms that address the sanctioned entity in their disclosures. Overall, we find that private pressure through grievance mechanisms is effective at driving companies to address risks in their supply chains. 

Abstract: We investigate the effects of adopting the new revenue recognition standard (i.e., Accounting Standard Code (ASC) 606) on voluntary non-GAAP revenue disclosures. Using a difference-in-differences design, we find that ASC 606 increases the propensity of voluntary non-GAAP revenue disclosures. Cross-sectional analyses reveal that the finding is consistent with a theoretical prediction that managers are more likely to provide voluntary supplemental disclosures to complement mandatory disclosures when they are more certain that market will translate the contents of financial statements into firm value. By doing so, managers enhance (mitigate) the value impact of the news in mandatory disclosures by indicating that performance is relatively permanent (transitory). Furthermore, we find empirical support that the non-GAAP revenue disclosures by firms significantly impacted by ASC 606 contain value-relevant information, which in turn increases the predictability of future revenue growth and revenue response coefficients. Overall, we provide empirical evidence that post-ASC 606, managers use voluntary non-GAAP revenues disclosure as a signal about the precision or the quality of mandatory disclosure to help investors interpret the new GAAP revenues.

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.

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: 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: This paper investigates whether an increase in minimum wage reduces employment cost stickiness—the phenomenon where employment costs decrease less when revenues decline than they increase when revenues rise. Employing a cross-country panel dataset of minimum wage changes, we find that increasing minimum wages lead firms to manage their labor resources more carefully, thereby reducing employment cost stickiness. These results are robust to alternative sample specifications, alternative dependent variables, and a Heckman 2-stage selection model. Cross-sectional analyses indicate that the decline in employment cost stickiness is economically less significant in high-technology industries, firms in low financial distress, and countries with high cash leverage positions. Additional analyses show that the reduction in employment cost stickiness leads to fewer layoffs and greater investment efficiency. Moreover, we find that the dampening effect of minimum wage increases on employment cost stickiness is stronger when real labor costs rise and during the second year following implementation. Surprisingly, this effect does not vary with the strength of employment protection laws. Overall, our study contributes to the ongoing debate on labor market consequences of minimum wage increases by providing novel evidence that such policies can enhance managerial efficiency in workforce planning.