I am an Assistant Professor of Accounting at the Fuqua School of Business, Duke University. My research interests lie in the intersection between managerial accounting and other disciplines such as financial accounting, corporate finance, and economics, with a focus on how managerial accounting can mitigate the problems created by information asymmetry and information uncertainty. I teach managerial accounting in the daytime MBA program. 

Web: Duke; Google Scholar; SSRN.

Curriculum Vitae

Contact Information

Address: Fuqua School of Business, 100 Fuqua Drive, Durham, NC, 27708

Email: elia.ferracuti@duke.edu

Phone: +1 (919) 660-1974

Research

Published Papers:

Information Uncertainty And Organizational Design

This paper investigates how information uncertainty, measured through variation in the decision-relevant information supplied to managers by market institutions, shapes the equilibrium organizational design adopted by firms. I posit that, when faced with higher uncertainty about demand and supply, managers are more likely to establish a link to customer/supplier industries through vertical integration and high-level hiring decisions, thereby facilitating access to information about these industries. Consistent with this hypothesis, I find that firms modify their vertical integration and hiring decisions in response to variation in the ability of market institutions to aggregate and disseminate information about demand and supply. Further, I observe that these organizational design choices correlate with the efficiency of inventory management, cash holdings, and investment sensitivity to growth opportunities; this finding is consistent with organizational design facilitating access information not supplied by market institutions.

Investment, Inflation, and the Role of Internal Information Systems as a Transmission Channel

with Oliver Binz and Peter Joos
  • Journal of Accounting and Economics, Volume 76, Issues 2-3, 2023, 101632
  • Presented at the 2022 Journal of Accounting and Economics Conference

We examine whether the quality of firms’ internal information systems influences the relation between inflation shocks and corporate investment, as posited by imperfect information models. Inconsistent with RBC models’ prediction that nominal variables (e.g., inflation) do not affect real variables (e.g., corporate investment) but consistent with the presence of information frictions, we first document a positive relation between inflation shocks and firm-level investment. Next, we show that higher internal information system quality, measured through responses to the World Management Survey, mitigates the positive relation between inflation shocks and firm-level investment. This result suggests that internal information quality serves as a channel through which aggregate-level nominal variables affect firm-level real variables. We then document relatively more efficient investment decisions following inflation shocks for firms with higher internal information system quality. Our inferences are robust to using the 8th EU Company Law Directive as a shock to internal information system quality and to several additional tests.

Cost Structure and the Usefulness of Earnings

with Brian Cadman
  • Accepted at Management Science

 We investigate the relation between the usefulness of earnings and firm cost structure. We document that the usefulness of earnings to external users decreases in the degree of operating leverage, which measures the proportion of fixed to variable costs, and that this decline extends at least partially from the relation between the degree of operating leverage and two earnings properties:  aggressive revenue recognition to meet an earnings target and earnings volatility. Our results illustrate how firm fundamentals influence a firm's information environment and thereby the usefulness of earnings to external users.

Working Papers:

Central Bank Economic Transparency and Managerial Learning

with Oliver Binz  and Gary Lind

Central banks have increased public disclosures of their private information regarding the economy's current and future state over time. While previous research focuses on the benefits of this increase in transparency, we provide an analytical framework and empirical evidence for potential unintended costs. We find that central bank economic transparency (CBET) causes managers to rely less on stock price when making investment decisions. This is consistent with central bank disclosures shifting investors' information collection and pricing from the aggregate-level component of cash flows (where managers do not have an information advantage) to the firm-level component (where managers do have an information advantage). The results are pronounced when the firm does not provide guidance and when noise trading in the firm's stock is low. Further, we show that investors shift their search efforts from aggregate-level towards firm-level information, and that investment efficiency of more exposed firms falls relative to that of less exposed firms. The results are robust to using the Bank of England's Inflation Report amendments as a shock to CBET. 

Do firms smooth earnings less when they can hedge noise better?

with Rahul Vashishtha and Shuyan Wang
  • Winner of the 2023 FARS Midyear Meeting Best Paper Award

Firms' use of accounting discretion to report a smooth earnings profile is commonly believed to be pervasive. We examine if smoothing, at least partly, reflects managerial attempts to avert unhealthy pressures from outsiders who cannot disentangle the impact of transitory shocks from sustainable trends in value creation. Using variation in firms' ability to hedge foreign currency (forex) exposure through derivatives to measure firms' vulnerability to transitory shocks, we find that firms are less likely to smooth earnings when they can better shield their business from extraneous forex fluctuations. Our findings inform the debate on discretion in accounting rules and illustrate how markets that facilitate efficient reallocation of risk can shape the informational properties of accounting output.

Macroeconomic Information Acquisition around Earnings Clusters

with Gary Lind

Recent literature documents that the time structure of information arrival through earnings announcements has important implications for asset prices. We show that one possible reason for this relation is the interaction between the time structure of information release by firms and macro information acquisition by investors. We document that investors acquire relatively more macro information during earnings clusters---days when many firms announce earnings contemporaneously---relative to non-cluster days. We further show that on these days, investors trade to adjust their exposure to the macroeconomy, and aggregate uncertainty declines. Finally, evidence indicates that our findings arise from two mechanisms: earnings clusters serving as conduits of macro information that trigger investors' attention toward the macroeconomy, and earnings clusters straining investors' attention capacity, thus inducing a reallocation of attention from firm-specific to aggregate information.

Measurement Error when Estimating Covenant Violations

with Scott Dyreng, Robert Hills, and Matthew Kubic

We hand collect true covenant thresholds and realizations from SEC filings and show that estimating covenant slack using data from commercial databases frequently overestimates but rarely underestimates violations. This asymmetric measurement error, largely driven by differences between true and estimated realizations, meaningfully affects research in at least two settings: (1) regression discontinuity designs that seek to precisely identify covenant realizations around a threshold, and (2) research that infers lenders' enforcement or forbearance of estimated violations. We show that true violations, but not estimated violations, are associated with stock market reactions and renegotiations. Finally, we investigate ways to reduce measurement error.

Political Activism and Market Power

with Roni Michaely and Laura Wellman

Politically active firms increase market power during times when their information advantage and influence is greater: during times of heightened policy uncertainty. The effect is especially pronounced among large politically active firms, and it is long-lasting and economically sizable. We also identify strategically timed large investments as one plausible mechanism whereby politically active firms enjoy abnormal profits. We overcome the nonrandom nature of political activism using instrumental variables and an experiment surrounding the enactment of legislation lobbied by sample firms. Our results suggest that political activism is a likely contributing factor to declines in competition over the last two decades.

Renegotiation Costs and Contract Design

with Scott Dyreng and  Arthur Morris

We examine the relation between the cost of debt contract renegotiation and contract design. We use an exogenous shock to expected renegotiation costs arising from a change in the taxation of debt renegotiations to show that as renegotiation costs decline, the maturity of debt contracts lengthens, the initial likelihood of covenant violation increases, and the use of performance pricing provisions becomes less frequent. The evidence indicates that ex-ante allocation of cash flow rights and ex-post reallocation of decision rights through renegotiation are local substitutes, where the preference for one mechanism versus the other depends, at least in part, on renegotiation costs.

The Consequences of Fund-level Liquidity Requirements

with Indraneel Chakraborty, John Heater,  and Matthew Phillips

We investigate the effects that mutual fund liquidity requirements have on fragility. Starting in 2019, SEC Rule 22e-4 restricted ownership of illiquid securities in funds. As expected, post-rule, funds hold more liquid securities. Firms issuing illiquid securities face higher costs due to a smaller investor pool However, higher liquidity does not ameliorate adverse shocks. Facing outflows, funds maintain cash levels and sell illiquid securities. This is because liquidity requirements are not sufficiently countercyclical: funds must maintain cash even when they should use it to mitigate flow pressures. Hence, outflows force funds to sell more illiquid securities post-rule change, unintentionally increasing fragility.

Coming Soon:

Acquisition of Customer Information and Corporate Decision Making

with Minjae Koo, Mary Lee,  and Stephen Stubben

The Private Value of Innovating for the Government

with Sharon Belenzon and Larisa Cioaca

Non-Refereed Publications:

The Role of Financial Reporting in Resolving Uncertainty about Investment Opportunities

with Stephen Stubben

This discussion of the survey of the literature on financial reporting and corporate investment by Roychowdhury et al. (2019) focuses on an area in this literature that has received less attention — how financial reporting helps managers allocate capital across investment opportunities within their firms in the presence of uncertainty. We discuss the theory on investment under uncertainty and offer suggestions for future research. 

Other Publications:

"HP: mind the gaap (difference)" (Case study)

with Angela Kate Pettinicchio

"The Trust Revolution: How the Digitalization of Trust Will Revolutionize Business and Government" (book review)

Teaching

Fuqua School of Business, Duke University

David Eccles School of Business, University of Utah