Ongoing research

WORKING PAPERS

Criminal employees and financial reporting

ABSTRACT: This paper predicts and finds that traits of rank-and-file employees, incremental to traits of the CEO, explain reporting outcomes. Firms with more employees with criminal records have higher discretionary accruals when they raise new finance, have lower accruals quality, are more likely to file their financials late and to receive non-clean audit opinions, and report earnings that are less informative about future earnings and cash flows. I find less robust evidence that these firms are also less likely to recognize timely losses. The results are more pronounced for high-paid employees and employees with a long education, employees who should have an influence on financial reporting. The results suggest that employee traits, incremental to CEOs, explain reporting outcomes.

Presented at the Hawaii Research Accounting Conference 2022, Aarhus University (seminar, Nov 2021), The Nordic Accounting Conference 2021, the EAA Annual Congress 2021 (Online), and "The Three Star Symposium”, University of Southern Denmark (2019).

Employee sickness absenteeism and firm outcomes:
Evidence from proprietary administrative data

ABSTRACT: This paper investigates whether employee absenteeism harms firm performance. I use proprietary administrative panel data on employee sickness absences. The dataset covers all employees in a countrywide sample of firms. I find that a one standard deviation increase in employee absence days corresponds to a decrease in operating return on assets of 3.5% of its unconditional sample mean. The effect is more pronounced for high-paid employees and for firms with a high labor intensity. Robustness tests suggest that the results are not driven by reverse causality. Employee absenteeism is also associated with lower firm investments, higher leverage, and higher employee turnover. I find less robust evidence that it is associated with a higher bankruptcy likelihood. Overall, the results suggest that employee absenteeism harms firms’ financial performance and provide an economically material estimate of the firm-borne costs of absenteeism. This could be relevant to managers and regulators of nonfinancial disclosure standards.

Intrinsic benchmark beating

With Jeppe Christoffersen and Thomas Plenborg

ABSTRACT: We use owner-managed firms, free of pressure from shareholders, analysts, and media, to examine the role of intrinsic (i.e. psychologically based non-economic) motivations in benchmark beating. We directly observe benchmark beating as instances where owner-managers decrease their salaries to transform a loss into a profit. Two findings emerge. First, controlling for a variety of extrinsic motivations, including reporting motivations arising from debt-holders, customers, and suppliers, we find that benchmark beating is highly prevalent when all these motivations are negligible or low. Potential beaters, relative to others, are twice as likely to cut their salaries. Second, managers beating the earnings benchmark are more likely to marry just before they turn 30, thus beating a non-economic benchmark. Our results suggest that reference-dependence preference arguments from the psychology literature complement economic arguments in explaining benchmark beating.

Presented at the EAA Annual Congress 2022 (Bergen)

Divorces and Performance

With Jeppe Christoffersen

ABSTRACT: This paper finds that firms have lower profitability in the year following a CEO’s divorce. The deterioration in profitability is temporary, as profitability is back on pre-divorce level two years following the divorce. Lower profitability is driven by a drop in sales that is larger than the drop in costs. The effect is muted when the firm has an independent board and is only present for male CEOs. The effect does not permeate to CEOs who re-marry to a new partner within the divorce year, and CEO weddings do not influence profitability, indicating that personal distress, rather than distraction, drives the results. The effect is unique to CEOs: divorces of other top managers do not have an effect on profitability. Overall, the results demonstrate the importance of CEOs and point to adverse effects of stressful and unsettling private events for professional outcomes.

WORK IN PROGRESS

The Relevance of Peer Information for Private Firms:
Evidence from a Field Experiment

With Jeppe Christoffersen, Thomas Plenborg, Mike Minnis, and Maximilian Muhn

Noisy External Examiners