Dissertation:

Auditors’ Role in Fair Value Monitoring: Evidence from Security-Level Data

I study the economic forces that shape the role of the audit firm as monitor of its clients’ fair value (FV) measurements. Specifically, I analyze how an auditor’s ability and willingness to influence clients’ FV valuations influences the extent to which its clients exhibit consistency in valuations for economically equivalent securities. I find that auditors’ security-specific FV experience is associated with increased consistency in valuations among clients holding the same security, consistent with audit firms developing FV expertise at the security level. Moreover, I find that consistency is higher when the audit office is in a more concentrated market, and when the client is economically less important to the auditor, consistent with audit office market incentives affecting FV audit quality. My study sheds light on the mechanisms that shape the role of auditors in the FV determination process.

Working papers:

Public Financial Statements and Private Firm Equity Financing with Brian Baik and Rodrigo Verdi

We study whether the availability of public financial statements by private firms influences the probability of raising venture capital (VC) and private equity (PE) financing. Extant research on this topic is limited and, if anything, suggests that the direction of the relation goes the other way around (i.e., that financial reporting availability/transparency is a consequence of private equity financing). Using two complementary settings with plausibly exogenous differences in financial statement availability, we find that an increase in financial statement availability is associated with an increase in the probability of a private firm obtaining VC/PE financing. Further tests suggest that public financial statements facilitate VC/PE funds’ investments through mitigating costs related to the target search process. Our evidence highlights the importance of public financial statements in the decision making of private investors, an important and under-studied segment of the financing market.

Do you have to adopt to adopt? Evidence on IFRS spillovers in conglomerates with Nemit Shroff and Rodrigo Verdi

We study the impact of a parent firm’s IFRS adoption on the accounting properties of their private non-IFRS-adopting European subsidiaries. In contrast to public European firms, private European firms are typically not required to adopt IFRS. We examine the private subsidiaries that do not adopt IFRS even though their parents do, and find spillover effects on the accounting properties of non-adopting subsidiaries as a result of parental adoption. Specifically, private subsidiaries engage in less earnings management after their parents adopt IFRS, which based on prior evidence on IFRS reporting we interpret as the subsidiary’s earnings becoming more IFRS-like. These effects are stronger for subsidiaries whose parents have a larger ownership stake, and for subsidiaries that are located in a different country than their parent. These spillover effects may have important contracting consequences that require further.