Mandatory disclosure would reveal corporate carbon damages
with Michael Greenstone & Christian Leuz, Science (2023)
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Other articles
Mandatory disclosure and corporate carbon damages
with Michael Greenstone & Christian Leuz, Accountability in a Sustainable World Quarterly (2023)
Financial information and firm heterogeneity
Job Market Paper
Abstract: This paper explores distributional and welfare effects of financial information. Exploiting variation in market-wide financial transparency of various countries and industries, I find that financial transparency (e.g., information on profitable niche markets) helps larger firms grow even larger, seemingly at the expense of smaller firms. I provide evidence on two channels that can contribute to this distributional effect: Firms with multiple subsidiaries appear able to avoid the direct costs of financial transparency by locating their subsidiaries in low-transparency regions. At the same time, firms selling to global markets appear able to use the financial information to spot profitable export destinations. To explore the welfare implications of this distributional effect, I examine larger firms’ productivity, product variety, and prices. While larger firms tend to be more productive than smaller firms, I do not find that they increase their productivity or product variety because of market-wide financial information. They also do not appear to decrease their prices. Collectively, these findings suggest that financial transparency concentrates economic activity among larger firms. This concentration may come with some efficiency gains through the redistribution of market shares to more productive firms. The welfare effects for customers, however, remain ambiguous given limited effects on product variety and prices, and an increased risk of larger firms gaining market power.
Transparency regulation and reallocation
with Matthias Breuer
Best Conference Paper Award 2022 (VHB Annual Conference)
Abstract: We examine the direct and indirect effects of transparency regulation on economic activity. Using two distinct sources of regulatory variation—the varying extent of financial-reporting requirements and the staggered introduction of electronic business registers in Europe—, we find that direct exposure to transparency regulation hurts focal firms’ economic activity (e.g., production and employment). By contrast, we find that indirect exposure to transparency regulation imposed on other related firms helps focal firms’ economic activity. In terms of relative magnitudes, we find that the negative direct effect is mostly but not fully offset by the positive indirect effect. Collectively, our evidence suggests that transparency regulation appears to primarily reallocate economic activity from more toward less regulated markets rather than help or hurt aggregate economic activity.
Disclosures of expected credit losses around the beginning of a crisis: Evidence from European banks during the Covid-19 pandemic
with Jannis Bischof & Vincent Giese
Abstract: The International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB) have recently adopted expected credit loss models for the loan loss provisioning of banks. The new regulations are a response to the 2008-09 financial crisis and the widespread view that loan loss provisions were “too little, too late” under the former incurred credit loss model. The expected credit loss model represents a more forward-looking approach and is designed to shift loss recognition to a much earlier stage of the economic cycle. We use a small sample of large European banks that provide sufficiently detailed disclosures of their provisioning choices under the new International Financial Reporting Standard (IFRS) 9 regulation prior to the COVID-19 crisisto examine whether banks had built up sufficient capital buffers at the onset of the crisis. Our evidence indicates that banks’ loan loss provisioning under the new expected credit loss model was lower in the period immediately before the crisis than it would have been under an incurred loss model (largely because of reversals). Therefore, the increase in loan loss recognition during the crisis was even larger, potentially amplifying procyclical effects and leading the European Central Bank to practice regulatory forbearance. The effect results from the exogenous nature of the pandemic, which banks did not consider in their internal loss estimates when determining expected credit losses. Increased reporting discretion in banks’ estimation procedure further augments the effect.
