PUBLICATIONS
[1] “Municipal Bond Credit Rating Access and Retail Investors’ Transaction Costs”
The Accounting Review 2024 (https://doi.org/10.2308/TAR-2022-0180)
In 2010, the Municipal Securities Rulemaking Board proposed a rule change requiring the display of current credit ratings on the EMMA website, a centralized repository of municipal bond information. Prior to the rule change, current credit ratings were freely available on individual rating agencies’ websites or on EMMA if municipalities provided relevant continuing disclosures, making it unclear whether the rule change would benefit investors. A difference-in-difference analysis reveals the rule change is associated with a 6-8 basis-point decrease in investor transaction costs. This effect is concentrated among the intended beneficiaries (retail investors) when credit risk information demand is high (long-maturity bonds) and current credit rating information on EMMA is low (no continuing disclosure of rating changes was provided on EMMA). The rule change appears to have helped retail investors become aware of current credit ratings by filling a disclosure gap on EMMA for municipalities without continuing disclosures of rating changes.
[2] "State Control, Related-Party Transactions and Audit Reporting: Evidence from Key Audit Matters" -- with Annita Florou, Xiaoxi Wu and Yuan Shuai
Journal of Accounting, Auditing & Finance 2024 (https://doi.org/10.1177/0148558X241299138)
We examine whether political forces in Chinese State-Owned Enterprises (SOEs) influence audit reporting, specifically the disclosure of Key Audit Matters (KAMs). We test two competing predictions that offer alternative explanations for the relation between SOEs and KAMs disclosure. Using a sample of Chinese listed firms and controlling for related determinants of KAMs reporting, we document that, compared to non-SOEs, SOEs have fewer abnormal KAMs (relative to their industry peers). SOEs are also more likely to avoid the disclosure of expected KAMs, especially in the subject areas of inventory, revenue and related party transactions (RPTs). Taken together, results suggest that SOEs have strong political motives and power to obscure transparency and withhold potentially costly news. In line with this conjecture, we show that the aforementioned effects are more pronounced when SOEs have more concentrated state ownership, operate in industries of strategic importance to the state, or are involved in tunneling RPTs. Supplementary analysis indicates that SOEs have less extensive KAMs disclosures and auditor responses, which moreover are less risk-oriented. Overall, our study provides new evidence on how state control and related institutional factors affect audit practices.
WORKING PAPERS
[3] “The Freedom of Information Act and Government Financing Costs” – with Yongtae Kim, Nancy (Lixin) Su, and Mendy (Mengdi) Zhang
Revise and Resubmit at The Accounting Review
Each U.S. state has implemented an information openness law, commonly known as the Freedom of Information Act (FOIA), granting any person or organization the right to request access to records from any government agency. However, the level of government transparency offered under the FOIA varies across states and over time. We contend that by providing access to government records, FOIA mitigates information asymmetry between municipal bond investors and issuers and improves the efficiency of local governments, leading to a decrease in municipal borrowing costs. Using staggered FOIA revisions and a stacked regression design, we find that municipal bond offering yield and offering yield spread decrease (increase) following revisions that strengthen (weaken) state-level FOIA. The FOIA effect on municipal borrowing costs is more pronounced in municipalities with weaker external monitoring and for riskier bonds. Collectively, the evidence suggests the significant benefits of FOIA in public finance.
[4] “Externalities from Forcing Hospitals to Audit: Evidence from the Single Audit Act”- with Zhaosong Ruan, Mohan Venkatachalam, and Xinyi Xie
Revise and Resubmit at The Accounting Review
This paper examines the real effects of financial statement audits in non-profit and government hospitals, using changes in audit requirements under the Single Audit Act. Comparing hospitals newly exempted from audits with those consistently audited or never audited, we find that exempted hospitals improved efficiency, measured by a 3.5% reduction in the cost-to-charge ratio. However, this efficiency gain is driven primarily from increased "charges" rather than decreased "costs", suggesting patient overtreatment. An implication of these findings is that forced audits provide a societal benefit by curbing excessive treatment despite reducing reported efficiency. Cross-sectional analyses further reveal that overtreatment post the audit exemption is more pronounced in hospitals with weaker internal controls, greater moral hazard, and a higher tendency toward defensive medicine. Our research highlights the externalities of the Single Audit Act, particularly in the healthcare sector.