Research

Abstract: To be updated.

Abstract: We study the influence of political partisanship in SEC investigations and AAER enforcement actions against financial misconduct. We find that the SEC is more likely to launch an investigation against a firm that is misaligned with the agency’s political ideology than other firms. The likelihood of an AAER appears unaffected by political misalignment, but once named in an AAER, a misaligned firm faces harsher penalties than other firms. We find evidence that collectively points to potential misallocation of scarce enforcement resources due to partisanship: conditional on investigation, misaligned firms are less likely to receive an enforcement action, and conditional on misreporting, non-misaligned firms are less likely to be investigated. [Link]

Abstract: On-the-job training is a key driver of human capital development (Becker, 1962). We argue that the Sarbanes-Oxley Act (SOX), aimed at strengthening auditor independence, changed the economics of public accounting and unintentionally reduced opportunities for accountants to invest in their human capital on the job. SOX barred public accounting firms from offering consulting services to audit clients and introduced barriers to accountants transitioning to client firms. This weakened opportunities for collaboration between audit and consulting, limited accountants’ exposure to addressing clients’ business problems, and reduced networking. This diminished opportunities to gain broad experience, develop skills, and grow professional networks, making the accounting profession less attractive, especially to top talent. Using individual-level data, we compare accountants (treated group) and consultants (bechmark group) before and after SOX, within the same public accounting firm, time, and location. After SOX, accountants were less likely to move into consulting roles or to client (and non-client) firms, and their wages declined. Consistent with reduced career opportunities discouraging accounting education, we find a drop in the quality of students declaring accounting majors after SOX. Importantly, to more directly connect career opportunities to university accounting enrollments, we show that when university alumni transitions from public accounting to consulting decline, both the quantity and quality of subsequent accounting enrollments at their alma maters drop. We uncover a previously overlooked cost of regulations concerning the accounting profession. [Link]

Abstract: Facing the pressure to meet short-term earnings expectations, corporate managers often take actions that are thought to be value-destroying. Our study provides empirical evidence supporting an alternative view: Given agency problems, earnings pressure may force the managers to refocus on the firm’s core products through cost-cutting of non-core products, which can be value-enhancing. As predicted, product refocus under earnings pressure is stronger when the managers ex ante exhibit high-level agency problems. For identification, we exploit the setting of analyst brokerage mergers and closures. Our study suggests a bright side of earnings pressure − it helps reduce agency-motivated product diversification.

Abstract: To be updated.

Abstract: We examine the effect of state-wide mandatory pay disclosure on firms’ human capital investments, leveraging Colorado’s recent Equal Pay for Equal Work Act (EPEWA) that mandates job-specific pay disclosure in job postings in Colorado. Empirical results from difference-in-differences analyses suggest that firms shift hiring from Colorado to other states in response to the EPEWA. The hiring shift is consistent with firms’ economic trade-offs between the higher expected labor costs and the costs of relocating positions. Our findings highlight that pay disclosure mandates that reduce information frictions in state-wide labor markets impose costs on firms, which incentivize them to redistribute their human capital investments. [Link]