Financial Accounting & Auditing

We study a regulatory spillover in which audit regulations for public firms can affect auditing practices for private firms through the channel of common partners—partners who audit both public and private firm clients. We exploit a regulation in China that applies only to public firm auditing and aims to enhance transparency and rigor in audit procedures. We find that audit partners are more inclined to issue modified opinions for private firm clients following the implementation of the regulation.

Public financial information plays a critical role in the takeover market by helping acquirers search for and value potential targets. Using a difference-in-differences research design around a regulatory disclosure mandate that changed the granularity of financial disclosure for certain privately held banks, we find that banks with reduced disclosure are less likely to be targeted in M&A transactions. Acquirers adapt to information frictions arising from reduced disclosures by bidding for geographically proximate target banks and increasing the proportion of stock in their bids.

We examine whether the adoption of the Current Expected Credit Losses (CECL) model, which incorporates forward-looking information in loan loss provisions (LLPs), enhances banks’ information production. Consistent with better information production, we document significant changes in both financial reporting and operational outcomes following CECL adoption. First, CECL banks’ LLPs become timelier and better reflect future local economic conditions. Second, CECL banks experience lower rates of loan defaults.

Accounting Standards Update (ASU) 2016-01 requires that unrealized gains and losses on equity investments (equity-URGL) previously recognized in other comprehensive income now be included in net income. Using a sample of public insurers, we examine how this accounting standard change influences managerial investment decisions, with a particular focus on the moderating effects of compensation contracting and financial reporting practices.

The US government has a massive footprint on any US company that goes way beyond just the impact of tariffs. How the government chooses to use that influence can make or break the company. Read the full article on Forbes.com

How should an investor value financial data? The answer is complicated because it depends on the characteristics of all investors. We develop a sufficient statistics approach that uses equilibrium asset return moments to summarize all relevant information
about others’ characteristics. It can value data that is public or private, about one or many assets, relevant for dividends or for sentiment. While different data types, of course, have different valuations, heterogeneous investors also value the same data