Democracy and the Pricing of Initial Public Offerings Around the World

The proliferation of democracy internationally has spurred a large volume of research on its benefits (and costs) over economic growth in recent decades. Some studies assess the impact of democracy over various aspects of macroeconomic growth; however, the same cannot be argued for the micro level, whereby the effect of democracy over corporate decisions has been largely ignored.  To the extent that macroeconomic activity reflects the […]

The Initial and Subsequent Credit Rating Effects of Acquisitions

The financial system has developed several mechanisms to align interests of managers and investors. Our study focuses on one such mechanism—credit rating agencies. The financial crisis of 2008 highlighted the importance of well-functioning credit rating agencies. The failure of credit rating agencies during the crisis was a focus of the Dodd-Frank Act of 2010 (“Dodd-Frank”), […]

How is the Audit Market Affected by Characteristics of the Non-Audit Services Market

Researchers, regulators, and practitioners have long-standing concerns about the negative effects of non-audit services (NAS) on audit quality. On the one hand, payments for NAS by client firms can impair auditor independence and motivate auditors to ignore client deficiencies. On the other hand, knowledge transfer across audit and NAS employees at the same firm can […]

Relative Performance Evaluation and the Peer Group Opportunity Set

The use of incentive-compensation practices based on relative performance has grown dramatically in recent years (see Figure 1). As of 2019, more than 50% of large U.S. firms base executive compensation in part on their firms’ performance relative to peer firms, compared to just 20% in 2006. Further, relative total shareholder return (“TSR”) is now […]

Trust Culture and the Effectiveness of Consumer Protection

In our recent paper, we study consumer complaints filed with the Consumer Financial Protection Bureau (CFPB), the watchdog agency charged with protecting consumers from financial abuses, and their disciplinary effect on bank behavior. Since its establishment, the role and effectiveness of the agency has been subject to debate—the previous administration tried to dismantle it, while the […]

The Information Role of the Media in Earnings News

A central question about the media’s role in capital markets is whether media coverage influences investors’ reactions to firms’ disclosures, such as earnings releases. Multiple studies provide evidence consistent with the media disseminating, but not creating, information that influences the market’s earnings response. Specifically, they find that brief articles without, but not lengthier articles with, […]

Hedge Fund Trading and Funding During the March 2020 US Treasury Market Dislocation

The role of hedge funds in U.S. Treasury (UST) markets is thought to have increased in importance since the global financial crisis (GFC) as bank-affiliated broker-dealers ceded some of their traditional activities in UST market arbitrage and liquidity provision to non-bank financial institutions. While UST securities play a vital role in the global financial system, […]

Personnel is Policy: Financial Agency Leadership under the Biden-Harris Administration Six Months After the Inauguration

In a prior post I discussed potential changes to the leadership of Federal financial regulatory and supervisory agencies as a result of the 2020 Presidential election. This post reviews progress on that front through the first six months of the Biden-Harris Administration.  An updated scorecard is attached to this post for ease of reference.   In general, the Administration […]

Summary of Comment Letters for the SEC’s Climate Risk Disclosure RFI

Recognizing that “investor demand for, and company disclosure of information about, climate change risks, impacts, and opportunities has grown dramatically,” former Securities and Exchange Commission (SEC or Commission) Acting Chair Allison Herren Lee released 15 questions for consideration on March 15, 2021 “with an eye toward facilitating the disclosure of consistent, comparable, and reliable information […]

Comprehensive Study of Special-Purpose Acquisition Company (SPAC): An Investment Perspective

Introduction Special-Purpose Acquisition Companies (SPACs) have been widely discussed over the past year. According to the U.S. Securities and Exchange Commission (SEC), a SPAC is created specifically to pool funds in order to finance a merger or acquisition opportunity within a set time frame. A SPAC has 24 months after the initial public offering (IPO) […]