Threat of entry and the use of discretion in banks' financial reporting
Journal of Accounting and Economics, 2019, 67(1), 1-35

This paper studies managers' use of accounting discretion to deter entry. Using state-level changes in branching regulation under the Interstate Banking and Branching Efficiency Act, I find geographically-constrained community banks increased their loan loss provisions to appear less profitable when faced with the threat of entry by competitors. Additional tests rule out alternative explanations that firm economics or regulators drove the increase. I complement my analyses with survey-based evidence. Findings from the survey confirm that banks prefer to locate in markets where incumbents have high profitability and low credit losses, and that banks use competitors' financial statements to analyze competition.

As part of this study, I conducted a survey of community bankers. Details related to the survey can be found in Appendix A of the paper, as well as here: Competition in Community Banking Survey

The survey instrument can be found here: Survey Instrument

Repatriation Taxes and Foreign Cash Holdings: The Impact of Anticipated Tax Reform
(with Lisa De Simone and Joseph Piotroski)
The Review of Financial Studies, 2019, 32(8), 3105-3143

We examine whether an anticipated reduction in future repatriation taxes affects the amount of cash U.S. multinationals hold overseas. We find that the expected benefits of a repatriation tax reduction are positively associated with accelerated accumulations of global cash holdings once Congress proposed legislation. Additional tests examining domestic and foreign corporations, voluntary disclosures of foreign cash, and corporate payout behavior support our conclusion that observed increases in excess global cash are driven by changes in foreign cash. We also document that U.S. multinationals accumulating excess cash engage in complementary organizational and financial reporting activities designed to maximize expected tax benefits.

Working Papers


Observing Enforcement: Evidence from Banking (with Anya Kleymenova)
- Bureau Van Dijk Best Paper Award in Banking, 2019 SBFC
- 2020 EFA Best Paper Award

We find the public disclosure of regulators' actions influences their enforcement behavior. Using a change in regulation regime, which required disclosure of bank enforcement actions (EDOs), we find that regulators start issuing more EDOs, intervening sooner, and relying more on publicly observable signals. The content of EDOs also changes, with documents becoming more complex and boilerplate. Our results suggest regulators respond to the increased public scrutiny of their actions. We also assess the impact of disclosure on bank outcomes and find a decline in deposits and an acceleration of bank failure, despite improvements in banks' capital ratios and asset quality.

Short-Term Cash Flow Shocks and R&D Investment: Evidence from the 1999 Taiwan Earthquake
Awarded Best Paper in Corporate Finance, 2018 SFS Cavalcade Asia-Pacific (Sponsored by the Review of Financial Studies)

This paper studies changes in managers' investment decisions in response to short-term cash flow shocks. Using the novel setting of the 1999 Taiwan earthquake and a difference-in-differences design, I find managers reduce investment in research and development (R&D), but not capital expenditure, following the shock. The earthquake increased production costs for a subset of firms in the US high-technology industry that source raw materials from Taiwan. Because the shock occurred in Taiwan and was unexpected, this setting allows me to hold constant market demand and the investment-opportunity set, reducing concerns that changes in demand or investment opportunities could be driving the cutback in R&D. I also provide evidence suggesting the reduction in R&D is related to reduced innovation. Finally, using a decision tree model, I find evidence consistent with an earnings management motive. Specifically, I find firms affected by the shock become more aggressive in revenue recognition.

Out of Site, Out of Mind? The Role of the Government-Appointed Corporate Monitor (with Lindsey Gallo and Kendall Lynch)

We study the role of a relatively new type of external monitor: a government-appointed Corporate Monitor, and assess whether such appointments reduce firms’ propensity to violate laws. Using a sample of deferred and non-prosecution agreements, we first document the determinants of Monitor-appointment. We find firms that voluntarily disclose wrongdoing and have more independent directors are less likely to have Corporate Monitors, whereas those with more severe infractions, mandated board changes, and increased cooperation requirements are more likely to have Monitors. Controlling for these determinants of Monitor-appointment, we find such appointments reduce violations of the law by 18%–25%. However, we find little evidence the effect persists after the Monitorship ends. Overall, our results suggest that although Corporate Monitors are effective on-site, they are less successful in changing firms’ long-term behavior. Our findings highlight the need for greater transparency around the role of the Corporate Monitor. 

Community Membership and Reciprocity in Lending: Evidence from Informal Markets (with Regina Wittenberg Moerman)

We study how wholesalers extend trade credit to retailers in economies where formal market institutions, such as financial reporting systems, auditing, and courts, are nonexistent or function poorly. Using the setting of a large market in the northeastern part of India, we find that community membership plays a strong role in the access to trade credit. Wholesalers are more likely to provide trade credit and offer less restrictive credit terms to within-community retailers, are more lenient when these retailers default, and are less likely to experience defaults from them. We show that this cooperation between same-community wholesalers and retailers is achieved through a reciprocity mechanism, which provides insurance against income shocks.

The Life Cycle of a Bank Enforcement Action and Its Impact on Minority Lending (with Byeongchan An, Robert M. Bushman, and Anya Kleymenova)

This paper studies the role banking supervision plays in improving access to credit for minorities by investigating how enforcement decisions and orders (EDOs) affect bank borrower base. We document significant changes in the underlying demographic mix of residential mortgage borrowers. After an EDO's termination, banks significantly increase residential mortgage lending to minorities and increase their market share of lending to this group within the counties where they operate. EDO banks are also less likely to deny loans to minority borrowers, and their reasons for loan denial change. Our results are consistent with banks catering to regulators after EDO termination.