Working Paper

1. The Real Effects of Mandatory Nonfinancial Disclosure: Evidence from Supply Chain Transparency (Job market paper)

  • Presented at: Emerging Scholars in Accounting Conference 2019, HKUST, Columbia Business School, Accounting Theory Summer School at Duke University

Abstract: I study whether and how mandatory nonfinancial disclosure affects firms’ real decisions by leveraging non-investor stakeholders’ responses. I exploit a disclosure regulation enacted by California in 2012, which mandates that firms disclose how they conduct due diligence to combat their suppliers’ labor abuse. I find that affected firms increase their due diligence, and that firms with more (less) due diligence experience an increase (decrease) in market share. The effect is stronger when firms’ disclosures are monitored by activist groups (e.g., NGOs), when customers have greater incentives to use the newly disclosed information, and when the law leads to a larger increase in information comparability. Collectively, the results suggest that mandatory nonfinancial disclosure can affect firms’ real decisions through market mechanisms and that stakeholder responses play a key role.

2.Corporate Disclosure as a Tacit Coordination Mechanism: Evidence from Cartel Enforcement Regulations (with Thomas Bourveau and Alminas Zaldokas)

  • Accepted for publication, Journal of Accounting Research
  • Presented at: Journal of Accounting Research Conference 2019
  • Best Paper Award, Asian Finance Association 2018

Abstract: We empirically study how collusion in product markets affects firms' financial disclosure strategies. We find that after a rise in cartel enforcement, U.S. firms start sharing more detailed information in their financial disclosure about their customers, contracts, and products. This new information potentially benefits peers by helping to tacitly coordinate actions in product markets. Indeed, changes in disclosure are associated with higher future profitability. Our results highlight the potential conflict between securities and antitrust regulations.

3.Reporting Quality and Vertical Integration (with Volodymyr Babich, Gilles Hilary and Kaiwai Hui)

  • Revising for 3rd Round Submission, Management Science
  • Presented at Arizona State University, Boston University, Georgetown University, National University of Singapore, University of Arizona , AAA Annual Meeting 2018

Abstract: Firms that benefit from strategic supply-chain partnerships generally make non-transferable investments. Low reporting quality in strategic partner organizations, however, occasions mismanagement that puts such investments at risk. We expect firms to address this risk by acquiring their counterparts. Consistent with this intuition, firms that suffer from restatements are more likely to become targets of vertical integration. Different comparative statics are consistent with the notion that these acquisitions are made to remove the risk of economic distress induced by mismanagement of the strategic partners. The effect is stronger when targets are more likely to suffer from economic distress, are more economically important to the acquirer, and exhibit worse internal monitoring. Acquirers’ economic uncertainty is subsequently reduced, and stock price reactions reflect expected synergies of such acquisitions. Overall, our results suggest these integration strategies are successful at removing business risks for the acquirer created by a counterpart’s agency problem.

4. Hoarding Bad News through Confidential Treatments? An Analysis of Market Reactions to Redaction Amendments (with Kaiwai Hui, Kyungran Lee and Eric Yeung)

  • Presented at: FARS Midyear Meeting 2019 (nominated for best paper award), AAA Annual Meeting 2019, Hawaii Accounting Research Seminar 2019

Abstract: The SEC frequently requires firms to submit amended filings to release information initially redacted by the firms on the ground of protection against competitive harm. We examine the firm’s and its rivals’ market reactions surrounding amendment filing dates. We find that rather than being explained by competitive harm, the firm’s negative stock price reactions are explained by the revelation of previously redacted non-proprietary bad news. The revelation does benefit a subset of rival firms with high product similarity and in high R&D intensity industries; however, it does not result in competitive harm to the firm. The negative market reactions are predicted by insider selling activities around the initial redaction dates. We also find that the market reactions to redaction amendments are associated with SEC review staff’s experience and corporate affiliations. Our study has implications for the recent SEC regulatory changes regarding confidential treatments.

5.Vertical Competition, Systematic Risk, and Expected Returns (with K.C. John Wei and Haifeng You)

  • Presented at: CICF 2018, NTU Management Review Conference 2018, HKUST

Abstract: When firms face adverse economic shocks, they often have incentives to transfer them to their upstream or downstream counterparts to minimize the impact. Their ability to do so is affected by the competition landscape of their upstream and downstream industries. We predict that firms with more competitive upstream or downstream industries have greater ability to pass on adverse shocks along the supply chain and therefore have lower risk exposures. Our empirical results are consistent with this prediction, showing that firms with more competitive upstream or downstream industries have significantly lower capital market and fundamental risks, as well as lower costs of equity capital. The results remain intact after controlling for endogeneity bias. Overall, our results highlight the importance of vertical competition in determining firms’ systematic risk and cost of equity capital.

Other Publication

Judging a Book by Its Cover: The Influence of Physical Attractiveness on the Promotion of Regional Leaders, with Leng Ling and Danglun Luo, Journal of Economic Behavior & Organization, 2019 (158): 1-14

Abstract: We investigate the determinants of the promotion of Chinese municipal leaders and find that leaders with greater perceived attractiveness have a higher probability of promotion. Further exploration shows no correlation between a leader's facial traits and local economic growth under his jurisdiction. Essentially, a senior government official's look significantly affects his chance of promotion but says very little about his ability to advance the local economy. Our findings suggest that appearance-based discrimination exists when Chinese political hierarchy screens political elites.