- 28 May 2019
- Research & Ideas
Investor Lawsuits Against Auditors Are Falling, and That's Bad News for Capital Markets
It's becoming more difficult for investors to sue corporate auditors. The result? A weakening of trust in US capital markets, says Suraj Srinivasan. Open for comment; Comment(s) posted.
- 13 May 2019
- Working Paper Summaries
The Changing Landscape of Auditor Litigation and Its Implications for Audit Quality
Data from 1996 to 2016 shows that shareholder litigation against auditors has declined in recent years. Empirical evidence shows that Rule 10b-5, the Securities Act statute used for class action lawsuits, has lost its bite for use against auditors. This decline is driven, at least in part, by the US Supreme Court’s narrowing of liability standards. These findings suggest weakened shareholder protection with profound implications for investors.
- 18 Jul 2018
- Research & Ideas
No More General Tso's? A Threat to 'Knowledge Recombination'
Immigrants bring with them innovations from their homelands, knowledge that local inventors often build upon, says Prithwiraj Choudhury. Examples: turmeric medicine, double-entry bookkeeping, and American Chinese food. Open for comment; Comment(s) posted.
- 31 Mar 2018
- Working Paper Summaries
Expected Stock Returns Worldwide: A Log-Linear Present-Value Approach
Over the last 20 years, shortcomings of classical asset-pricing models have motivated research in developing alternative methods for measuring ex ante expected stock returns. This study evaluates the main paradigms for deriving firm-level expected return proxies (ERPs) and proposes a new framework for estimating them.
- 07 Aug 2017
- Research & Ideas
'Be Yourself (Within Reason)' and Other Job Search Survival Tips
In some professions, successful job hunting depends as much on a healthy body and cleared mind as it does on a well-performed interview, says Ethan Rouen. Open for comment; Comment(s) posted.
- 03 Aug 2017
- Working Paper Summaries
The Accounting Rookie Job Market: A Practitioner’s Guide
Aimed at accounting PhD students but potentially useful to other new academics and job seekers, this first-person essay offers suggestions for the dissertation process and subsequent job search. The writer tries to relieve some of the stress and confusion that inevitably comes with completing a PhD and finding a first academic job.
- 31 May 2017
- Working Paper Summaries
Stock Price Synchronicity and Material Sustainability Information
This paper seeks to understand and provide evidence on the characteristics of emerging accounting standards for sustainability information. Given that a large number of institutional investors seek sustainability data and have committed to using it, it is increasingly important to develop a robust accounting infrastructure for the reporting of such information.
- 06 Jan 2016
- Book
Accounting for Legitimacy
With little scrutiny from the public, industry experts are quietly rewriting accounting rules to benefit their businesses, says Karthik Ramanna in a new book, Political Standards: Corporate Interest, Ideology, and Leadership in the Shaping of Accounting Rules for the Market Economy. Open for comment; Comment(s) posted.
- 05 Jan 2016
- Working Paper Summaries
The Integrity of Private Third-party Compliance Monitoring
Michael Toffel and Jodi Short examine how conflict of interest and other risks lead to inaccurate monitoring of health, labor, and environmental standards.
- 26 Oct 2015
- Working Paper Summaries
Applications of Fractional Response Model to the Study of Bounded Dependent Variables in Accounting Research
This paper discusses key features of the fractional response mode developed by economists Leslie E. Papke and Jeffrey M. Wooldridge.
- 21 Aug 2015
- Working Paper Summaries
Banks’ Risk Exposures
Since the financial crisis, there has been renewed interest in documenting how much risk financial institutions are exposed to. This paper shares the important goal of that scholarship: to come up with a method that summarizes banks' positions in a meaningful way so that it will inform the theoretical modeling of these institutions and offer insights for policy decisions. Specifically, the paper measures banks' exposures to macroeconomic risk through their fixed income positions by representing those positions in terms of simple factor portfolios. Factor portfolios provide measures of exposure that are easy to interpret and compare across positions. The results help elucidate the evolution of bank risk taking over the last 20 years. Closed for comment; 0 Comment(s) posted.
- 24 Jun 2015
- Working Paper Summaries
Accounting Data, Market Values, and the Cross Section of Expected Returns World
Over the past 30 years, the central question in asset pricing is understanding what drives the variation in expected returns. Despite its importance, empirical research in this area has remained problematic because the key variable, expected returns, is not observable. This paper promotes an accounting-fundamentals-based approach to estimating expected returns. It contributes to the stream of empirical studies devoted to developing the estimation of, and understanding the behavior of, expected returns. It also provides a practical tool that can be used to analyze investment choices in international equity contexts. Closed for comment; 0 Comment(s) posted.
- 13 Apr 2015
- Working Paper Summaries
Implied Materiality and Material Disclosures of Credit Ratings
Materiality—a concept at the core of financial, sustainability, and integrated reporting—means the "reportability" of economic, environmental, social, and governance (risk) issues. Using the lens of materiality, the authors of this paper examine principles underlying the methodologies and business models of credit reporting agencies (CRAs), finding that CRAs have potential governance shortcomings that need to be addressed by the boards of the CRAs themselves. The governance remedies recommended here aim to restore credit rating institutions to their historic role in the proper functioning of the global capital markets. Closed for comment; 0 Comment(s) posted.
- 12 Feb 2015
- Working Paper Summaries
Auditor Lobbying on Accounting Standards
Understanding the political process that leads to accounting standards may provide insights into both their procedural legitimacy and how they will eventually be used. In a study of the role of major auditors in the accounting standard-setting process, the authors provide a systematic characterization of auditors' changing incentives. They also examine how those incentives influence auditor lobbying across nearly every financial reporting standard issued from 1973 through 2006. Overall, results suggest that the auditors' own incentives play a prominent role in their lobbying activities for the rules of U.S. GAAP (Generally Accepted Accounting Principles). Closed for comment; 0 Comment(s) posted.
- 29 May 2014
- Research & Ideas
Research Symposium 2014
Harvard Business School professors presented their research to colleagues, with topics including speaking up at work, a manager's responsibility to capitalism, and a strategy to fix the health care system. Open for comment; 0 Comment(s) posted.
- 10 Mar 2014
- Research & Ideas
Counting Up the Effects of Sarbanes-Oxley
More than a decade after its inception, the effects of Sarbanes-Oxley seem, if anything, beneficial, say Harvard's Suraj Srinivasan and John C. Coates. Why then do so many critics remain? Open for comment; 6 Comment(s) posted.
- 24 Feb 2014
- Working Paper Summaries
Integrated Reporting and Investor Clientele
As a relatively new phenomenon in the world of corporate reporting, integrated reporting (IR) has gained traction across both the corporate and investor community in the last 10 years. A recent pilot program of the International Integrated Reporting Council, for example, included more than 100 large multinational companies supported by an investor network with more than 40 members. Although IR has the potential to fundamentally change corporate reporting, we still know relatively little about its causes and consequences. Proponents of IR argue that the attraction of long-term investors is a benefit of adopting IR. While anecdotal evidence has suggested the presence of a link, no empirical evidence to date has been provided to establish such a relation. In this paper, the author examines how the practice of IR affects the investor base of the firm. Specifically, analyzing data on more than 1,000 firms between 2002 and 2010, he finds that firms practicing IR have a more long-term investor base and fewer transient investors. In addition, evidence supports a causal mechanism from IR to the investor base of a firm. Investor activism on sustainability issues is shown to be effective in improving IR, but such investor-induced changes in IR do not affect the composition of the investor base. Overall, the paper contributes to emerging scholarship that seeks to understand the causes and consequences of sustainability and integrated reporting. It also contributes to studies examining how companies cater to different types of investors. Key concepts include: Integrated Reporting (IR) is a reporting innovation that serves as an important determinant of the composition of a firm's investor base. Firms that practice IR tend to have fewer transient investors and more dedicated investors who are oriented to the long term. IR is a rare experiment in fundamentally changing corporate reporting. More research is needed on what are the motivations of different firms that practice IR, as well as research on whether and how IR instills 'integrated thinking' inside the firm. Closed for comment; 0 Comment(s) posted.
- 08 May 2013
- Research & Ideas
A Company’s Evolving View of Gender Equity
Looking at the evolution of gender in US society over nearly 20 years, a new study by Lakshmi Ramarajan, Kathleen L. McGinn, and Deborah Kolb traces how one prominent professional-service firm internalized the shifting concerns. Open for comment; 2 Comment(s) posted.
- 16 Apr 2013
- Working Paper Summaries
The Auditing Oligopoly and Lobbying on Accounting Standards
The US auditing industry has been characterized as an oligopoly, which has successively tightened from eight key players to four over the last 25 years. This tightening is likely to change the incentives of the surviving big auditors, with implications for their role in our market economy. Motivated by the economic and public policy implications of the tightening audit oligopoly, the authors of this paper investigate the changing relation between the big firms and accounting standards. Accounting standards are a key input in the audit process and, through their effects on financial reporting, can impact capital allocation decisions in the economy. Results show that the big auditors are more likely to identify decreased reliability in proposed standards as the auditing oligopoly has tightened: This suggests that big auditors perceive higher litigation and political costs from the increased visibility that accompanies tighter oligopoly. The findings are also consistent with tighter oligopoly decreasing competition among the surviving firms to satisfy client preferences in accounting standards. The findings do not support the concern that tightening oligopoly has rendered the surviving big firms "too big to fail." Key concepts include: This research investigates the impact of the tightening audit oligopoly on "Big Four" auditors' propensity to discuss decreased "reliability" in accounting standards proposed by the Financial Accounting Standards Board (FASB). "Reliability" is a key attribute of accounting. Moreover, reliability is directly relevant to auditors because it entails "verifiability," another key aspect of auditing. As the auditing oligopoly has tightened, big auditors are more prone to eschew the judgment and risks inherent in less reliable accounting standards. Results provide some descriptive evidence on the evolution of "rules" over "principles" in U.S. Generally Accepted Accounting Principles (GAAP). The growth of rules-based accounting standards is significant because it can result in a collectivization of auditing and financial reporting risks in ways that can be sub-optimal for capital allocation. Results do not support the notion that the tightening oligopoly has rendered the surviving big audit firms "too big to fail." Closed for comment; 0 Comment(s) posted.
Updating the Balanced Scorecard for Triple Bottom Line Strategies
Society increasingly expects businesses to help solve problems of environmental degradation, inequality, and poverty. This paper explains how the Balanced Scorecard and Strategy Map should be modified to reflect businesses’ expanded role for society.