Financial Accounting & Auditing

A two-factor model explains returns for a variety of test portfolios, including those based of CAPM beta and those underlying factors in extant pricing models. The two-factor model involves the market factor and a factor based on firms’ fundamentals that has the feature of providing a hedge in down markets and a reverse-hedge in up markets. For a wide range of test portfolios, returns are described by sensitivity to the market factor with a beta of one and positions in the hedging factor.

We predict and find that regulated firms' mandatory disclosures crowd out unregulated firms' voluntary disclosures. Consistent with information spillovers from regulated to unregulated firms, we document that unregulated firms reduce their own disclosures in the presence of regulated firms' disclosures. We further find that unregulated firms reduce their disclosures more the greater the strength of the regulatory information spillovers.

We explore the landscape of public company auditing around the introduction of the Securities and Exchange Commission (SEC) in 1934. Using a broad sample of historical annual reports spanning several decades, we document that most public companies obtained audits even before the SEC’s audit mandate, which limited the mandate’s impact on audit rates. We further document that these companies selected their auditors based on characteristics reflecting independence and competence, even before the SEC’s mandate.

Shared Appreciation Mortgages (SAMs) feature mortgage payments that adjust with house prices. These mortgage contracts are designed to stave off home owner default by providing payment relief in the wake of a large house price shock. SAMs have been hailed as an innovative solution that could prevent the next foreclosure crisis, act as a work-out tool during a crisis, and alleviate fiscal pressure during a downturn. They have inspired Fintech companies to offer home equity contracts. However, the home owner's gains are the mortgage lender's losses.

In this paper, we examine a novel two-stage mechanism for selling government securities, wherein the dealers underwrite in the first stage the sale of securities, which are auctioned in stage 2 via either a discriminatory auction (DA) or a uniform price auction (UPA).

This paper examines the impact of mandatory reporting and auditing of firms' financial statements on industry-wide resource allocation. Using threshold-induced variation in the share of mandated firms in a given industry, I document that reporting mandates facilitate ownership dispersion in capital markets and spur competition in product markets. I, however, do not find that reporting mandates unambiguously improve the efficiency of industry-wide resource allocation. With respect to auditing mandates, I find only that they impose a fixed cost on firms, deterring smaller entrants.

Using a unique setting where stand-alone banks submit filings to bank regulators instead of to the SEC, we examine the consequences of fragmented securities regulation on disclosure compliance and information-processing costs. Consistent with the theory that bank regulators are less concerned about transparency than the SEC is, we find that bank regulators’ disclosure requirements are laxer, and stand-alone banks are more likely to violate filing deadlines.