Empirical Research on Financial Reporting and Contracting. (July 8 ~ July 14, 2017)

Transcription

1 Empirical Research on Financial Reporting and Contracting (July 8 ~ July 14, 2017) Instructor Ningzhong Li, University of Texas at Dallas; ningzhong.li@utdallas.edu Working Language English Course Objectives This course is designed for Ph.D. students in accounting and may also be of some interest to Ph.D. students with research interests in related fields, particularly corporate finance. The main goal is to enhance students understanding of empirical research in accounting that is broadly related to a firm s contractual (explicit and implicit) relationship with various stakeholders, including creditors, managers, shareholders, competitors, suppliers, customers, the public, and the government. It covers empirical studies on debt contracting, corporate governance, supply chain, political incentive, and product market. A secondary goal is to examine some links between accounting research and related research in corporate finance. These goals will be achieved by providing a thorough introduction to the connections between: (1) the theoretical or intuitive constructs used to frame the research question being examined, and (2) the method used to address the research question. Class Format The seminar is organized around a set of required readings. Responsibility for each paper will be assigned to one person. The assigned person is expected to summarize, offer commentary on, and lead the discussion on the particular paper. There normally are three papers for discussion in each three-hour session, so plan on each reading occupying approximately 50 minutes. Naturally, actual discussion times will vary. There is no restriction on bilateral trading in assignments. Please let me know about trades. Paper Presentation Be prepared to discuss the following for each paper: 1. The research question and the theoretical or intuitive constructs motivating it. Why is the question (un)interesting? Are there well-specified alternatives to the hypotheses? Is the 1

2 question descriptive or predictive? How compelling is the logic/intuition used to develop the hypotheses? 2. What is the study s research design? Consider sample selection and empirical tests. 3. How well is the research design tied to the research question? To what extent is the design capable of distinguishing between alternative hypotheses? 4. What difficulties arise in drawing inferences from the empirical work? 5. What are the major results? How do the authors interpret them? How do you interpret them? 6. What research questions are raised by the paper s results, and what unresolved research questions related to the paper could be investigated? How? Grades Your grade for the class will be determined as follows: 1. A take-home final exam, writing a referee report of a paper (60%) 2. Presentation of assigned readings (30%) 3. Contribution to class discussion (10%) Referee Report The final take-home exam requires you to prepare a referee report of current working papers to be assigned by me. The report will be due on August 10. Your reviews should be as authentic as possible, including a cover letter to the editor containing a brief summary and a recommendation as well as a referee report that is shared with the author(s). Please consider the following aspects and the questions above are a good starting point: Research question Motivation and potential contribution Theory and hypothesis development Sample and research design choices Empirical execution and interpretation of evidence There is no set page limit, although a referee report that goes beyond four or five pages is probably too long. Try to be constructive and specific. Make sure you have a clear recommendation to the editor. 2

3 Course Outline Session 1: Introduction Friedman, M., The Methodology of Positive Economics. Essays in Positive Economics (Chicago: University of Chicago Press, 1953): Shadish, W. R., T. D. Cook, and D. T. Campbell. Experimental and Quasi-experimental designs for generalized causal inference. (Belmont, CA: Wadsworth, Cengage Learning, 2002). Chapter 1, pp ; Chapter 2; Chapter 3, pp and 83-86; Appendix 5.1. Larcker, D. F., and T. O. Rusticus. Endogeneity in Accounting Research. European Accounting Review 16, 1 (2007): Jensen, M. C., and W. H. Meckling. Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure. Journal of Financial Economics 3 (1976): Read pages , Session 2: Accounting Information and Debt Contracting Dichev, I., and D. J. Skinner. Large Sample Evidence on the Debt Covenant Hypothesis. Journal of Accounting Research 40 (2002): Asquith, P., A. Beatty, and J. Weber. Performance Pricing in Bank Debt Contracts. Journal of Accounting and Economics 40 (2005): Ball, R., R. Bushman, and F.P. Vasvari. The Debt-Contracting Value of Accounting Information and Loan Syndicate Structure. Journal of Accounting Research 46 (2008): Christensen, H.B., and V. V. Nikolaev. Capital versus Performance Covenants in Debt Contracts. Journal of Accounting Research 50 (2012): *Christensen, H., V. Nikolaev, and R. Wittenberg-Moerman. Accounting Information in Financial Contracting: The Incomplete Contract Theory Perspective. Journal of Accounting Research 54 (2016): Read pages *Aghion, P., and P. Bolton. An Incomplete Contracts Approach to Financial Contracting. Review of Economic Studies 59 (1992): *Smith, C., and J. Warner. On Financial Contracting: An Analysis of Bond Covenants. Journal of Financial Economics 7 (1979): *Armstrong, C., W. Guay, and J. Weber. The Role of Information and Financial Reporting in Corporate Governance and Debt Contracting. Journal of Accounting and Economics 50: Read pages ,

4 (Note: * indicates additional reading) Session 3: Debt Covenant Design Li, N., F. P. Vasvari, and R. Wittenberg-Moerman. Dynamic Threshold Values in Earnings- Based Covenants. Journal of Accounting and Economics 61 (2016): Frankel, R., C. Seethamraju, T. Zach. GAAP Goodwill and Debt Contracting Efficiency: Evidence from Net worth Covenants. Review of Accounting Studies 13 (2008): Li. N. Negotiated Measurement Rules in Debt Contracts. Journal of Accounting Research 48 (2010): Li, N. Performance Measures in Earnings-Based Financial Covenants in Debt Contracts. Journal of Accounting Research 54 (2016): *Christensen, H., V. Nikolaev, and R. Wittenberg-Moerman. Accounting Information in Financial Contracting: The Incomplete Contract Theory Perspective. Journal of Accounting Research 54 (2016): Read pages Session 4: Corporate Governance Armstrong, C., A. D. Jagolinzer, and D. F. Larcker. Chief Executive Officer Equity Incentives and Accounting Irregularities. Journal of Accounting Research 48 (2010); Core, J. E., R. W. Holthausen, R. W., and D. F. Larcker. Corporate Governance, Chief Executive Officer Compensation, and Firm Performance. Journal of Financial Economics 51(1999): Larcker, D.F., So, E., and Wang, C. Boardroom Centrality and Firm Performance. Journal of Accounting and Economics 55 (2013): Engel, E., R. Hayes, and X. Wang. CEO Turnover and Properties of Accounting Information. Journal of Accounting and Economics 36 (2003): *Lambert, R., Larcker, D. An Analysis of the Use of Accounting and Market Measures of Performance in Executive Compensation Contracts. Journal of Accounting Research 25 (1987): *Bushman, R., Engel, E., Smith, A. An Analysis of the Relation between the Stewardship and Valuation Roles of Earnings. Journal of Accounting Research 44 (2006):

5 *Armstrong, C., W. Guay, and J. Weber. The Role of Information and Financial Reporting in Corporate Governance and Debt Contracting. Journal of Accounting and Economics 50: Read pages *Healy, P. The Effect of Bonus Schemes on Accounting Decisions. Journal of Accounting and Economics 7 (1985): Session 5: Political Incentive Ramanna, K. The Implications of Unverifiable Fair-value Accounting: Evidence from the Political Economy of Goodwill Accounting. Journal of Accounting and Economics 45 (2008): Piotroski, J.D., T.J. Wong, and Tianyu Zhang. Political Incentives to Suppress Negative Information: Evidence from Chinese Listed firms. Journal of Accounting Research 53 (2015): Correia, M. Political Connections and SEC Enforcement. Journal of Accounting and Economics 57 (2014): Ramanna, K. and S. Roychowdhurry. Elections and Discretionary Accruals: Evidence from Journal of Accounting Research 48 (2010): *W. Guay. Discussions of Elections and Discretionary Accruals: Evidence from Journal of Accounting Research 48 (2010): *Skinner, D. The Evolving Disclosure Landscape: How Changes in Technology, the Media, and Capital Market are Affecting Disclosure? Journal of Accounting Research 53 (2015): Read section 6. Session 6: Supply Chain Hui, K., S. Klasa, and E. Yeung. Corporate Suppliers and Customers and Accounting Conservatism. Journal of Accounting and Economics 53 (2012): Shantanu, B., S. Dasgupta, and Y. Kim. Buyer-Supplier Relationships and the Stakeholder Theory of Capital Structure. Journal of Finance 63 (2008): Costello. A. Mitigating Incentive Conflicts in Inter-Firm Relationships: Evidence from Long- Term Supply Contracts. Journal of Accounting and Economics 56 (2013): Cohen, L., and A. Frazzini. Economic Links and Predictable Returns. Journal of Finance 63 (2008):

6 *Patatoukas, P. Customer-Base Concentration: Implications for Firm Performance and Capital Markets. The Accounting Review 87 (2012): Session 7: Product Market Leary, M., and M. Roberts. Do Peer Firms Affect Corporate Financial Policy? Journal of Finance 69 (2014): Baginski, S., and L. Hinson. Cost of Capital Free-Riders. The Accounting Review 91 (2016): Li, X. The Impacts of Product Market Competition on the Quantity and Quality of Voluntary Disclosures. Review of Accounting Studies 15 (2010): Huang, Y., R. Jennings, and Y. Yu. Product Market Competition and Managerial Disclosure of Earnings Forecasts: Evidence from Import Tariff Rate Reductions. The Accounting Review 92 (2017): *Hoberg, G., G. Phillips, and N. Prabhala. Product Market Threats, Payouts, and Financial Flexibility. Journal of Finance 69 (2014):