Open Problems on Central Simple Algebras

We provide a survey of past research and a list of open problems regarding central simple algebras and the Brauer group over a field, intended both for experts and for beginners.Comment: v2 has some small revisions to the text. Some items are re-numbered, compared to v

Auditor Change Disclosures as Signals of Earnings Management and Risk

Auditor resignations are considered more negative signals than auditor dismissals, but firms’ self-reported distinction between the two may not offer a complete or reliable representation of the nature of the auditor change. 8-K regulations require the disclosure of the adjournment of an audit engagement even if a successor auditor has not yet been named. In compliance with this requirement, some firms file two 8-k’s related to the same auditor change. Exploiting these dual 8-K filings, we create a new measure of the nature of auditor changes and show that 1) both self-reported auditor resignations and dual 8-K filings are related to measures of earnings management and risk; and 2) auditor changes identified as both self-reported resignations and dual 8-K filings are associated with the most negative economic implications (as reflected by the likelihood of financial statement manipulation and bankruptcy risk). We suggest that dual 8-K filings and self-reported resignations are complementary negative signals each capturing unique dimensions of the underlying economic factors

Predicting Extreme Returns and Portfolio Management Implications

We consider which readily observable characteristics of individual stocks (e.g., option implied volatility, accounting data, analyst data) may be used to forecast subsequent extreme price movements. We are the first to explicitly consider the predictive influence of option implied volatility in such a framework, which we unsurprisingly find to be an important indicator of future extreme price movements. However, after controlling for implied volatility levels, other factors, particularly firm age and size, still have additional predictive power of extreme future returns. Furthermore, excluding predicted extreme return stocks leads to a portfolio that has lower risk (standard deviation of returns) without sacrificing performance

The Role of Information and Financial Reporting in Corporate Governance and Debt Contracting

We review recent literature on the role of financial reporting transparency in reducing governance-related agency conflicts among managers, directors, and shareholders, as well as in reducing agency conflicts between shareholders and creditors, and offer researchers some suggested avenues for future research. Key themes include the endogenous nature of debt contracts and governance mechanisms with respect to information asymmetry between contracting parties, the heterogeneous nature of the informational demands of contracting parties, and the heterogeneous nature of the resulting governance and debt contracts. We also emphasize the role of a commitment to financial reporting transparency in facilitating informal multiperiod contracts among managers, directors, shareholders, and creditors