Capital Structure and Performance Implications of Special-Purpose Governments

We study the capital structure choices and resultant operating consequences of American special-purpose governments. In the United States, special-purpose governments have approximately $1 trillion of outstanding debt. These entities are established with Congressional authorization, rendering taxpaers ultimately responsible for satisfying their obligations. However, their debt is not recorded on any local, state, or Federal financial statements. Despite the enormity of these quasi-governmental units and the implications of their operating choices on the country’s fiscal health, surprisingly little is known about their underlying decisions and attendant consequences. This dearth of knowledge motivates our study. We find that special-purpose governments follow a modified pecking-order theory of capital structure, first exhausting internal funding before issuing debt. These units then use an equity-like instrument to fund investment. Moreover, their capital structure is associated with operating outcomes, providing evidence that the financing decisions of these entities have operational consequences of import for the country’s fiscal position

Optimizing Large Financial Portfolios

NPS NRP Executive SummaryStrategic fiscal analysis to support and interpret decisions is critical to defending the Navy's Program Objective Memorandum (POM). Historically, the Navy has tried to optimize its financial budget portfolio using a variety of models and approaches. However, these approaches have fallen short for a number of reasons, including their inability to incorporate uncertainty into financial planning. The objective of this research effort is to help develop an objective function that can optimize financial portfolios under conditions of uncertainty, such as cost, scheduling, performance, and adversary nations" strategies. We will first review cutting-edge solutions from private and public sector entities to identify suitable solutions to budgeting under conditions of uncertainty. We will then use sponsor-provided mockup data to evaluate the ability of various solutions to optimize under likely conditions. Finally, we will use our findings to make implementation suggestions.N8 - Integration of Capabilities & ResourcesThis research is supported by funding from the Naval Postgraduate School, Naval Research Program (PE 0605853N/2098). https://nps.edu/nrpChief of Naval Operations (CNO)Approved for public release. Distribution is unlimited.

Optimizing Large Financial Portfolios

NPS NRP Project PosterStrategic fiscal analysis to support and interpret decisions is critical to defending the Navy's Program Objective Memorandum (POM). Historically, the Navy has tried to optimize its financial budget portfolio using a variety of models and approaches. However, these approaches have fallen short for a number of reasons, including their inability to incorporate uncertainty into financial planning. The objective of this research effort is to help develop an objective function that can optimize financial portfolios under conditions of uncertainty, such as cost, scheduling, performance, and adversary nations" strategies. We will first review cutting-edge solutions from private and public sector entities to identify suitable solutions to budgeting under conditions of uncertainty. We will then use sponsor-provided mockup data to evaluate the ability of various solutions to optimize under likely conditions. Finally, we will use our findings to make implementation suggestions.N8 - Integration of Capabilities & ResourcesThis research is supported by funding from the Naval Postgraduate School, Naval Research Program (PE 0605853N/2098). https://nps.edu/nrpChief of Naval Operations (CNO)Approved for public release. Distribution is unlimited.

Innovation for Hire: A Descriptive Study of Federal Acquisitions and Contractor R&D

17 USC 105 interim-entered record; under review.In 2016, the U.S. Federal government procured goods and services totaling $460 billion, or over two percent of America’s gross domestic product. Innovation is a key goal of Federal procurements, but the extent to which the acquisition process cultivates private-sector innovation is unclear. To shed light on this relationship, we explore private-sector innovation over an eight- year period and find that firms increase research and development commeasurate with government contracts. We develop a measure that ranks firms on the intensity of public-sector versus private-sector innovation. Tests deploying this tool show that firms with the most (least) research and development on government (relative to private) contracts produce innovative goods such as missiles (security guards). Taken together, our results suggest that Federal acquisitions appear to motivate innovation at levels that are appropriate to the nature of requisitioned goods or services. These results should be of interest to practitioners and acquisition personnel who serve a common goal of efficiently deploying a finite pool of taxpayer-generated revenues to the most productive use.Judith Hermis thanks the Naval Postgraduate School for financial assistance through the Research Initiation Program

Nuclear Officer Bonus & Incentive Pay (NOBIP) and Retention

NPS NRP Executive SummaryRetaining top-quality nuclear officers is critical to mission readiness. To facilitate officer retention, the Navy offers a bonus, the Nuclear Officer Continuation Bonus (COBO), to officers who have fulfilled the minimum service requirement (MSR). The Navy recently raised the amount of the bonus in the hope of increasing retention. It is mission-critical to understand how responsive retention rates have been to COBO, particularly in light of the recent changes. This study examines the efficacy of the most recent bonus policy for nuclear officers, NAVPOL 20241 and its immediate predecessor. Specifically, we used sponsor-provided data on 2,058 nuclear officers across seven year groups to assess the impact of the latest NAVPOL on nuclear officer retention relative to the immediately prior policy. Statistical analyses using survivorship modeling revealed that individual characteristics, such as the overall unemployment rate, marital status, presence of dependents, length of military tenure, and membership in certain racial/ethnic ­­groups are all positively and statistically significantly associated with nuclear officer retention. We recommend the Navy commission additional studies to obtain a deeper understanding of the non-monetary factors influencing nuclear officer retention, rather than a simple increase in the dollar amount of the COBO.N1 - Manpower, Personnel, Training & EducationThis research is supported by funding from the Naval Postgraduate School, Naval Research Program (PE 0605853N/2098). https://nps.edu/nrpChief of Naval Operations (CNO)Approved for public release. Distribution is unlimited.

Nuclear Officer Bonus & Incentive Pay (NOBIP) and Retention

NPS NRP Project PosterRetaining top-quality nuclear officers is critical to mission readiness. To facilitate officer retention, the Navy offers a bonus, the Nuclear Officer Continuation Bonus (COBO), to officers who have fulfilled the minimum service requirement (MSR). The Navy recently raised the amount of the bonus in the hope of increasing retention. It is mission-critical to understand how responsive retention rates have been to COBO, particularly in light of the recent changes. This study examines the efficacy of the most recent bonus policy for nuclear officers, NAVPOL 20241 and its immediate predecessor. Specifically, we used sponsor-provided data on 2,058 nuclear officers across seven year groups to assess the impact of the latest NAVPOL on nuclear officer retention relative to the immediately prior policy. Statistical analyses using survivorship modeling revealed that individual characteristics, such as the overall unemployment rate, marital status, presence of dependents, length of military tenure, and membership in certain racial/ethnic ­­groups are all positively and statistically significantly associated with nuclear officer retention. We recommend the Navy commission additional studies to obtain a deeper understanding of the non-monetary factors influencing nuclear officer retention, rather than a simple increase in the dollar amount of the COBO.N1 - Manpower, Personnel, Training & EducationThis research is supported by funding from the Naval Postgraduate School, Naval Research Program (PE 0605853N/2098). https://nps.edu/nrpChief of Naval Operations (CNO)Approved for public release. Distribution is unlimited.

How Busyness Influences SEC Compliance Activities: Evidence from the Filing Review Process and Comment Letters

The article of record as published may be found at https://doi.org/10.1111/1911-3846.12507The SEC reviews firm filings and issues comment letters on those filings. These comment letters play an important role in the assessment of firm value. These activities are seasonally compressed because over 70 percent of registrants have a December fiscal year-end. Research in other settings finds that busyness leads to negative outcomes. We examine how busyness impacts the frequency, scope, and timeliness of comment letters. We find that the SEC issues fewer comment letters when busy, focuses its limited resources on the most severe cases of disclosure noncompliance, and extends the amount of time between receiving a firm’s filing and issuing a comment letter. Despite this, we find no evidence that the SEC misses more serious compliance issues when busy. Our results have implications for policymakers responsible for allocating resources to the SEC.Judith Hermis acknowledges the financial support of the Leeds School of Business through the Gerald Hart Doctoral Research Fellowship

Essays on Political Influence in Accounting

In this study, I examine the interplay between regulatory enforcement and corporate behavior. Specifically, I focus on how interactions with regulators influence firms’ financial reporting and operating environments. I find evidence consistent with the hypothesis that regulatory enforcement is associated with material changes in financial reporting disclosures and operating performance

Predicting Federal Contractor Misconduct

Preliminary draft. Please do not cite without author permission.Each year, the United States Federal government procures goods and services in an amount that exceeds three percent of the nation's gross domestic product. Federal acquisitions are subject to binding legislative guidance, including the expansive Federal Acquisition Regulations and agency-specific supplements. In addition, contracting firms face oversight from a variety of executive sub-agencies, all of whom monitor ongoing and ex post performance. Uncle Sam enjoys virtually unlimited power to reclaim previously disbursed revenues, to debar (or ban) misbehaving contractors from future government business, and to imprison and fine contracting miscreants. Despite the unique nature of the business environment and the monetary importance of Federal contracting, prior literature generally ignores the determinants of contractor misconduct. Whether and to what extent firm characteristics predict a range of misbehavior, covering a span from minor statutory violations to fraud commission, is the subject of this paper. We exploit a hybrid research design that combines both within- and between sample elements and document a consistent association between certain contractor characteristics and misconduct commission and severity. We also find that artifacts of the awarding agency display a predictable relationship with contractor misconduct, underscoring the complex institutional setting in which contractor deviancy occurs

How Busyness Influences SEC Compliance Activities: Evidence from the Filing Review Process and Comment Letters

Compliance plays an important role in the financial reporting oversight function of the U.S. Securities and Exchange Commission (SEC). SEC compliance actions include reviewing firm filings and issuing comment letters on those filings. The SEC’s compliance activities are seasonally compressed because over 70 percent of registrants have a December fiscal year-end. Prior literature finds that busyness leads to negative outcomes in other financial reporting settings and that comment letters play an important role in the assessment of firm value. Therefore, understanding how busyness influences SEC compliance activities is important. As such, we examine how busyness impacts the frequency, scope, and timeliness of comment letters. Our results suggest that, despite issuing fewer comment letters when busy, the SEC focuses its limited resources on the most severe cases of disclosure noncompliance. They also extend the amount of time between receiving a firm’s filing and issuing a comment letter. We find no evidence to suggest that the SEC misses more serious compliance issues when busy. Our results have implications for policymakers responsible for allocating resources to the SEC.Judith Hermis acknowledges the financial support of the Leeds School of Business through the Gerald Hart Doctoral Research Fellowship