Sell-Side Analysts’ Assessment of Operational Risk: Evidence from Negative ESG

Financial analysts closely follow a firm’s operations and assess the risks that it faces. Operational risks have value implications to firms, and as such are expected to be reflected in analysts’ outputs. In this paper, we examine whether analysts incorporate assessments of operational risks. We use firm-day level data from RepRisk about negative operational incidents that are classified into environmental, social, and/or governance issues. We find that analyst outputs predict negative ESG incidents, suggesting that analyst outputs contain information that is predictive of these events. Our results are robust to controlling for negative ESG incidents that firms experienced in the past, and are stronger in more transparent information environments, and in the presence of more guidance on ESG issues from Sustainability Accounting Standards Board. Finally, we find that these ESG risks are incorporated into analyst outputs through adjustments to discount rates rather than to cash flow estimates. Overall, our results highlight the ability of financial analysts to synthesize and integrate operational risks, and in particular ESG-related risks, into their research outputs

Deconstructing the PCAOB: Using organizational economics to assess the state of a regulator

Using the principles of organizational economics in this study we assess the quality of the organizational architecture of the Public Companies Accounting Oversight Board (PCAOB). In particular, we use the Four Pillar Framework developed in Brickley et al. (2000) to understand why—according to the SEC’s Chairman Gensler and other stakeholders—the PCAOB may not have entirely realized its mission of investor protection. Our analysis is enabled by the transcripts of the 2019 criminal trial U.S. vs. Middendorf and Wada (i.e., PCAOB-KPMG “steal the inspection data” scandal), which for the first time exposed the inner workings of the PCAOB. Our analysis of the transcripts is augmented by other publicly available documents. Our primary conclusion is that the functioning of the PCAOB has been significantly hampered by misalignment of its tasks (in particular in relation to the SEC), sub-optimally designed performance measurement and employee compensation, and weaknesses in the PCAOB’s organizational culture. These misalignments created an environment susceptible to PCAOB employee criminal misconduct which enabled the PCAOB-KPMG “steal the inspection data” scandal and other Board governance and leadership challenges

Industry Recommendations: Characteristics, Investment Value, and Relation to Firm Recommendations

Also presented at 2009 FEA Conference, 2010 AFA Meeting, 2010 FARS Conference, 2010 FIRS Conference</p

Stock Picking, Industry Picking and Market Timing in Sell-Side Research

Also presented at AFA Meeting 2013</p

Sell Side Benchmarks

Presented at Asian Finance Association Annual Meeting, Taipei, 6-9 July 2012</p

Psihoaktivne substance (THC, meskalin in opij) v literaturi 19. in 20. stoletja

Using a unique and comprehensive data set of monthly information on advertising spending in media outlets, we examine whether managers engage in real earnings management to meet quarterly financial reporting benchmarks. We extend prior literature by: (1) examining quarterly as opposed to annual earnings benchmarks and separating advertising from other expenses, which allows us to incorporate advertising’s unique characteristics; (2) exploring the possibility that managers could either reduce or boost advertising to increase chances of meeting an earnings benchmark; (3) investigating the timing, within a fiscal quarter, of altered advertising spending; and (4) analyzing actual activities as opposed to inferring them from reported expenses, which could also be influenced by accrual choices. Our analysis suggests that managers reduce their advertising spending to achieve the financial reporting goals of avoiding losses, avoiding earnings decrease, and meeting analysts’ forecasts. We find some evidence that advertising spending increases during the third month of a fiscal quarter. This increase is stronger for managers who have incentives to meet earnings benchmarks and whose firms have higher margins. We find no evidence of an increased tendency to alter advertising spending after the Sarbanes-Oxley Act

Economic Consequences of Auditor Reputation Loss: Evidence from the Auditor Inspection Scandal

We examine whether the 2017 audit inspection scandal affected KPMG's client relationships and audit quality. Using the trial transcripts, we construct a novel dataset of KPMG clients whose audit engagements were compromised by information leakage from the PCAOB (Transcript Sample). We then examine KPMG's response to this regulatory data theft scandal. Our findings suggest an increased departure rate following the public revelation of the scandal of clients in the Transcript Sample but not in the broad portfolio of KPMG clients. While KPMG's audit fees do not appear to have changed, we find a reduction of KPMG's non-audit fees, which is concentrated in the Transcript Sample clients. Finally, we find that the quality of loan loss provisions of banking clients in the Transcript Sample decreased after the scandal. Overall, our results suggest the audit inspection scandal has imposed costs on both KPMG and its PCAOB-inspected clients whose identities were exposed