Firm and Country Determinants of the Quality of Financial Information

This thesis is made of three chapters which contribute to the international accounting literature. The first chapter investigates the effect of the legal enforcement on the use of income increasing earnings management (EAR) and downward expectation management (EXP) to meet or beat analyst earnings forecasts. Using a sample of 4,934 firms from fourteen European countries, we document that the strength of the legal enforcement is negatively associated with EAR and positively associated with EXP. We provide evidence of a substitution effect between EAR and EXP only in the presence of strong legal enforcement, while they are complements when the legal enforcement is weak. We show that the capital market rewards meeting/beating firms, but it penalizes the concurrent use of EAR and EXP and this penalty is positively associated with the strength of the legal enforcement only for EAR. Our results show that legal enforcement has a significant role in the choice between EAR and EXP and that a change in the strength of legal enforcement drives how firms operate to meet or beat analyst forecasts. The contribution of this chapter is two-fold. This is the first study that examines how cross-country variation in the level of enforcement affects the interaction between EAR and EXP to meet/beat analyst forecasts. Second, this chapter is the first study that explores whether the capital market’s reaction to an earnings surprise is related to the strength of the legal enforcement. The second chapter examines how firm-level governance and country-level enforcement interplay in affecting IFRS mandatory adoption consequences on financial reporting quality. We operationalize financial reporting quality using earnings informativeness, accruals management, and real earnings management. We use a treatment sample of 3,476 firm-year observations from 14 European countries that mandatorily adopt IFRS in 2005 and 29,596 firm-year observations from 11 non-IFRS adoption countries. To account for the confounding effects of general trends in financial reporting quality or concurrent events unrelated to IFRS adoption, we estimate annual panel regressions for IFRS adopter firms and non-IFRS adopter firms using industry-country and separate year fixed effects for the treatment and control sample. Three key findings emerge from our analyses. First, IFRS adoption is, on average, associated with an increase in financial reporting quality. However, there is considerable heterogeneity in financial reporting quality changes, suggesting that IFRS mandatory adoption is not sufficient, per se, to change firms’ reporting practices. Second, in countries characterized by weak enforcement, strong board-level monitoring appears to enhance financial reporting quality, thus suggesting a substitutive effect between firm- and country-level governance. Third, in countries characterized by strong enforcement, firms with strong board-level monitoring exhibit a higher level of financial reporting quality than firms with weak board-level monitoring, thus suggesting that country- and firm-level governance are complementary. The chapter contributes to the literature in two ways. First, this is the first study that examines whether board-based monitoring mechanisms shape IFRS mandatory adoption consequences on financial reporting quality. Second, the chapter contributes to the growing literature on the interplay between firm-level governance and country institutional characteristics. The findings point toward a substitution effects between firm-level monitoring mechanisms and country-level enforcement mechanisms when the legal system is lax, while board monitoring and legal enforcement complement each other when the legal system gets stricter. The third chapter examines whether informational environment benefits following cross-listing in the U.S. vanish when the financial reporting process suffers by internal control deficiencies according to the Section 302 of the Sarbanes-Oxley Act (SOX, hereafter). Previous literature documents an increase in the quality of the firm information environment following cross-listing in the U.S. and motivates this result with the bonding effect. This study disputes the idea that the cross-listing per se enhances the quality of firms’ information environment. We challenge this idea considering whether the quality of the information environment for cross-listed firms depends on an effective commitment to achieve higher levels of corporate transparency. As research setting, we use Section 302 of the SOX that requires to disclose any discovered internal control deficiency on internal controls over financial reporting. To account for the impact of general trends or concurrent events unrelated to SOX302 disclosures on information environment of cross-listed firms, we employ as benchmark group all firms listed in their home market but not in the U.S. In addition, we employ propensity-score matching models to take into account differences in firm-characteristics between cross-listed and non-cross-listed firms while estimating SOX302 disclosure treatment effect. Our analyses encompasses both changes and cross-sectional association tests. We show that cross-listed firms disclosing internal control deficiencies do not have a better information environment than their home-country peers, but only after the first disclosure on internal control deficiencies according to SOX302. Second, we show that cross-listed firms experience an improvement in the information environment if they remediate to previously disclosed internal control deficiencies. Finally, we show that these results hold only for firms domiciled in countries with weak legal institutions, while cross-listed firms from countries with strong legal institutions do not experience a significant change in the quality of the information environment once they became cross-listed, irrespective from the disclosure of an internal control deficiency. The study contributes to the literature on cross-listing in two ways. First, we show the existence of substantial heterogeneity in cross-listing effects on firm information environment, driven by the adoption of adequate internal controls over financial reporting. Second, we add to the literature on the effects of the SOX. Literature shows that cross-listed firms experience a decrease in the level of opaqueness after the adoption of the SOX. We add to this literature the evidence that the decline in the level of opaqueness depends on cross-sectional differences in corporate transparency and hence it is not homogenous across all firms

Long-range order, bosonic fluctuations, and pseudogap in strongly correlated electron systems

This thesis deals with the Hubbard model as prototypical model to describe the physics of electrons in the two-dimensional copper-oxide planes of high-$T_c$ cuprates. To get approximate solutions, we employ functional renormalization group (fRG) and dynamical mean-field theory (DMFT) methods. We deal with the problem of identifying bosonic fluctuations in the vertex function, exhibiting an intricate dependence on momenta and frequencies already at moderate coupling. In the normal, paramagnetic phase, the goal is achieved by employing the recently introduced single-boson exchange decomposition. In the symmetry-broken phases, we reformulate the previously introduced combination of fRG with mean-field theory by explicitly introducing a bosonic field. A widely discussed and challenging problem is the emergence of a pseudogap in the Hubbard model. In this thesis we assume this phase to be characterized by strong magnetic fluctuations. Following previous works, we fractionalize the electron in a chargon, carrying the electron's charge, and a charge neutral spinon, which represents local fluctuations of the spin orientation. The chargons undergo N\'eel or spiral magnetic order below a density-dependent transition temperature $T^*$. We compute DC charge transport coefficients for the chargons, and obtain a pronounced drop in the charge carrier density across the magnetic-to-paramagnetic transition. Directional fluctuations of the spin orientation are described by a non-linear sigma model and prevent long-range ordering of the electrons at any finite temperature. The phase where the chargon degrees of freedom are magnetically ordered shares many features with the pseudogap regime observed in high-$T_c$ cuprates: a strong reduction of the charge carrier density, a spin gap, Fermi arcs, and electronic nematicity.Comment: PhD thesis, Universit\"at Stuttgar

Comprehensive mean-field analysis of magnetic and charge orders in the two-dimensional Hubbard model

We present an unbiased mean-field analysis of magnetic and charge orders in the two-dimensional Hubbard model on a square lattice, both at zero and finite temperatures. Unrestricted Hartree-Fock calculations on large finite lattices are complemented by solutions restricted to N\'eel and circular spiral order in the thermodynamic limit. The magnetic states are classified by a systematic scheme based on the dominant Fourier components of the spin texture. On finite lattices a whole zoo of ordering patterns appears. We show that many of these states are finite size artifacts related to the limited choice of ordering wave vectors on a finite lattice. In the thermodynamic limit only three classes of states with a relatively simple structure survive: N\'eel, circular spiral, and stripe states. Stripes involve also charge order and can be unidirectional or bidirectional, with horizontal and/or vertical orientation. We present complete phase diagrams in the plane spanned by electron density and temperature, for a moderate Hubbard interaction and various choices of the next-nearest neighbor hopping amplitude.Comment: 15 pages, 14 figure

Quantum Effects in the Aubry Transition

The Aubry transition between sliding and pinned phases, driven by the competition between two incommensurate length scales, represents a paradigm that is applicable to a large variety of microscopically distinct systems. Despite previous theoretical studies, it remains an open question to what extent quantum effects modify the transition, or are experimentally observable. An experimental platform that can potentially reach the quantum regime has recently become available in the form of trapped laser-cooled ions subject to a periodic optical potential [A. Bylinskii, D. Gangloff, I. Counts, and V. Vuletic, Nature Materials 15, 717 (2016)]. Using Path-Integral Monte Carlo (PIMC) simulation methods, we analyze the impact of quantum tunneling on the sliding-to-pinned transition in this system, and determine the phase diagram in terms of incommensuration and potential strength. We propose new signatures of the quantum Aubry transition that are robust against thermal and finite-size effects, and that can be observed in future experiments.Comment: 10 pages, 7 figure

Single boson exchange representation of the functional renormalization group for strongly interacting many-electron systems

We present a reformulation of the functional renormalization group (fRG) for many-electron systems, which relies on the recently introduced single boson exchange (SBE) representation of the parquet equations [Phys. Rev. B 100, 155149 (2019)]. The latter exploits a diagrammatic decomposition, which classifies the contributions to the full scattering amplitude in terms of their reducibility with respect to cutting one interaction line, naturally distinguishing the processes mediated by the exchange of a single boson in the different channels. We apply this idea to the fRG by splitting the one-loop fRG flow equations for the vertex function into SBE contributions and a residual four-point fermionic vertex. Similarly as in the case of parquet solvers, recasting the fRG algorithm in the SBE representation offers both computational and interpretative advantages: the SBE decomposition not only significantly reduces the numerical effort of treating the high-frequency asymptotics of the flowing vertices, but it also allows for a clear physical identification of the collective degrees of freedom at play. We illustrate the advantages of an SBE formulation of fRG-based schemes, by computing through the merger of dynamical mean-field theory and fRG the susceptibilities and the Yukawa couplings of the two-dimensional Hubbard model from weak to strong coupling, for which we also present an intuitive physical explanation of the results. The SBE formulation of the one-loop flow equations paves a promising route for future multiboson and multiloop extensions of fRG-based algorithms.Comment: 22 Pages, 18 figure

Single-boson exchange functional renormalization group application to the two-dimensional Hubbard model at weak coupling

We illustrate the algorithmic advantages of the recently introduced single-boson exchange (SBE) formulation for the one-loop functional renormalization group (fRG), by applying it to the two-dimensional Hubbard model on a square lattice. We present a detailed analysis of the fermion-boson Yukawa couplings and of the corresponding physical susceptibilities by studying their evolution with temperature and interaction strength, both at half filling and finite doping. The comparison with the conventional fermionic fRG decomposition shows that the rest functions of the SBE algorithm, which describe correlation effects beyond the SBE processes, play a negligible role in the weak-coupling regime above the pseudo-critical temperature, in contrast to the rest functions of the conventional fRG. Remarkably, they remain finite also at the pseudo-critical transition, whereas the corresponding rest functions of the conventional fRG implementation diverge. As a result, the SBE formulation of the fRG flow allows for a substantial reduction of the numerical effort in the treatment of the two-particle vertex function, paving a promising route for future multiboson and multiloop extensions