Fall 2014

Bushman’s PhD Seminar Fall 2014

The course this year is going to cover a range of topics. The objective of the course is to build a strong economic foundation upon which to design and implement powerful empirical research. We will look at a number of roots papers to lay the economic foundation, and then grind out to the edge of the some recent research streams.

Finding research ideas often involves following a literature out to the edge and then allowing your creativity radar to hone in on new opportunities. Nothing is easy. Finding good research ideas is usually brutal work. We are in a very competitive business, but one that includes an army of tweakers who produce reams of mediocre, uninspired research. Rising above this crowd to distinguish you from the crowd is the challenge.

Warning: A lot of dead links

I. Wednesday 10/22/2014: Thoughts on an academic career; insider trading laws; audit topics

Academics and the Life of the Mind

“Does Analyst Following Increase Upon the Restriction of Insider Trading?” Bushman, Piotroski and Smith. Journal of Finance Volume 60 February 2005. (Nominated for the 2005 Smith Breeden Prize)

Internal Control Weaknesses and Financial Reporting Fraud

Dain Donelson, University of Texas at Austin, Matthew Ege, University of Florida, John McInnis, University of Texas at Austin

Credit Cycles and Financial Statement Verification

Petro Lisowsky, University of Illinois at Urbana-Champaign, Michael Minnis, University of Chicago, Andrew Sutherland, University of Chicago

II. Wednesday 11/12/14: Transparency: What is it? What role does it play for firms and the economy? Is more always better?

Slides Stress Tests and Transparency Slides Secret Keepers

Robert Bushman. 2014. Thoughts on financial accounting and the banking industry. Journal of Accounting and Economics Forthcoming.

Bushman and Smith, 2003. Transparency, Financial Accounting Information, and Corporate Governance. FRBNY Economic Policy Review / April 2003.

Should Banks’ Stress Test Results be Disclosed? An Analysis of the Costs and Benefits. 2013. Itay Goldstein and Haresh Sapra. Foundations and Trends in Finance Vol. 8, No. 1 (2013) 1–54.

Dang, T., G. Gorton, B. Holmstrom and G. Ordonez, 2014. Banks as Secret Keepers. Working paper, June

Related Literature

"What Determines Corporate Transparency?" Bushman, Piotroski and Smith. 2004. Journal of Accounting Research, 42 (2).

Armstrong, C, W. Guay and J. Weber. 2010. The role of information and financial reporting in corporate governance and debt contracting. Journal of Accounting and Economics 50, 179-234.

Goldstein, I., and Y. Leitner. 2013. Stress Tests and Information Disclosure. Working Paper, University of Pennsylvania.

Morris, S., and H. S. Shin. 2002. The Social Value of Public Information. American Economic Review 92: 1521-1534.

Morgan, D. P., Stavros Peristiani, and Vanessa Savino. 2013. The Information Value of the Stress Test and Bank Opacity. Working paper, Federal Reserve Bank of New York.

Laeven, L. 2013. Corporate governance: What’s special about banks? Annual Review of Financial Economics. 5, p. 63-92.

III. Wednesday 11/19/14: Transparency, Market Discipline and Risk-shifting

Slides Diamond Dybvig Simple Slides Pingyang and Xu Slides Risk-shifting

Doug Diamond. 2007. A Simple Exposition of the Diamond-Dybvig Model. Economic Quarterly—Volume 93, Number 2—Spring 2007—Pages 189–200

Reporting Discretion, Market Discipline, and Panic Runs. 2014. Pingyang Gao and Xu Jiang, Working Paper Booth and Duke Fuqua.

Robert M. Bushman & Christopher D. Williams. 2012. Accounting discretion, loan loss provisioning , and discipline of Banks’ risk-taking. Journal of Accounting and Economics 54 (2012)1–18.

A Theory of Bank Regulation and Management Compensation. 2000. Kose John, A. Saunders and L. W. Senbet. Review of Financial Studies, Vol. 13, No. 1. (I will use this model to illustrate risk-shifting)

Flannery, Mark, 2001. The Faces of Market Discipline. Journal of Financial Services Research, 20: 107-119.

IV. Wednesday, December 3, 2014: Liquidity and transparency

Amihud, Y., H. Mendelson, and L. H. Pedersen, 2005, Liquidity and Asset Prices. Foundations and Trends in Finance 1 (4), 269–364. (Read at least the first 2 section of the paper)

Acharya, Viral, and Pedersen Lasse, 2005, Asset pricing with liquidity risk, Journal of Financial Economics 77, 375–410. (look at the derivation of the expected return formula)

Kyle, A., 1985. Continuous auctions and insider trading. Econometrica 53, 1315-35. (read 1314-1320).

Grossman, S., Miller, M., 1988. Liquidity and market structure. Journal of Finance 43, 617-633

Bushman and Williams. 2014. Delayed Expected Loss Recognition and the Risk Profile of Banks. Working paper November 2014. (focus on the liquidity risk analysis)

V. Wednesday, December 10, 2014: Liquidity and transparency

Lang, M., Maffett, M., 2011. Transparency and Liquidity Uncertainty in Crisis Periods. Journal of Accounting and Economics Vol. 52, pp. 101-125.

Flannery, M. S. H. Kwan, and M. Nimalendran. 2013. The 2007-2009 financial crisis and bank opaqueness. Journal of Financial Intermediation 22, 55-84.

Bharath, Sreedhar, Sudarshan Jayaraman, and Venky Nagar, 2013, Exit as governance: An empirical analysis, Journal of Finance 68, 2515–2547.

Fang, Vivian, Xuan Tian and Sheri Tice. 2014. Does Stock Liquidity Enhance or Impede Firm Innovation? Journal of Finance, October 2014, 69 (5), 2085–2125

Edmans, Alex, Vivian Fang, and Emanuel Zur, 2013, The effect of liquidity on governance, Review of Financial Studies 26, 1443–1482.

Fang, Vivian, Thomas Noe, and Sheri Tice, 2009, Stock market liquidity and firm value, Journal of Financial Economics 94, 150–169.

Balakrishnan, Karthik, Mary Brooke Billings, Bryan Kelly, and Alexander Ljungqvist. "Shaping liquidity: On the causal effects of voluntary disclosure."The Journal of Finance (2014).

VI. Friday December 12, 2014: Transparency and Debt Contracting Rajan 1992 Slides

Bushman, Williams and Wittenberg-Moerman, 2014. The Informational Role of Media in Private Lending Markets. Working paper. This is an old version of the paper. I will present the new results and new pitch. Here are the referee reports on this draft that we are responding to.

Referee A; Referee B

Rajan, R., 1992, Insiders and outsiders: The choice between informed and arm's-length debt, Journal of Finance, 47, 1367-1400.

Lim, J., B., Minton, and M. Weisbach, 2014, Syndicated loan spreads and the composition of the syndicate, Journal of Financial Economics 111 (2014) 45–69.

Baiman, S. and R. Verrecchia, 1996, The relation among capital markets, financial disclosure, production efficiency, and insider trading, Journal of Accounting Research, 34: 1–22.

Roulstone, D., 2003, The relation between insider-trading restrictions and executive compensation, Journal of Accounting Research, 41: 525–551.

VII. Tuesday December 16 Aggregate Accounting Data and the Economy

Bushman, Raval and Wang (in process): Market Uncertainty and the Response of Market Returns to Corporate Earnings.

Konchitchki, Yaniv and Patatoukas, Panos N., 2014. Taking the Pulse of the Real Economy Using Financial Statement Analysis: Implications for Macro Forecasting and Stock Valuation.. The Accounting Review, March 2014.

Samuel B. Bonsall, Zahn Bozanic, and Paul E. Fischer. 2013. What Do Management Earnings Forecasts Convey About the Macroeconomy? Journal of Accounting Research.

Hann, R. N.; M. Ogneva; and H. Sapriza. 2012. “Forecasting the Macroeconomy: Analysts versus Economists.” Working paper, University of Maryland, Stanford University, and the Board of Governors of the Federal Reserve System, 2012.

Allaudeen Hameed, Randall Morck , Jianfeng Shen, Bernard Yeung. 2013. Information, analysts, and stock return co-movement.

"Measuring Economic Policy Uncertainty". Scott Baker, Nicholas Bloom and Steve Davis. 19 May 2013. Slides. Data.

Sadka, Gil and Sadka, Ronnie, Predictability and the Earnings-Returns Relation (October 16, 2008). Journal of Financial Economics, Vol. 94, No. 1, pp. 81-106, 2008.

Ball, Ray and Sadka, Gil and Sadka, Ronnie, Aggregate Earnings and Asset Prices (July 29, 2009). Journal of Accounting Research, Vol. 47, No. 5, 2009.

VIII. Corporate Culture and Behavior

David Kreps.Corporate culture and economic theory. 1999. Perspectives on Positive Political Economy; Edited by James E. Alt, Kenneth A. Shepsle; Cambridge University Press, pp. 90-143.

Benjamin E. Hermalin. 2000. Economics & Corporate Culture.

The Values of Corporate Culture. 2013. L. Guiso, P. Sapienza, and Luigi Zingales. Journal of Financial Economics, forthcoming.

Understanding Trust. 2013. P. Sapienza, Anna Toldra-Simats, and Luigi Zingales. The Economic Journal, 2013, vol. 123(573), pp. 1212-1332.

Robert Davidson, Aiyesha Dey, Abbie Smith. 2013. Executives' “off-the-job” behavior, corporate culture, and financial reporting risk. Journal of Financial Economics.

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