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Bushman’s PhD Seminar Fall 2019:
Accounting and Real Effects
The availability of information is a key determinant of the efficiency of resource allocation decisions and growth in an economy. Accounting information is a fundamental source of credible, firm-specific information that can influence the investments, productivity, and value-added of firms. The main focus of this course is on the real effects of accounting information in shaping investment decisions. This is a rich area and we will look at as many angles as time allows, always with an eye towards developing powerful, innovative research ideas. I expect you to come to class having read and thought about the assigned papers.
Session Details
Session 1 Monday October 21st: 2:00pm to 5:00pm, Room 3575
Introduction to real effects and investment theory Presentation Slides
Papers for Class Discussion
Abel, A. B., A. Dixit, A., J. C. Eberly and R. Pindyck. (1996). Options, the Value of Capital, and Investment. The Quarterly Journal of Economics, Vol. 111, No. 3, pp. 753-777 . I will focus primarily on the first 10 pages.
Efficient Capital Markets, Inefficient Firms: A Model of Myopic Corporate Behavior, 1989, Jeremy Stein. QJE, 104, pp. 655-669.
A Real Effects Perspective to Accounting Measurement and Disclosure: Implications and Insights for Future Research, 2016. Kanodia and Sapra. JAR. I will only discuss through section 3.2.
Background papers for session 1
I will refer to these papers when I develop the framework for the course. I do not expect you to read these from start to finish, but you should at least peruse them and get a feeling for the scope of these papers. Read them over the course.
Bushman and Smith, 2003. Transparency, Financial Accounting Information, and Corporate Governance. FRBNY Economic Policy Review / April 2003. Focus on the framework in section 2.
The Effects of Financial Reporting and Disclosure on Corporate Investment: A Review. 2019. Roychowdhury, Shroff, and Verdi. JAE, Forthcoming. Consider the framework in figure 1.
The Role of Financial Reporting in Resolving Uncertainty about Corporate Investment Opportunities, 2019. Ferracuti and Stubben JAE, Vol. 68, No. 2-3.
Other Literature
Session 2 Monday October 28th: 2:00pm to 5:00pm, Room 2550
Moral hazard and adverse selection
Papers for Class Discussion
The Effects of Financial Reporting and Disclosure on Corporate Investment: A Review. 2019. Roychowdhury, Shroff, and Verdi. JAE, Forthcoming. (sections 2.1, 2.2.1 and 2.23)
Capital Allocation and Timely Accounting Recognition of Economic Losses, Bushman, Piotroski, and Smith. JBFA, Vol. 38, Nos. 1 & 2, 2011.
How Does Financial Reporting Quality Relate to Investment Efficiency? (July 2009). Biddle, Gary C., Hilary, Gilles and Verdi, Rodrigo S., 2009. Journal of Accounting and Economics 48 (2009) 112–131.
Why Are Losses Less Persistent than Profits? Curtailments versus Conservatism, 2018. Lawrence, Alastair and Sloan, Richard G. and Sun, Estelle Yuan, 2019. Management Science, Vol. 64, No. 2, pp. 673–69.
Other Literature
Edmans, Alex and Goldstein, Itay and Jiang, Wei. 2015. Feedback Effects, Asymmetric Trading, and the Limits to Arbitrage. American Economic Review.
Chen, Qi and Huang, Zeqiong and Jiang, Xu and Zhang, Gaoqing and Zhang, Yun, The Role of Asymmetric Disclosure When Price Efficiency Affects Real Efficiency (August 6, 2018).
Session 3 Monday November 4th: 2:00pm to 5:00pm, Room 2550
JAE Conference Papers
The Effect of Fair Value Accounting on the Performance Evaluation Role of Earnings. Petri Ferreira
Machine +Man: A Randomized Field Experiment on the Role of Discretion in Lending Markets Andrew Belnap
Market Efficiency in Real Time: Evidence from Low Latency Activity around Earnings Announcements Boaz Noiman
Session 4 Monday November 11th: 2:00pm to 5:00pm, Room 2550
Investment in working capital; investment cash flow sensitivity
Papers for Class Discussion
Investment-Cash Flow Sensitivities Are Really Investment- Investment Sensitivities. Bushman, Smith and Zhang, 2012.
Bushman, Lerman, Alina and Zhang, 2016. The Changing Landscape of Accrual Accounting. Journal of Accounting Research. (I not present this paper in detail, but will refer to the main graphs in the paper.
The q-Theory Approach to Understanding the Accrual Anomaly. Wu, Ginger, Lu Zhang, and Frank Zhang. 2010. Journal of Accounting Research Vol. 48 No. 1 March 2010
Choy, Siu Kai and Lobo, Gerald J. and Tan, Yongxian, 2019. Mispricing or Q-Theory: Testing the Accruals Anomaly Based on the Speed of Price Adjustment (I will discuss the main motivation of the paper and the empirical design).
Arif, Marshall, and Yohn, Lombardi, 2016. Understanding the Relation between Accruals and Volatility: A Real Options-Based Investment Approach. Journal of Accounting & Economics (JAE), Vol. 62, No. 1, 2016
Interesting empirical design
Alfaro, Iván and Bloom, Nicholas and Lin, Xiaoji, The Finance Uncertainty Multiplier (October 26, 2019). How do financial constraints moderate how uncertainty shocks impact investment? Check out their identification strategy in section 2.2.
Other Literature
Farre-Mensa, Joan and Ljungqvist, Alexander, 2016. Do Measures of Financial Constraints Measure Financial Constraints?. Review of Financial Studies.
Hoberg, Gerard and Maksimovic, Vojislav, 2015. Redefining Financial Constraints: A Text-Based Analysis. Review of Financial Studies.
Are Financial Constraints Priced? Evidence from Textual Analysis, 2018. Buehlmaier and Whited. The Review of Financial Studies (RFS) Volume: 31 Issue: 7, 2693-2728
Zhang, Lu, The Q-theoretical Link Between Stock and Investment Returns (March 2005).
Fazzari S., R. G. Hubbard, and B. Petersen, 1988, “Financing Constraints and Corporate Investment,” Brooking Papers on Economic Activity, 1, pp. 141-95.
Session 5 Monday November 18th: 2:00pm to 5:00pm, Room 2550
Peers and learning
Papers for Class Discussion
Armstrong, Glaeser and Kepler, 2019. Strategic Reactions in Corporate Tax Planning. Journal of Accounting & Economics. Stephen Glaeser will discuss this paper.
Shroff, Verdi, and Yost, 2017. When Does the Peer Information Environment Matter? Journal of Accounting & Economics (JAE), Vol. 64, No. 2-3.
Holmström, Bengt R., 1999. Managerial Incentive Problems: A Dynamic Perspective. The Review of Economic Studies, Volume 66, Issue 1, January 1999, Pages 169–182. Same framework as Stein (1989) from 1st session. See also Pan, Wang and Weisbach (2015) below.
Consistent Good News and Inconsistent Bad News Rick Harbaugh, John Maxwell and Kelly Shue.
Other Literature
Identification of Endogenous Social Effects: The Reflection Problem, 1993. Charles F. Manski. The Review of Economic Studies Vol. 60, No. 3 (Jul., 1993), pp. 531-542.
The perils of peer effects, 2014. Joshua Angrist. Labour Economics Volume 30, October 2014, Pages 98-108.
Foucault, Thierry and Frésard, Laurent, 2014. Learning from Peers' Stock Prices and Corporate Investment. Journal of Financial Economics.
Bustamante, Maria Cecilia and Frésard, Laurent, Does Firm Investment Respond to Peers' Investment? WP December 21, 2017.
Hoberg, Phillips, Gordon and Prabhala, 2014, Product Market Threats, Payouts, and Financial Flexibility. Journal of Finance
Interesting, but only tangentially related papers
A Tough Act to Follow: Contrast Effects in Financial Markets. Hartzmark, Samuel M. and Shue, Kelly. Journal of Finance, 2018, 73(4): 1567-1613.
No News is News: Do Markets Underreact to Nothing? Kelly Shue and Stefano Giglio, Review of Financial Studies, 2014, 27(12): 3389-3440.
Session 6 Monday November 25th: 2:00pm to 5:00pm, Room 2550
Recent research on investment-Q models
Papers for Class Discussion
Peters, Ryan H. and Taylor, Lucian A., 2017. Intangible Capital and the Investment-q Relation. Journal of Financial Economics. Does anyone have the guts to present this one???
Hoberg, Gerard and Maksimovic, Vojislav, Product Life Cycles in Corporate Finance. WP January 12, 2019.
Andrei, Daniel and Mann, William and Moyen, Nathalie, 2019. Why Did the q Theory of Investment Start Working? WP
Important background paper
Bartlett, Robert P. and Partnoy, Frank, The Misuse of Tobin's Q (February 4, 2018). UC Berkeley Public Law Research Paper.
Other Literature
Bustamante, Maria Cecilia and Cujean, Julien and Frésard, Laurent, Knowledge Cycles and Corporate Investment. WP July 11, 2019.
Philippon, Thomas, The Bond Market's Q. 2009. The Quarterly Journal of Economics, Volume 124, Issue 3, August 2009, Pages 1011–1056.
Erickson, Timothy and Whited, Toni M., On the Accuracy of Different Measures of Q. Financial Management, Vol. 35, No. 3, Autumn 2006.
Treating Measurement Error in Tobin's q, Review of Financial Studies 25 (2012), 1286-1329. (with Tim Erickson) Data and programs
Session 7 Wednesday December 4th: 2:00pm to 5:00pm, Room 4015
Information Flows and Feedback Effects
Papers for Class Discussion
Bai, Philippon and Savov, 2016. Have Financial Markets Become More Informative? Journal of Financial Economics, Vol. 122. (check out “Where has all the big data gone?” linked below for an interesting application of this methodology)
Chen, Qi and Goldstein, Itay and Jiang, Wei, 2007. Price Informativeness and Investment Sensitivity to Stock Price. The Review of Financial Studies.
Jayaraman, Sudarshan and Wu, Joanna, 2019. Is Silence Golden? Real Effects of Mandatory Disclosure. Review of Financial Studies.
Edmans, Jayaraman, and Schneemeier, 2017, The Source of Information in Prices and Investment-Price Sensitivity. Journal of Financial Economics (JFE).
Background reading
The Real Effects of Financial Markets 2012. Bond, Edmans, and Goldstein. Annual Review of Financial Economics, vol. 4.
Other Literature
Information Disclosure in Financial Markets 2017. Goldstein and Yang. Annual Review of Financial Economics, vol. 9, pp. 101-125.
Gao, Pingyang and Liang, Pierre Jinghong, 2013. Informational Feedback Effect, Adverse Selection, and the Optimal Disclosure Policy. JAR Volume51, Issue5, 1133-1158.
Zuo, Luo. The Informational Feedback Effect of Stock Prices on Management Forecasts. Journal of Accounting and Economics. 61.2-3 (2016): 391-413.
Good Disclosure, Bad Disclosure Itay Goldstein and Liyan Yang, Journal of Financial Economics, vol. 131(1), pp. 118-138, January 2019.
Farboodi, Maryam and Matray, Adrien and Veldkamp, Laura, Where Has All the Big Data Gone? (April 10, 2018).
Session 8 Friday December 14th: 2:00pm to 5:00pm, Room 2550
Innovation (under construction)
Papers for Class Discussion
Does voluntary IFRS R&D disclosure reduce credit risk spreads? Alexander Liss (this is an early stage project. Alexander will send out some info before class next week)
Investing in Innovation and CEO Termination, Stephen Glaeser
Holmstrom, B. (1989). Agency costs and innovation. Journal of Economic Behavior & Organization, 12(3), 305-327.
Manso, G. (2011). Motivating innovation. The Journal of Finance, 66(5), 1823-1860.
Gonzalez-Uribe, Juanita and Groen-Xu, Moqi, CEO Contract Horizon and Innovation (July 17, 2017).
Background reading
Bloom, Schankerman and Van Reenen, 2013. Identifying Technology Spillovers and Product Market Rivalry. Econometrica,July 2013.
Bloom, Lucking and Van Reenen, 2018. Have R&D Spillovers Changed? NBER Working Paper
Other Literature
Some Facts of High-Tech Patenting. 2018. Michael Webb, Nick Short, Nicholas Bloom, Josh Lerner.
Glaeser, S. (2018). The effects of proprietary information on corporate disclosure and transparency: Evidence from trade secrets. Journal of Accounting and Economics.
Cziraki and Groen-Xu, 2019. CEO Turnover and Volatility under Long-Term Employment Contracts, JFQA, Forthcoming.
Creditor Control, Patent Reallocation, and the Bankruptcy of Innovative Firms, Song Ma, Joy Tianjiao Tong and Wei Wang, 2019
Balsmeier, B., Fleming, L., & Manso, G. (2017). Independent boards and innovation. Journal of Financial Economics, 123(3), 536-557.
Peters, F. S., & Wagner, A. F. (2014). The executive turnover risk premium. The Journal of Finance, 69(4), 1529-1563.
Gu, Mao, Connie X. and Tian, 2017. Bank Interventions and Firm Innovation: Evidence from Debt Covenant Violations. Journal of Law and Economics
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