Bushman’s PhD Seminar Fall 2024

The PhD program provides you with an incredible opportunity to consume knowledge before the demands of production fully fall on you. The knowledge foundation that you build here is the fuel that will power you through the publishing demands of an uncompromising tenure clock. It is your life, so I will leave it up to you to decide how aggressively to pursue foundational knowledge. The final exam for this course is your thesis paper, your long run research impact and your academic career.    

I expect you to come to class prepared to participate in class discussions having carefully read and thought about the assigned papers.  All students will be expected to present one or two papers. Papers marked in green are available for student presentations. A typical presentation will run 30-40 minutes in total.  Assume the audience has read the paper. You should consider the following questions in preparing your presentation (and non-presenters in preparing for class discussions): 

• What is the research question and why is it important? 

• What is the theoretical framework, if any, that is used to motivate the research question and hypotheses?  

• What are the main concerns, limitations, and weaknesses? How does the paper’s empirical methods attempt to mitigate these? 

• How well is the research design tied to the research question? How accurately do the empirical proxies capture the underlying economic constructs of interest? To what extent is the research design capable of distinguishing between alternative hypotheses? 

• What are the main results? How do the authors interpret them? How do you interpret them? 

While I don't want you to overinvest in preparing slides, the ability to powerfully organize a set of ideas in PowerPoint form will be crucial to your long run success.  You should also use these presentations to develop your presentation skills and to begin discovering your natural presentation style.

Session Details

Optional Background Reading

• Hayek, F. 1945. The use of knowledge in society. American Economic Review 35, 519-530. (A classic article every student of markets should read).

• Making Sense of Chaos: A Better Economics for a Better World, 2024, J. Doyne Farmer. Doyne is a pioneer in the field of complexity science and chaos theory. In this book he argues that agent-based models are a powerful alternative to classical financial economics. For those who want an excellent and unique overview of modern financial economics and its limitations check out chapters 5-11. These chapters are not highly technical, but are very insightful and interesting.  I have been listening to them in audio book form and referring to the book as needed. For background on agent-based modeling see:

  • • Agent-Based Modeling in Economics and Finance: Past, Present, and Future. Robert L. Axtell and J. Doyne Farmer.  Forthcoming in the Journal of Economic Literature. 

    • Introduction to Agent-Based Modeling. Hosted by Complexity Explorer, The Santa Fe Institute.

    • Isaac Newton vs. Las Vegas: How Physicists Used Science To Beat The Odds At Roulette, 2017 Forbes.  Farmer builds a builds a computer that fits in his shoe to beat the Roulette Wheel in Las Vegas.

• The Beginning of Infinity: Explanations That Transform the World, by David Deutsch.  Are humans just a chemical scum on the surface of a typical planet in orbit round a typical star on the outskirts of a typical galaxy...? Not according to David Deutsch! This is a brilliant and inspiring book about the nature of knowledge, how we acquire it, and the central role of explanation in creating new knowledge. David argues that all progress, both theoretical and practical, has resulted from a single human activity: the quest for good explanations. Chris Armstrong at Stanford recommended this book to me and I in turn recommend it to you (also see The Fabric of Reality).  

Session 1 Wednesday 10/23/24 12pm to 3pm

Architecture of Corporate Transparency; Shareholder vs. Stakeholder Primacy; Corporate Governance 

Papers for Class Discussion (PowerPoint Slides)

• Transparency, Financial Accounting Information and Corporate Governance,  with Abbie Smith. Federal Reserve Bank of New York's Economic Policy Review,  April 2003 Volume 9, Number 1 : 65-87.

• Bebchuk, Lucian A. and Tallarita, Roberto, 2021. The Illusory Promise of Stakeholder Governance. Cornell Law Review, Volume 106, 2020, pp. 91-178.

• Tirole, Jean, 2001.  Corporate Governance. Econometrica, Vol. 69, No. 1 January, 2001, 1-35. Read pages 1-23.

I will refer to this paper but not discuss it in detail

• Alexander Dyck and Luigi Zingales. 2004. Control Premiums and the Effectiveness of Corporate Governance Systems. Journal of Applied Corporate Finance.

Related Literature

• Bushman and Smith, 2001.   Financial Accounting Information and Corporate Governance, Journal of Accounting & Economics, Vol. 32, Nos. 1-3, August/October/December 2001.

• What Determines Corporate Transparency?  Robert Bushman, Joe Piotroski and Abbie Smith. Journal of Accounting Research 2004 , 42 (2). Published version

• Financial Accounting Information, Organizational Complexity and Corporate Governance Systems, Robert Bushman, Qi Chen, Ellen Engel, and Abbie Smith, Journal of Accounting and Economics 37 (2004), 167-201. Published version

• Shleifer, A., Vishny, R., 1997. A survey of corporate governance. Journal of Finance 52 (2), 737–783.

• Fama, E., Jensen, M., 1983. Agency problems and residual claims. Journal of Law and Economics 26, 327-349.

• Larcker, David F. and Tayan, Brian, Seven Gaping Holes in Our Knowledge of Corporate Governance. April 11, 2023. Rock Center for Corporate Governance at Stanford University, Closer Look Series.

• Milton Friedman, 1970. The Social Responsibility of Business is to Increase Its Profits, The New York Times

• Milton Friedman 50 Years Later  (Zingales (p1); Edmans (p11); Lipton (p22); Bebchuk & Tallarita (p26); Bebchuk et al. (p31); Blair (p38); Hart (p51); Hart and Zingales (p55); Fama (p59); Mayer et al. (p65); Zingales (p128).  The whole thing is worth reading!

• Cohen, Shira and Kadach, Igor and Ormazabal, Gaizka and Reichelstein, Stefan, 2023. Executive Compensation Tied to ESG Performance: International Evidence.  Journal of Accounting Research. Volume 61, Issue 3, 805-853.

• Gregor, Martin and Michaeli, Beatrice, 2024. Board Compensation and Investment Efficiency. 

Session 2 Wednesday 10/30/24 12pm to 3pm

Incentive Design and Incentive Dynamics

Papers for Class Discussion (PowerPoint Slides)

• Lambert, R., 2001. Contracting theory and accounting. Journal of Accounting and Economics 32, 3-87.  Read the Introduction, and Section 2, subsections 2.1 to 2.3 (to the bottom of page 18).

• Bushman and Smith, 2001.   Financial Accounting Information and Corporate Governance, Journal of Accounting & Economics, Vol. 32, Nos. 1-3, August/October/December 2001. The focus will be on section 2.4 Theoretical framework. The idea is to look at the model in a setting where we can get closed form solutions

• Robert Bushman, Zhonglan Dai and Weining Zhang, 2024. Dynamic Adjustment of CEO Incentives, Contracting Frictions and Firm Performance.

  • • Referee Report

    • Response Memo

I will refer to these papers but not discuss them in detail

• Edmans, A., Gosling, T., Jenter, D., 2023. CEO compensation: Evidence from the field. Journal of Financial Economics Volume 150, Issue 3, December 2023, 103718. Available at SSRN: https://ssrn.com/abstract=3877391

• Hermalin, B., Weisbach, M., 2003. Boards of directors as an endogenously determined institution: A survey of the economic literature. FRBNY Economic Policy Review (April), 7-26.

Related Literature

• Bengt Holmström, 1979. Moral Hazard and Observability. The Bell Journal of Economics. 

• Core, J., Guay, W., Larcker, D., 2003. Executive equity compensation and incentives: A survey. Economic Policy Review (Apr), 27–50.

• Gipper, B., 2021. The economic effects of expanded compensation disclosures. Journal of Accounting and Economics 71 (1), 1-24.

• Ertimur, Y., F. Ferri and D. Oesch, 2013. Shareholder Votes and Proxy Advisors: Evidence from Say on Pay. Journal of Accounting Research 51, 951–996.

• Shue, K., Townsend, R., 2017a. How do quasi-random option grants affect CEO risk-taking? Journal of Finance, 72(6), 2551-2588.

• Shue, K., Townsend, R., 2017b. Growth through rigidity: An explanation for the rise in CEO pay. Journal of Financial Economics 123.

• Edmans, Alex and Gabaix, Xavier, Executive Compensation: A Modern Primer, 2016. Journal of Economic Literature, vol. 54, no. 4,  1232–87. Available at SSRN: http://ssrn.com/abstract=2576707

• Bushman, R., Dai, Z., Zhang, W., 2016. Management Team Incentive Dispersion and Firm Performance. The Accounting Review 91.

• The Firm as an Incentive System, 1994. Bengt Holmstrom & Paul Milgrom. The American Economic Review, Vol.84, No. 4, 972-991 

Session 3 Wednesday 11/06/24 12pm to 3pm

Executive Compensation: Cash-based bonus plans and relative performance evaluation

Papers for Class Discussion (PowerPoint Slides)

• Bushman, Robert M., 2021. Cash-based bonus plans as a strategic communication, coordination and commitment mechanism. Journal of Accounting & Economics.  

  • • Guay, W., Kepler, J., and Tsui, D., 2019. The role of executive cash bonuses in providing individual and team incentives. Journal of Financial Economics 133 (2), 441-471.

    • Bloomfield, M., 2021. Compensation disclosures and strategic commitment: Evidence from revenue-based pay. Journal of Financial Economics, 141 (2), 620-643.

      • • • Fershtman, C. and K. L. Judd, 1987. Equilibrium incentives in oligopoly. The American Economic Review, 927-940.

    • Bloomfield, M. and Gipper, B., and Kepler, J., and Tsui, D., 2021. Cost Shielding in Executive Bonus Plans. Journal of Accounting & Economics, Forthcoming.

• Armstrong, Chris S. and Chau, Yuen-Kit and Ittner, Christopher D. and Xiao, Jason J., Earnings per Share Targets and CEO Incentives Review of Accounting Studies, Forthcoming. 

• Cabezon, Felipe, 2024. Executive Compensation: The Trend Toward One-Size-Fits-All.  Journal of Accounting and Economics.

Related Literature

• Armstrong, Chris S. and Kepler, John and Larcker, David F. and Shi, Shawn, 2024. Rank-and-File Accounting Employee Compensation and Financial Reporting Quality. Journal of Accounting and Economics 78

• Albuquerque, Ana M. and Carter, Mary Ellen and Guo, Zhe (Michael) and Lynch, Luann J, 2024. Complexity of CEO compensation packages. Journal of Accounting and Economics, Forthcoming.

• Bebchuk, Lucian A. and Tallarita, Roberto, 2022. The Perils and Questionable Promise of ESG-Based Compensation. Journal of Corporation Law, Volume 48, 2022, pp. 37-75.

• Cohen, Shira and Kadach, Igor and Ormazabal, Gaizka and Reichelstein, Stefan, 2023. Executive Compensation Tied to ESG Performance: International Evidence.  Journal of Accounting Research. Volume 61, Issue 3, 805-853.

Session 4 Wednesday 11/13/24 12pm to 3pm

Relative Performance Evaluation, Signal Jamming

Papers for class discussion  (PowerPoint slides for Stein 1989)

• Bloomfield, Matthew J. and Heinle, Mirko Stanislav and Timmermans, Oscar, 2024.  Relative Performance Evaluation and Strategic Peer-Harming Disclosures. Journal of Accounting Research, Volume 62,  877-933.

• Feichter, C., F. Moers, and O. Timmermans (2022). Relative performance evaluation and competitive aggressiveness. Journal of Accounting Research 60 (5), 1859-1913.

• Stein, J. C. (1989). Efficient capital markets, inefficient firms: A model of myopic corporate behavior. The Quarterly Journal of Economics 104 (4), 655-669.

Related Literature

• Bloomfield, Matthew J. and Guay, Wayne R. and Timmermans, Oscar, 2021. Relative Performance Evaluation and the Peer Group Opportunity Set .

• Bloomfield, Matthew J. and Marvão, Catarina Moura Pinto and Spagnolo, Giancarlo, 2021. Relative Performance Evaluation, Sabotage and Collusion. Journal of Accounting & Economics (JAE), Volume 76, Issues 2–3 

  • Karpoff, Jonathan M.,2023. Unlikely Sabotage: Comment on Bloomfield, Marvão, and Spagnolo. Journal of Accounting & Economics (JAE), Volume 76, Issues 2–3. 

• Bloomfield, Matthew J., Performance Pay Plans, Power and Product Prices. 2024. 

• Ha, Sangeun and Ma, Fangyuan and Zaldokas, Alminas, 2024. Motivating Collusion. Journal of Financial Economics 

• Cao, S., V. W. Fang, and L. G. Lei (2021). Negative peer disclosure. Journal of Financial Economics 140 (3), 815-837.

• Ball, Ryan T., Jonathan Bonham and Thomas Hemmer (2020). Does It Pay to ‘Be Like Mike’? Aspirational Peer Firms and Relative Performance Evaluation. Review of Accounting Studies, 25(4): 1507–1541.

• Kepler, J. D. (2021). Private communication among competitors and public disclosure. Journal of Accounting and Economics 71 (2-3).

• Bengt Holmström, 1999. Managerial Incentive Problems: A Dynamic Perspective. The Review of Economic Studies, Vol. 66, No. 1, Special Issue: Contracts, 169-182.

• M. P. Narayanan, 1985. Managerial Incentives for Short-Term Results, The Journal of Finance, Vol. 40, No. 5.

• A Real Effects Perspective to Accounting Measurement and Disclosure: Implications and Insights for Future Research, 2016. Kanodia and Sapra. JAR.

• The Effects of Financial Reporting and Disclosure on Corporate Investment: A  Review. 2019. Roychowdhury, Shroff, and Verdi.  JAE. 

Session 5 Wednesday 11/20/24 12pm to 3pm

Disclosure and Governance; Using Theory to Motivate Empirical Research

Papers for Class Discussion

• Fischer, Paul E. and Verrecchia, Robert E., 2000. Reporting Bias. THE ACCOUNTING REVIEW, Vol. 75, No. 2.

I will refer to these paper but not grind through the models.  These papers are referenced in the Armstrong-Kepler discussion.

• • Peng, Lin and Röell, Ailsa A., 2014. Managerial Incentives and Stock Price Manipulation. Journal of Finance, Volume 69, Issue 2.

  • Peng, Lin and Röell, Ailsa A., 2008. Manipulation and Equity-Based Compensation. The American Economic Review. Vol. 98, No. 2  

• Ferri, Fabrizio and Zheng, Ronghuo and Zou, Yuan, 2018. Uncertainty in Managers’ Reporting Objectives and Investors’ Response to Earnings Reports: Evidence from the 2006 Executive Compensation Disclosures. Journal of Accounting & Economics, 66, 339–365. 

• Armstrong, Chris S. and Kepler, John, 2018. Theory, Research Design Assumptions, and Causal Inferences. Journal of Accounting & Economics (JAE), Vol. 66, No. 2-3. This paper offers the discussants' comments on the Ferri, Zheng and Zou paper. I expect everyone to have read this paper carefully and be prepared to discuss.

Related Literature

Two JAE Conference 2023 papers.  The first paper is a theory paper that offers empirical implications.  The second paper is the discussant's comments which offers a deep discussion about connecting theory to empirical research designs.

• Feng, Felix and Luo, Robin Yifan and Michaeli, Beatrice, 2024. In Search of a Unicorn: Dynamic Agency with Endogenous Investment Opportunities. Journal of Accounting & Economics.

• Anne Beyer and Junyoung Jeong, 2024. The unicorn quest: Deriving empirical predictions from theory. Journal of Accounting & Economics. 

Session 6 Wednesday 11/27/24 12pm to 3pm

Information, Incomplete Contracts, Debt Contracting, Adverse Selection and the Winner's Curse

Background Reading (I will weave both of these papers into my introduction to debt contracting) 

• Sufi, Amir, Information Asymmetry and Financing Arrangements: Evidence from Syndicated Loans . Journal of Finance, April 2007, 62(2), 629-668.

• Accounting Information in Financial Contracting: The Incomplete Contract Theory Perspective. Journal of Accounting Research, 54, 2016. Christensen, Hans Bonde and Nikolaev, Valeri V. and Wittenberg Moerman, Regina.

Papers for Class Discussion

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

• The Informational Role of the Media in Private Lending, with Christopher Williams and Regina Wittenberg-Moerman, Journal of Accounting Research Volume 55, Issue 1, March 2017: 115–152.

Valuable Reviews of Debt Contracting Literature

• Financial Contracting: A Survey of Empirical Research and Future Directions. Roberts, Michael R. and Sufi, Amir, Annual Review of Financial Economics, Vol. 1, pp. 207-226, 2009.

• The Role of Information and Financial Reporting in Corporate Governance and Debt Contracting. Armstrong, Guay and Weber. Journal of Accounting and Economics, 50 (2010) 179-234. Section 5 discusses the role of financial reporting in the design of debt contracts.

Related Literature

• Pyle, David H. and Leland, Hayne E., Information Asymmetries, Financial Structure, and Financial Intermediation (1977). Journal of Finance, Vol. 32, Issue 2, p. 371-387.

• Jensen, M., and W. Meckling, 1976, “Theory of the firm: managerial behavior, agency costs and ownership structure,” Journal of Financial Economics 3, 305-360.

• Diamond, D., 1984. Financial intermediation and delegated monitoring. Review of Economic Studies 51 (3), 393–414.

• Roberts, M., Sufi,A., 2009b. Renegotiation of financial contracts: evidence from private credit agreements. Journal of Financial Economics 93, 159–184.

• Chaigneau, Pierre and Edmans, Alex and Gottlieb, Daniel, 2024. The Optimality of Debt. European Corporate Governance Institute – Finance Working Paper 780/2021. 

• Hans Christensen and Valeri Nikolaev, 2012. Capital versus Performance Covenants in Debt Contracts. Journal of Accounting Research Vol. 50 No. 1: 75-116.

• Ivashina, Victoria. "Asymmetric Information Effects on Loan Spreads." Journal of Financial Economics 92, no. 2 (May 2009): 300–319. 

• Ryan Ball, Robert Bushman and Florin Vasvari, 2008. The Debt-Contracting Value of Accounting Information and Loan Syndicate Structure,”. Journal of Accounting Research Vol. 46 No. 2.

• Bushman, Smith and Wittenberg-Moerman, 2010. Price Discovery and Dissemination of Private Information by Loan Syndicate Participants.,   Journal of Accounting Research Vol. 48 No. 5 December 2010.

• Bushman, R., Janet Gao, Joseph Pacelli and Xiumin Martin, 2021. The Influence of Loan Officers on Debt Contract Design and Performance, w, Journal of Accounting and Economics Vol. 71, No. 1, 2021. Published Version

• Bushman and Wittenberg Moerman, 2012. The Role of Bank Reputation in 'Certifying' Future Performance Implications of Borrowers' Accounting Numbers. Journal of Accounting Research, 50, 4, 883-930.

• Demerjian, Peter R. and Owens, Edward L., 2016 Measuring the Probability of Financial Covenant Violation in Private Debt Contracts. Journal of Accounting & Economics (JAE), Vol. 61, No. 2-3, 2016.

• Boot, A., 2000, Relationship banking: What do we know?, Journal of Financial Intermediation, 9, 7–25.

• Lee, S., and D.Mullineaux. “Monitoring, Financial Distress, and the Structure of Commercial Lending Syndicates.” Financial Management 33 (2004): 107–30.

Session 7 Wednesday 12/04/24 12pm to 3pm 

Eclectic

Papers for Class Discussion.

• Partisan Banks and Creditor Coordination within Loan Syndicates, with Sang Woo Sohn and Jianxin (Donny) Zhao, April 2024.

Students choose any 3 of these 4 papers.

• Cheng, Stephanie F. and Vyas, Dushyantkumar and Wittenberg Moerman, Regina and Zhao, Wuyang, 2024. Exposure to Superstar Firms and Financial Distress (August 11, 2024). Accepted at Review of Accounting Studies.

• Kepler, John and McClure, Charles and Stewart, Christopher R., 2024. Competition Enforcement and Accounting for Intangible Capital. Working Paper.

• Armstrong, Chris S. and Kepler, John and Kim, Chongho and Tsui, David, 2024. Creditor Control Rights and Executive Bonus Plans Working paper.

• Kang, Jung Koo, 2024. Gone with the Big Data: Institutional Lender Demand for Private Information. Journal of Accounting & Economics, Volume 77, Issues 2–3. 

Other Literature

• Kempf, E. and M. Tsoutsoura. 2021. Partisan professionals: Evidence from credit rating analysts. Journal of Finance76 (6): 2805–2856.

• Kempf, E., M. Luo, L. Schäfer, and M. Tsoutsoura. 2023. Political ideology and international capital allocation. Journal of Financial Economics148 (2):150–173. 

• Giannetti, M. andY. Yafeh. 2012. Do cultural differences between contracting parties matter? Evidence from syndicated bank loans. Management Science 58(2):365–383. 

• Dagostino, R., J. Gao, and P. Ma. 2023. Partisanship in loan pricing. Journal of Financial Economics150 (3) 

• Goldman, Eitan and Gupta, Nandini and Israelsen, Ryan D., 2024. Political Polarization in Financial News. Journal of Financial Economics

• Duchin, R., A. E. K. Farroukh, J. Harford, and T. Patel. 2024.The economic effects of political polarization: Evidence from the real asset market. Working Paper.

• Ayyagari, Meghana and Ayyagari, Meghana and Demirgüç-Kunt, Asli and Maksimovic, Vojislav, 2024. The Rise of Star Firms: Intangible Capital and Competition. The Review of Financial Studies, Volume 37, Issue 3, 882–949.

• Lee, Charles M.C. and Shi, Terrence Tianshuo and Sun, Stephen Teng and Zhang, Ran, 2024. Production Complementarity and Information Transmission Across Industries. Journal of Financial Economics