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Job Market Paper

[1] The Effect of Regulation on CSR Performance
Abstract: ​This paper examines whether US regulation related to corporate social responsibilities (CSR) improves firms’ CSR performance. This inquiry is motivated by increasing stakeholder interest in firms’ CSR activities and reporting, as well as questions of increasing regulatory burden over time and government failure to adequately address these social challenges. First, I develop a measure of firms’ CSR regulatory exposure by extracting federal agencies’ regulatory analysis, and applying a machine-learning model for industry classification. Second, I confirm theoretical expectations that more stringent CSR-related rules are associated with higher firm CSR performance in the regulated areas, but with lower CSR performance in the unregulated areas. The result suggests a likely trade-off in firms’ responses to CSR regulation. Cross-sectional tests show that financial constraint (regulatory uncertainty) elevates (reduces) such tradeoffs. Using close passage of congressional bills as an exogenous shock to firms’ CSR regulatory exposure, I also provide causal evidence on such tradeoffs.

Publication

[2] ​WALK THE TALK: ESG MUTUAL FUND VOTING ON SUSTAINABILITY-BASED SHAREHOLDER RESOLUTIONS
WITH SHANE DIKOLLI, MARY MARGARET FRANK, AND LUANN LYNCH
  • REVIEW OF ACCOUNTING STUDIES, Forthcoming
Abstract: We document that U.S. mutual funds with investment objectives designated as “Sustainable Investment Overall” by Morningstar (ESG funds) are more likely than other mutual funds to vote in support of environmental, social (ES), and governance (G) shareholder proposals. We also find that the higher support for ES proposals by ESG funds relative to other funds is more pronounced in index funds than in active funds, consistent with trading constraints influencing voting behavior. While these results provide evidence ESG funds walk the talk with their voting behavior on average, we find fund families play a significant role in that walk. Additionally, in an analysis of fund families that are signatories of the United Nations Principles for Responsible Investment (PRI), we find that ESG funds of PRI families are significantly more likely than their non-ESG funds to support ES and G proposals. We determine this significant difference stems from non- ESG funds of PRI families providing less support than non-ESG funds from non-PRI families. Taken together, these results provide evidence that ESG funds available to U.S. investors provide more support for shareholder proposals aligned with their designated investment objective, but the type and family of the fund influence that support.

Working Papers

[3] COMPLEXITY OF CEO COMPENSATION PACKAGES​
WITH ANA ALBUQUERQUE, MARY ELLEN CARTER, AND LUANN LYNCH 
Abstract: Despite claims that CEO compensation contracts are increasingly complex, little is known about the extent to which they are, as well as what drives that complexity and its implications. We develop a new measure of compensation contract complexity based on detailed information in proxy statements and find that complexity relates to factors capturing organizational and operational complexity as well as the inclusion of contract provisions to address principal-agent conflicts. Firms that allow for ex-post renegotiation have simpler contracts, with renegotiation replacing the need for multiple contingencies included ex-ante. We also find that external pressures are associated with greater contract complexity, with deleterious consequences: compensation complexity unexplained by economic characteristics is associate with lower future firm performance. These findings suggest that overly complex contracts may have features that conflict with each other or may distract the CEO. The unintended consequences of this excessive complexity confirm concerns raised by investors and the media, and our findings may be useful to boards as they design CEO pay packages.
​[4] WEATHERING THE WEATHER: DOES EXTREME WEATHER AFFECT THE COST OF AN AUDIT?
WITH PAUL GRIFFIN AND ESTELLE SUN​
​Abstract: We examine the impact of extreme weather events on the cost of an audit.  We measure impact as the number of days per year a firm experiences an extreme weather event of any type (e.g., drought, floods, storms, wildfires) in its metropolitan statistical area (MSA).  We first find that auditors charge significantly higher fees for firms exposed to more extreme weather days in the past, suggesting that auditors consider previous extreme weather risk exposure a material business risk.  No one weather type dominates this finding.  Second, auditors charge higher fees for firms experiencing abnormal increases in extreme weather days contemporaneously.  This positive relation also strengthens for unanticipated weather events occurring after the fiscal yearend but before the audit report date.  Third, we find that extreme weather events generate significantly higher audit fees when the auditor and the client locate in the same MSA.
[5] DETERMINANTS OF CSR PERFORMANCE METRICS IN CEO COMPENSATION CONTRACTS
  • SECOND YEAR SUMMER PAPER (2019)
  • PRESENTED AT THE 2020 AAA ANNUAL MEETING CONCURRENT SESSION
Abstract: The percentage of the largest 1,300 U.S. firms that adopt corporate social responsibility (“CSR”) performance measures in the CEO compensation contracts doubled from 13% in 2006 to 25% in 2015. This trend coincides with the recent heightened attention that CSR has received from a variety of stakeholders. Through a determinants study, I find that the “informativeness principle” (Holmstrom, 1979) is still a primary, but not the only, consideration by the board. For example, firms also consider their blockholders’ preferences (when CSR is not informative) and peers’ practice (when CSR is already informative), indicating potential inefficiency in contracting. CSR incentives are used less when long-term incentives are more costly, manifested in longer CEO horizon shaped by pay duration. Overall, results show that the board appears to be balancing the costs and benefits of using CSR metrics in compensation contracting and not blindly following the recent institutional trend.
​[6] PRODUCT MARKET COMPETITION AND RELATIVE PERFORMANCE EVALUATION: EVIDENCE FROM A QUASI-NATURAL EXPERIMENT
  • FIRST YEAR SUMMER PAPER (2018)
  • PRESENTED AT THE 2019 AAA NORTHEAST REGION MEETING CONCURRENT SESSION
  • PRESENTED AT THE 2020 MANAGEMENT ACCOUNTING SECTION MIDYEAR MEETING POSTER SESSION
Abstract: I provide causal evidence that product market competition reduces use of relative performance evaluation (RPE). Prior studies regarding the relation between product market competition and RPE have reached mixed theoretical and empirical findings. Agency theory predicts that RPE is used more in highly competitive environment to improve contract efficiency. Industrial organization theory suggests that positive (negative) pay-for-peer-performance sensitivity can be used to discourage (encourage) competition for strategic purposes. I supplement prior studies by finding that (1) naïve OLS regressions using a different proxy for firm-level product market competition yield a positive effect of competition on RPE, but (2) a difference-in-differences approach reverses the sign of this effect, suggesting that firms are less (more) likely to use RPE in response to competition shocks induced by major industry-level tariff reduction (increase).