Executive ethics and accounting irregularities

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This paper uses executives’ membership on an extramarital dating website as a negative proxy for ethics and finds that financial statements from the firms of unethical executives are more likely to be restated. The likelihood of restatement is higher when unethical executives are CEOs. Restatements cluster around a few issues, with executive compensation being one of the most prominent. Unethical executives are also associated with ineffective internal controls, material weaknesses, and securities lawsuits. When unethical executives are revealed, their firms’ stock prices decline. The decline is steeper for firms with recent restatements. In the subsequent year, executives revealed as unethical whose firms have restatement histories are more likely to be demoted and receive less compensation.

Presentation history:

• May 30th 2019 at EAA Annual Congress, Paphos
• May 23rd 2019 at Luiss Guido Carli, Rome
• April 16th 2019 at University of Electronics Science and Technology
• December 15th 2018 at HKEA Biennial Conference, Xiamen University
• November 11th 2018 at CFMA, Jinan University, Guangzhou
• April 14th 2016 at NYU Accounting Department Brownbag Seminar

Media mention:

• Chief executives’ private lives: how much boards should know. Financial Times

The stock price reaction to investment news: New evidence from modeling optimal capex and capex guidance

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Extant literature documents a weak positive stock price reaction to announcements of new investments. The weak reaction is likely due to lack of identification for the optimal investment levels and omission of concurrent investment guidance. To address the lack of identification, I develop an accounting-variable-based model to proxy for optimal capital expenditures (capex) at firm-year level. To address the omission of concurrent investment guidance, I employ recently available data on capex guidance. I hypothesize and find that when a firm’s capex diverge from the estimated optimal level, its stock price declines. Given divergence, the stock price decline is more severe when the firm over-invests. Moreover, controlling for self-selection, there is a positive market reaction to the issuance of capex guidance. Lastly, I hypothesize that capex guidance reduces information asymmetry between management and investors. I find that the negative stock price reaction to divergence disappears when a firm issues capex guidance, consistent with that investors align their views on optimal capex level with a manager’s guidance.

Presentation history:

• February 26th 2016 at The University of Hong Kong
• February 25th 2016 at The Hong Kong Polytechnic University
• February 24th 2016 at The Chinese University of Hong Kong
• January 19th 2016 at IESE Business School
• September 29th 2015 at NYU Accounting Department Faculty Seminar
• November 6th at EAA Talent Workshop at IE Business School
• December 5th at AAA Rookie Camp in Miami

Asset allocation across operation and defined benefit pension plans

Available upon request.

I examine the correlation between firms’ returns from operations and from pension plan assets attributable to management. This correlation, which I refer to as Rho, is a proxy for the degree of hedging across assets under management. I find that firms in the financial industry and firms investing pension assets in their own equity/assets have higher Rho’s (less hedging). Additionally, my evidence indicates that firms with higher Rho’s have more volatile earning paths. My results also show that when pension plans are underfunded by 10% or less firms with higher Rho’s invest more in operation; however, this relationship brakes down when funding deficit exceeds 10%.

Presented on November 15th 2012 at NYU Accounting Department Brown Bag Seminar.

Last updated: October 2022