Publications

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We focus on the indirect effect of SEC comment letters by analyzing how companies change their risk factor disclosures after other leaders and peers in the industry receive a comment letter, even though the original company did not receive a letter itself. Not only does this spillover effect influence how much companies change their disclosures, but it also increases the amount of company-specific information they disclose. We confirm that these actions by the company (that did not receive a letter) improve its disclosures such that they are less likely to receive a future comment letter.
Contemporary Accounting Research, 2018.

We focus on the risk of a company receiving an SEC comment letter when there are inconsistent messages between the company’s financial statements and associated 10-K narrative text. Companies can use the flexibility of the text to either clarify and expand on the financials, or to obscure them. We examine the relationship between this discretionary decision within the MD&A and the receipt of a comment letter from the SEC regarding that MD&A. So far, we have documented companies that look unusual relative to their peers have a higher risk of receiving a comment. We are currently performing a more in-depth, careful analysis of the data.
Work in Process, 2017.

Most public companies are required to file annual 10-K’s with the SEC, which may be found on its EDGAR system. Parsing these free-form, loosely structured documents is challenging due to inconsistent formatting, regulatory changes over time, and varying filing requirements across companies. In this paper, I will document the numerous assumptions and decisions made while developing version 3.0 of the DocNet system, an automated tool for parsing 10-K’s (and other narratives) into their component sections while also allowing for manual adjustments via a web-based editor. The core logic is written in Python and the web interface in Flask, built on a combination MongoDB and SQLite database backend.
Work in Process, 2017.

Augmenting earlier measures of between-client similarity based on narrative text, I introduce a new measure for quantifying the similarity using quantitative data on the face of the financial statements. Clients having greater overlap with other clients of the auditor have audit fees that are lower than otherwise expected, which I interpret as evidence of increased efficiencies and lower risks within the audit process as the auditor is able to apply common knowledge, technology, and skills across related clients. The lower-fee effect is strongest in industries where the auditor has greater economic incentives (i.e., can better profit from the overlap). When the narrative disclosures and financial statements portray inconsistent views of the client, I find higher audit fees in situations that likely increase risk for the auditor and lower fees when risks decrease.
Working Paper, 2017.

We examine the likelihood of a client switching auditors when that client does not fit well with other clients of the same auditor. The most dissimilar clients are around 10% more likely to switch auditors, and will tend to change to an auditor with which they are more compatible. Following an auditor change, there is a quick alignment in the footnotes of that client with existing clients of the new auditor, followed by slower changes in unaudited (but reviewed) sections of the 10-K. There is mixed evidence as to whether a better client-firm alignment improves audit quality.
Journal of Accounting Research, 2016.

We measure year-over-year changes in companies’ 10-K MD&A disclosures, confirming these changes are more likely to appear following larger operational changes, but finding a decline in the magnitude of these changes and the stock market’s reaction to them. This latter result may indicate a decline in the usefulness of the MD&A for investors, coincident with the MD&A disclosures becoming longer and more boilerplate over time. We find no evidence that sell-side analysts use the MD&A in adjusting their forecasts, possibly due to having superior information sources.
Journal of Accounting Research, 2011.