Job Market Paper
Job Market Paper
Bank Liquidity Regulation and the Corporate Bond Market
(Solo-Authored)
Presentations: Columbia Business School; TRR 266 Non-Tenured Workshop; International Conference in Finance, Accounting and Banking; University of Mannheim
I examine whether tighter regulation of banks’ securities portfolios has real effects on the financing and investment policies of corporate bond issuers. While tighter regulation aims at fostering financial stability, regulation of banks’ securities portfolios might impact their intermediation functions in the public debt market and lead to real effects for affected issuers. I exploit the design of the 2015 introduced minimum liquidity coverage ratio (LCR), that sets disincentives for US banks to hold non-investment grade corporate bonds. Applying a difference-in-differences design, I first show that banks reduce their engagement in the high-yield bond segment. Next, I find that issuers of non-investment grade bonds exhibit a decrease in their public debt ratio after the LCR becomes effective. These firms also reduce their investments and, in particular, their acquisition activities. I do not find increases in acquisition profitability and investment efficiency, suggesting an overall negative effect of the bank liquidity rules on affected firms’ investments. In additional analyses, I show that issuers respond to the new financing conditions by shifting from public to private debt and increasing their disclosures, consistent with attempts to mitigate potential frictions. I contribute by documenting how bank prudential regulation can lead to issuer-level real effects via banks’ intermediation activities in the corporate bond market.
Former Executives as Supervisors: Conflicts of Interest and Accounting Discretion
(with Vincent Giese)
European Accounting Review, forthcoming.
2024 CDSB Best Paper Award
Presentations: University of Mannheim; Bonn-Frankfurt-Mannheim 2023 PhD Conference; 2023 PhD Accounting Workshop at Goethe University; 9th Workshop on Accounting and Regulation; European Accounting Review 2024 Annual Conference
Due to their information advantages, former executives are routinely appointed to supervisory roles within the same firm. This practice is often criticized based on concerns about former executives’ lack of independence and potential conflicts of interest. As supervisors, one of their main tasks is to oversee the financial reporting process and to challenge management’s assumptions and the projections that shape reporting outcomes. This study examines the effects of transitioning managers on accounting discretion in the context of goodwill impairments. Based on a largely hand-collected sample of such transition events, we find a decreased propensity and lower magnitude of goodwill impairments following transitions. This effect is robust when controlling for the underlying economic situation of the firms. Further analyses reveal that the effect is muted when more experienced executives transition, for transitions into more independent boards, and for transitions after longer cooling-off periods. Overall, our findings suggest that former executives who become supervisors tend to impact the way accounting discretion is exercised. Thereby, we add to the assessment of an important governance phenomenon and relate to regulatory debates around mandatory cooling-off periods and the impairment-only approach for goodwill accounting.
Accounting for Equity Instruments: Does IFRS 9 Deter Gains-Trading or Long-Term Investments?
(with Jannis Bischof and Holger Daske)
Presentations: Scandinavian Accounting Research Conference 2022; TRR 266 Annual Conference 2022; IAAER World Congress 2022; EAA Annual Congress 2023; EIASM 9th Workshop on Accounting and Regulation; Ludwig-Maximilians-University Munich; Vienna University of Economics and Business; University of Mannheim
We examine whether banks change their investments in equity instruments when they can no longer recognize the gains and losses in net income. IFRS 9 eliminated the reclassification of gains and losses recognized in other comprehensive income to net income upon their realization, which led to a controversial debate between practitioners, politicians and standard setters. On the one hand, eliminating recycling removes earnings management opportunities. On the other hand, the lack of income recognition can distort the performance measurement and make long-term investments aimed at accumulating value gains less attractive. Analyzing international banks’ portfolio adjustments around IFRS 9 adoption in 2018, we document that banks reduce their equity investments upon IFRS 9 adoption. The decline is most pronounced for banks with past gains trading behavior, while long-term oriented banks reduce their holdings to a lesser extent. Security-level analyses show that banks with gains trading indicator rather sell equity instruments with characteristics suitable for earnings management in the post period. Collectively, the evidence suggests that the new IFRS 9 rules had an impact on banks’ equity portfolios by deterring gains-trading investments.
Stock Market Reaction to Product-Level Carbon Estimates
(with Thomas Bourveau & Daniela Zipperer)
We leverage the sudden introduction of flight-level carbon estimates provided by Google Flights. Using an event-study research design, we document an initial market reaction, with airline market values declining by around 2% following the release of the granular information. The decrease in market value is more pronounced for airlines with older fleets and is muted for airlines in China where Google Flights is not available. We interpret these findings as evidence that the equity market responds to changes in expected demand once consumers receive context-specific information about their carbon footprint. From a policy perspective, our findings indicate that the relevant level of information disaggregation differs among stakeholders. Further, they suggest that presenting information within a decision-making context to consumers is important for investors to price consumers' expected preferences.
ESG-related Compensation and Firms' Financial Information Environment
(Solo-Authored)
Presentations: 19th EIASM Interdisciplinary Conference on Intangibles, Sustainability, and Value Creation
The adoption of ESG metrics in executive compensation has gained increasing popularity in recent years. Critics, however, raise concerns about potential negative consequences due to a distraction of managers. This study examines whether the adoption of ESG metrics in executive compensation influences firms’ voluntary financial disclosures. Analyzing European firms over the 2013 to 2022 period, I find that ESG-based compensation is associated with a reduced management forecast frequency, particularly in firms with higher weight on the ESG metrics and in smaller firms. This baseline effect is robust to a series of additional tests including propensity score matching and a stacked regression design. Textual analysis of annual reports suggests that the adoption of ESG compensation leads to a shift towards ESG disclosures. Finally, the decrease in analyst coverage suggests a worsening in the general financial information environment. Although causal claims are cautious due to the endogenous nature of ESG pay adoption, the overall results are consistent with ESG compensation negatively impacting the voluntary provision of financial information as well as the general information environment. The study contrasts with prior research that highlights mainly positive effects of ESG pay. I therefore contribute to a more holistic evaluation of a governance phenomenon that gained significant traction in recent years.