Working Projects

These drafts should not be considered as “working papers” that are ready to be submitted to journals.   In some cases, I have no plans to develop the draft for future publication (this is the case for my summer paper on accruals).  The drafts reflect my current progress and are subject to change as (or if) progress continues.  Any drafted conclusions are “use at your own risk.”

In some cases I have also posted statistical code.  Please reach out to me if you find any errors, or if you have any questions about my work.

Measuring Accounting Comparability (with Elisabeth Plietzsch and David Windisch)

Abstract: Accounting researchers and regulators are highly interested in the determinants and consequences of accounting comparability. Existing measures of comparability, how-ever, rely on stock return data as an input, making them unsuitable for many of the questions of interest to accounting researchers. We propose that an ideal measure of comparability would satisfy three criteria. First, an ideal comparability measure would rate two firms as having more similar accounting if their reported earnings respond to “true economic” performance in the same way. Second, an ideal measure of comparability would not rely on stock return data to identify the “true economic” performance of the firms, because doing so would presuppose the capital market consequences of accounting comparability that many researchers are interested in testing. Third, an ideal measure of comparability would not rely on “input” based information, such as a checklist of the specific accounting treatments used by individual firms, because doing so would presuppose the determinants of accounting comparability. We develop and estimate a structural model to produce a firm-level measure of accounting comparability that meets the above three criteria. Our measure is distinct from the popularDeFranco et al. (2011) measure in that we do not rely on stock returns as an input.

Measuring Accounting Comparability

Household Recordkeeping

Abstract: Accounting in household settings has not received much scholarly attention.  This is unfortunate, because accounting is known to affect economic activity in other settings, and households represent a substantial portion of the US economy.  Assets held by households represent 72 trillion dollars, compared to only 48 trillion held by corporations.  Household debt is over 14 trillion dollars, compared to about 13 trillion of debt owed by corporations (Tufano 2009).

Both accounting and communications scholars have an interest in understanding how households communicate about their finances to make decisions and hold themselves or others accountable.  Communication about finances for the purpose of decision making and accountability can take many forms, including talk, nonverbal cues, and written messages.  All of these forms of financial communication by have been studied by accounting scholars in corporate settings, but none have been studied in the context of households.  I provide first evidence on how households use one specific type of written communication, financial records, to make decisions and ensure accountability.

Financial records are one way that households process, accumulate, and summarize financial information for accountability and decision making purposes.   To the extent that financial records affect financial decision making, household financial record use is critical for a fully developed theory of household finance, and thus for finance more generally.   What's more, the processing, accumulation, and summary of financial information for decision making purposes is fundamentally an accounting topic.  Thus, understanding household accounting is not only necessary for an understanding of household finance, but it is also necessary for a complete understanding of how accounting shapes the US economy.

Household Financial Recordkeeping Draft

Spectral Analysis of Accruals

This paper represents the extension (i.e., non-replication) portion of my first-year summer paper.  My full summer paper, which also replicates Allen, Larson, and Sloan (2013), is available upon request.  The R code for both the replication and the extension tables in my paper are included below.

Abstract:  I study the underlying processes that contribute to observed accruals.  First, I summarize Allen, Larson, and Sloan's (2013) findings on accrual reversals, earnings, and stock returns.  They suggest that accruals consist of multiple underlying processes –each with different autocovariance properties, and point to one process with positive autocovariance, and one with negative autocovariance. I extend their endeavor by introducing a nonparametric statistical technique, spectral analysis, for studying the underlying processes that sum to an observed time series.  My results suggest that (1) accrual periodicity length increases in operating cycle length, (2) there are multiple processes involved in accruals, (3) the most influential of these processes has a periodicity of less than a year, and (4) the periodicities of these processes are correlated with firm and earnings attributes.

This paper has benefited from helpful comments from my summer paper sponsor, Dain Donelson; I gratefully acknowledge his supervision.

Download Paper Here

View Replication Code Here

View Extension Code Here

View Libraries and Functions for Replication and Extension Here

  

		

	


Simulation of Accounting Standards

	

		

			
I investigate how accounting standards and communication patterns between accoun-


tants affect uniformity and innovation in accounting practice. Prior accounting thought


suggests that accounting standards increase uniformity of practice at the cost of de-


creasing innovations in accounting practice. For example, the FASB claims that “one of


the most important reasons that financial reporting standards are needed is to increase


the comparability of reported financial information” and that consistency of practice,


while not identical to comparability, is helpful in achieving comparability (FASB state-


ment 8, 2010 pgs. 29 19). Others have expressed concern that accounting standards


reduce innovations in accounting practice (e.g. Sunder 2010). I investigate the alleged


trade off between uniformity of accounting practice and innovations in accounting prac-


tice by using an agent based simulation model inspired by Basu, Madsen, Reppenhagen,


and Waymire (2013, BMRW hereon). BMRW find that increased communication be-


tween accountants increases innovation, leading to better performance on a complex


task. I document a form of communication that leads to decreased performance on the


same complex task. With regards to standard setting, I find that accounting standards


not only reduce innovation in practice, but also reduce uniformity in practice under


some conditions. This is in contrast with the conventional wisdom that standards in-


crease uniformity in practice. The results suggest that efforts to implement accounting


standards for the sake of uniformity may be misplaced. The results also provide guid-


ance for when communication between accountants can improve (or harm) accounting


 practice.





		

	


Why have a PCAOB?

	

		

			


This is my second year summer paper, and my first real foray into analytical modeling.  The paper uses an analytic model to compare three strategies for mitigating the agency problem between an owner and a manager. The first strategy is to hire a single auditor to monitor the manager. The second strategy is to hire multiple auditors to monitor the manager.  The third strategy is to hire an auditor to monitor the manager, and an inspector to monitor the auditor. The model shows that the multiple-auditor model is never as profitable as the single auditor strategy because multiple auditors free ride on each others’ efforts. Thus the multiple-auditor strategy is never used.


Compared to the single auditor strategy, the auditor-inspector strategy leads to higher quality financial reporting but lower quality auditing by offering the manager higher rents, which makes the manager more likely to work. Overall, the auditor-inspector (single-auditor) strategy is more profitable for the owner when human capital costs are low (high).