“Anti-Corruption Language in Codes of Conduct: Automated Detection Using Topic Modeling” – joint with M. Gietzmann and F. Grossetti

Measuring corruption emphasis in corporate communication is a challenging task. This paper proposes an automated method to infer anti-corruption emphasis S&P 500 firms put in their Codes of Conduct through topic modeling and defines a quantitative measure of anti-corruption language choice. We collect foreign subsidiary locations and define an aggregate measure of corruption risk at the firm level. We find that a firm’s anti-corruption language choice is positively associated with the firm’s corruption risk. Our approach introduces a quantitative method to a highly qualitative field of ethical communication in the hope of facilitating further automation to avoid costly experiments, interviews, and surveys.

“Keeping Quiet  Until a Restatement: Are Disclosures of Material Weaknesses Delayed?” – joint with M. Gietzmann

This paper presents a model of a disclosure game where managers are requested to communicate their ex-ante beliefs on the reliability of a firm’s reporting system, but have incentives to delay disclosing their negative beliefs in the hope that ex-post an unreliable reporting system indicated by a restatement will not be detected. A theoretical model is presented to explain why such a disclosure gamble may be an equilibrium strategy. This study then tests for empirical evidence of the existence of the “delaying” equilibrium using the data on disclosures of material weaknesses (MW) and financial restatements (FSR) of U.S. public companies in 2005-2014. It is shown how specific underlying characteristics of firms determine whether a delaying strategy is likely to be followed.

“The Value Relevance of Tone: Evidence from 2006-2015 10-Ks” – joint with F. Grossetti

We study whether tone measures of MD&A sections of firms’ 10-K reports exhibit value relevance over time in addition to the twelve accounting amounts and ten industry indicators studied in the literature. We find that all measures of tone, including absolute tone, change in tone, and abnormal tone, are positively correlated with the equity price. We also find that the equity price is positively associated with the length of the MD&A section of 10-K, but negatively with the wordiness of the disclosure, suggesting that investors appreciate additional information provided to them, but want it to be succinct.

“Are Auditors Slacking Off Under Time Pressure?”

This paper presents a model of an audit game where an auditor endogenously determines her equilibrium audit effort. The model predicts that, under time pressure, the auditor will ”slack off” as her effort will always be sub-optimal vs. regulators’ optimal level, decreasing as she approaches the end of the audit engagement. When the proportion of riskier firms in the economy is low, this will result in more lenient than optimal auditor reports. Additionally, when the audit quality is affected by the time pressure, the regulator reduces his optimal audit engagement effort. We also show that the most efficient audit engagement is achieved by asymmetrical liabilities.