Author's School

Olin Business School

Language

English (en)

Date of Award

5-10-2024

Degree Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Chair and Committee

Richard Frankel

Committee Members

na

Abstract

This dissertation examines two questions related to financial accounting. In the first chapter, I examine how electronic dissemination of disclosure affects its content by comparing textual MD&A before and after EDGAR implementation. I construct a large sample of pre-EDGAR MD&As by hand-collecting images and using optical character recognition (OCR) for conversion into machine-readable text. Consistent with firms increasing opaque and pessimistic expressions in response to improved dissemination, I find a decline in the readability and tone of MD&A following EDGAR implementation. Cross-sectional tests reveal that the decrease is more pronounced in litigious industries, suggesting that litigation risk drives firms to create less readable and less optimistic MD&As. Next, I investigate the dynamic effects of EDGAR adoption and observe that the effect is strongest immediately after the adoption and diminishes in subsequent years. This pattern suggests that the initial costs of adopting electronic filing, such as personnel training and data conversion, may divert resources for filings preparation and lead to lower MD&A readability and tone in the early years. Analyzing the trends of 10-K filing delays and amendment rates around EDGAR implementation corroborates this initial-cost channel. Finally, I provide some evidence that using a more pessimistic tone in MD&A following EDGAR adoption helps reduce future litigation risk. In the second chapter, co-authored with Richard Frankel and Xiumin Martin, I study the used-car market to understand how public enforcement that intends to increase information reliability affects disclosure, pricing, and liquidity. In 1986, federal rules mandated the creation of odometer records, and states enforced the law in a staggered fashion. We find that used-car asking-price sensitivity to mileage increases by 32.6%, and mileage disclosure in classified ads increases by 23.4%. The findings suggest that strengthened law enforcement increases odometer credibility and enhances market participants’ use of that information. We also show significant improvement in market outcomes: a 9.7% increase in asking price and a 13.4% increase in transaction speed, as reflected in the reduction in repeated ads. The price effect arises irrespective of whether ads contain mileage disclosure, whereas the liquidity effect arises mainly through disclosure. Our study shows public enforcement can benefit the market by improving information credibility.

Comments

Accounting

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