Research

Publication

• “New Accounting Standards and the Performance of Quantitative Investors” with Travis Dyer and Nicholas Guest
  • Journal of Accounting and Economics, Forthcoming
  • Abstract: We examine quantitative investors’ ability to navigate a common and occasionally material change to the financial data generating process: new accounting standards. Returns of quantitative mutual funds temporarily decrease relative to funds that rely more heavily on human discretion following the implementation of a few standards that significantly change key financial statement variables; however, other standards do not appear to have a differential effect. Our result is stronger for quantitative funds using more accounting terminology in their prospectuses and using value strategies, which leverage accounting signals. Excess portfolio turnover following the implementation of accounting standards appears to be a driving factor of the quant underperformance. Additional evidence connects the fund-level results to the specific stocks that were affected by the accounting standards. Overall, our results suggest quant funds are generally proficient at adapting to accounting changes, although material changes occasionally put them at a temporary disadvantage relative to discretionary investors.

Working Papers

• “Real Earnings Management and Innovation Externalization: Evidence from Corporate Venture Capital”
  • Dissertation
  • Abstract: This study examines whether firms increase their investment in startups using Corporate Venture Capital (CVC) when they reduce internal research and development (R&D) spending to meet short-term earnings targets. My findings suggest that firms are more likely to make CVC investments when they just meet or beat analysts’ earnings forecasts and have lower than predicted R&D expenses. The effect is particularly concentrated in firms held by more dedicated investors, firms with long-term oriented CEOs, and firms within more competitive industries. Subsequently, firms that make CVC investments during R&D-cutting and benchmark-beating years have superior innovation outcomes and better long-term performance than those that cut R&D but do not make CVC investments. My findings suggest that managers utilize CVC investments to mitigate the negative impacts of cutting internal R&D and highlight the importance of considering external innovation efforts in addition to internal R&D in future studies.
• “Audit Partners’ Cultural Heritage and Audit Outcomes” with Inder Khurana, Bing Li, and Kelvin Yeung
  • Revise & Resubmit
  • Abstract: Economic theories on attitude formation emphasize that culture plays a fundamental role in shaping individual beliefs and preferences. Building on this work, we document robust evidence that audit partners who descended from trusting cultures are less likely to issue going concern opinions relative to their peers. This effect is not driven by trusting partners being gullible and failing to issue going concern opinions when their clients subsequently go bankrupt. Instead, this effect is driven by trusting partners not being excessively conservative and committing fewer Type I errors. Consistent with this interpretation, we find no evidence that trusting partners are associated with lower client financial reporting quality. Further analyses reveal that cultural trust matters less when a partner has more industry-specific experience or has less influence on an audit. Collectively, our findings provide novel evidence on whether and under what conditions audit partners’ cultural trust influences the assurance of accounting information.