Did Subjectivity Play a Role in CDO Credit Ratings?

Analyzing 916 collateralized debt obligations (CDOs), we find that a top credit rating agency frequently made positive adjustments beyond its main model that amounted to increasingly larger AAA tranche sizes. These adjustments are difficult to explain by likely determinants, but exhibit a clear pattern: CDOs with smaller model‐implied AAA sizes receive larger adjustments. CDOs with larger adjustments experience more severe subsequent downgrading. Additionally, prior to April 2007, 91.2% of AAA‐rated CDOs only comply with the credit rating agency's own AA default rate standard. Accounting for adjustments and the criterion deviation indicates that on average AAA tranches were structured to BBB support levels.     

Foreign Exchange Gains and Losses: Impact on Reported Earnings

During the period 1974–77 firms affected by Statement 8 of the Financial Accounting Standards Board dealing with foreign currency translation responded to the FASB's invitation to comment. In this study, the reported exchange gains and losses of firms that submitted comments to the FASB and a broad sample of multi-national companies are examined. There is limited evidence that FASB respondents suffered greater swings in pretax earnings as a result of FASB than did other multinationals.     

Management's Preferences for FASB Statement No. 52: Predictive Ability Results

Research attempting to explain or predict preferences with respect to accounting rules is a relatively new branch of accounting research. Factors affecting a manager's welfare (e.g., political costs) are identified and then evaluated empirically to ascertain whether such factors are helpful in predicting a manager's decision to respond to proposed changes in the Financial Accounting Standards Board's (FASB's) rules on foreign currency translation. FASB Statement No. 52, issued December 1981, replaced FASB Statement No. 8 and required U.S. multinational corporations to switch from the 'temporal' to the 'current rate' method of translating foreign currency financial statements into U.S. dollars. The models use current economic data as well as information about managers' responses to earlier changes in the rules for translating foreign currency statements. While the models adequately describe management's behaviour, and hence are consistent with earlier research, their predictive ability is only a modest improvement over naive prediction rules.     

Did FinTech Lenders Facilitate PPP Fraud?

In the $793 billion Paycheck Protection Program, we examine metrics related to potential misreporting including nonregistered businesses, multiple businesses at residential addresses, abnormally high implied compensation per employee, and large inconsistencies with jobs reported in another government program. These measures consistently concentrate in certain FinTech lenders and are cross-verified by seven additional measures. FinTech market share increased significantly over time, and suspicious lending by FinTechs in 2021 is four times the level at the start of the program. Suspicious loans are being overwhelmingly forgiven at rates similar to other loans.     

Renewable Governance: Good for the Environment?

We conjecture that board renewal mechanisms—those substantive enough to renew the thinking of the board—are required before investors can address the mismatch between their preferences regarding environmental sustainability and what insiders at firms are actually doing. We identify the adoption of majority voting for directors and the introduction of a female director as two corporate governance mechanisms potentially strong enough to renew a board's thinking on sustainability. Using a sample of 3,293 firms from 41 countries, along with quasi-exogenous shocks to board renewal mechanisms in Canada and France, we find that both board renewal mechanisms are associated with significantly higher future environmental performance. Further tests provide suggestive evidence that board renewal is more strongly associated with environmental performance in settings with better institutions and more motivated institutional investors. These results suggest the importance of board renewal for alignment of firm policies with investor preferences around the world.