Disclosure Versus Recognition: Inferences from Subsequent Events

Standard setters explicitly state that disclosure should not substitute for recognition in financial reports. Consistent with this directive, prior research shows that investors find recognized values more pertinent than disclosed values. However, it remains unclear whether reporting items are recognized because they are more relevant for investing decisions, or whether requiring recognition itself prompts differing behavior on the part of firms and investors. Using the setting of subsequent events, I identify the differential effect of requiring disclosure versus recognition in a setting where the accounting treatment of an item is exogenously determined. For comparable events, I find a stronger initial market response for firms required to recognize relative to firms that must disclose, although the large magnitude of the identified effect calls into question whether this difference can be attributed to accounting treatments alone. In examining various reasons for the stronger market response to recognized values, I fail to find support for the hypothesis that this difference is due to differential reliability of disclosed and recognized values. I do find some evidence that investors underreact to disclosed events, consistent with investors incurring higher processing costs when using disclosed information.     

Measuring the Information Content of the Beige Book: A Mixed Data Sampling Approach

Studies of the predictive ability of the Federal Reserve's Beige Book for aggregate output and employment have proven inconclusive. This might be attributed, in part, to its irregular release schedule. We use a model that allows for data sampling at mixed frequencies to analyze the predictive power of the Beige Book. We find that the Beige Book's national summary and District reports predict GDP and aggregate employment and that most District reports provide information content for regional employment. In addition, there appears to be an asymmetry in the predictive content of the Beige Book language.     

The Effects of Uncertainty and Disclosure on Auditors' Fair Value Materiality Decisions

Financial accounting standards increasingly require fair value measurements. I experimentally examine how uncertainty affects auditors’ adjustment decisions when evaluating fair values. I manipulate two types of uncertainty, input subjectivity and outcome imprecision, and one reporting choice, supplemental disclosure. I find that auditors are most likely to require adjustments when fair values contain both more input subjectivity and more outcome imprecision, but that this likelihood diminishes when clients supplement recognized fair values with additional disclosure. Thus, consistent with moral licensing, I find that auditors tolerate greater potential misstatement in the financial statements when clients provide disclosure, suggesting that the SEC's preference for supplemental disclosure may have the unintended consequence of affecting fair values recognized in the body of the financial statements. I also provide evidence that auditors determine adjustment size by comparing recorded fair value to the nearest bound, rather than the midpoint, of the auditors’ own range estimate, consistent with strict application of auditing standards.     

Contract enforcement,institutions, and social capital: the Maghribi traders reappraised1

Social scientists draw important lessons for modern development from the medieval Maghribi traders who, it has been argued, lacked effective legal mechanisms for contract enforcement and instead relied on informal sanctions based on collective ostracism within an exclusive coalition. We show that this claim is untenable. Not a single empirical example adduced as evidence of the putative coalition shows that a coalition actually existed. The Maghribi traders made use of the formal legal system in order to enforce agency agreements in long‐distance trade. A subset of the traders did form a web of trusted business associates that contributed to informal contract enforcement, but this was very different from the hypothesized coalition, in neither being exclusive nor having a clearly defined membership. The Maghribi traders combined reputation‐based sanctions with legal mechanisms, in ways that resemble the practices of medieval European merchants. We find no evidence that the Maghribi traders had more ‘collectivist’ cultural beliefs than their European counterparts.     

Concern with Immediate Consequences Magnifies the Impact of Compulsive Buying Tendencies on College Students' Credit Card Debt

This research examines whether temporal orientation moderates the impact of compulsive buying tendencies (CBT) on credit card debt. Participants completed the consideration of future consequences scale, a compulsive buying scale, and reported their credit card debt. Results revealed that CBT mediated the relationship between concern with immediate consequences and credit card debt, and high concern with immediate consequences magnified the impact of CBT on credit card debt. This suggests that compulsive buyers who focus on maximizing immediate consequences are at a much higher risk of building up significant amounts of credit card debt.     

Internal Capital Markets and the Competition for Corporate Resources

This article examines the role of corporate headquarters in allocating scarce resources to competing projects in an internal capital market. Unlike a bank, headquarters has control rights that enable it to engage in “winner-picking”—the practice of actively shifting funds from one project to another. By doing a good job in the winner-picking dimension, headquarters can create value even when it cannot help at all to relax overall firm-wide credit constraints. The model implies that internal capital markets may sometimes function more efficiently when headquarters oversees a small and focused set of projects.     

Payday Loan Choices and Consequences

High‐cost consumer credit has proliferated in the past two decades, raising regulatory scrutiny. We match administrative data from a payday lender with nationally representative credit bureau files to examine the choices of payday loan applicants and assess whether payday loans help or harm borrowers. We find consumers apply for payday loans when they have limited access to mainstream credit. In addition, the weakness of payday applicants’ credit histories is severe and longstanding. Based on regression discontinuity estimates, we show that the effects of payday borrowing on credit scores and other measures of financial well‐being are close to zero. We test the robustness of these null effects to many factors, including features of the local market structure.     

The Fed,the Bond Market,and Gradualism in Monetary Policy

We develop a model of monetary policy with two key features: the central bank has private information about its long‐run target rate and is averse to bond market volatility. In this setting, the central bank gradually impounds changes in its target into the policy rate. Such gradualism represents an attempt to not spook the bond market. However, this effort is partially undone in equilibrium, as markets rationally react more to a given move when the central bank moves more gradually. This time‐consistency problem means that society would be better off if the central bank cared less about the bond market.