Research and Curriculum Vitae
 | Research
 Why Won't You Forgive Me? The Long-Lasting Effect of Misreporting on Bank Loan Pricing (Job Market Paper; with Sudheer Chava and Shane A. Johnson)
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Firms that misreport financial information pay greater bank loan spreads than matched firms for five years following the restatements. Restating firms that replace parties potentially related to the misreporting - CFOs, audit committee chairs, and external auditors - continue to pay significantly higher spreads for two years, but they eventually see a reduction to benchmark spread levels three to five years after the restatement. Despite the mitigating effects of replacing potentially related parties, a majority of restating firms do not make such replacements and continue to pay significantly higher loan spreads in the three to five year window following the restatement. The results are consistent with the view that misreporting financial information causes long-lasting harm to a firm's credibility, but that certain actions reduce the duration of that harm.
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Can Shareholder-Creditor Conflicts Explain Weak Governance?: Evidence from the Value of Cash Holdings (with Neal Galpin) |
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We show that the value of cash holdings is higher in unlevered strong
governance firms than in unlevered weak governance firms. However, the
value of cash falls faster for strong governance firms as leverage
increases. For high enough leverage, this means that the value of cash
under weak governance actually exceeds the value of cash under strong
governance. We estimate the leverage ratio for which the value of cash
is equal in both strong and weak governance firms. Though the tests are
biased in favor of finding a strong shareholder-creditor conflict, we
find that more than 60% of weak governance firms could increase the
value of their cash by improving governance. Thus, we argue, though
extant research shows governance worsens shareholder-creditor conflicts,
the conflicts do not explain why so many firms choose weak governance. |
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