Research

Customers’ Response to Firms’ Disclosure of Social Stances: Evidence from Voting Reform Laws

• Co-authors: Hengda Jin, Texas A&M University; Ken Merkley, Indiana University; Karen Ton, Villanova University

• Review of Accounting Studies, Forthcoming

• Abstract: We examine customer responses to publicly traded firms speaking out in response to the state of Georgia's voting reform laws. For firms that speak out, we find that customer visits and visitors at their stores decrease relative to the stores of firms that do not speak out. The decrease in customer traffic is stronger for stores in Georgia, predominantly Republican counties, and for firms whose speaking out was emphasized by conservative media sources. The results are weaker for stores in counties with more diverse populations. We also find that total spending, spending per transaction, and spending per customer decrease after firms speak out. Our results are attributed to a decrease in traffic from less frequent customers who spend less time shopping but offset by customers who increase their shopping time. Consistent with offsetting effects, we do not find evidence that speaking out is associated with changes in firm-level financial performance or an equity market response. Our findings highlight different customer responses to speaking out that help us better understand the implications of companies’ engagement in societal issues.

Working Paper: The Transparency of Disciplinary History and Future Misconduct: Evidence from Financial Advisers

• Committee: Brian Miller (chair), Daniel Beneish, Ken Merkley, Noah Stoffman, and Jim Wahlen

• Abstract: I examine whether an increase in the transparency of financial advisers’ disciplinary history reduces their likelihood of committing future misconduct. The financial adviser industry has been fraught with episodes of misconduct. To help retail clients make more informed decisions when hiring or retaining a financial adviser, the Securities and Exchange Commission increased transparency by requiring financial advisers to disclose whether they have a disciplinary history through Form Client Relationship Summary (CRS). Using a difference-in-differences design around the adoption of Form CRS, I find that financial advisers are less likely to engage in misconduct after the Form CRS disclosure requirement. Both the adviser channel and the firm channel contribute to this reduction. The results are strongest in geographic segments that experience the greatest reduction in retail clients’ processing costs. Combined, the evidence suggests that increased transparency of disciplinary history deters misconduct, which protects the interests of retail clients. 

Working Paper: The Impact of an SEC-Induced Increase to Stock Liquidity on Voluntary Disclosure

• Co-authors: Tom Hagenberg, Northwestern University; Brian Miller, Indiana University; Teri Yohn, Emory University

• Revising for resubmission at the Journal of Accounting and Economics

• Abstract: In addition to disclosure regulation, the Securities and Exchange Commission (SEC) periodically intervenes in the market making process to facilitate fair, orderly, and efficient capital markets. For example, responding to calls for increased market maker competition on the Nasdaq in the early 1990s, the SEC imposed several reforms in 1997 to decrease bid-ask spreads and dealer rents. While prior research documents that this reform was successful in improving market maker competition and stock liquidity, we examine whether this increase in liquidity sufficiently altered firm’s incentives to disclose, such that firms reduced voluntary disclosure. In a differences-in-differences design, we examine whether firms affected by the reforms subsequently reduced their voluntary disclosure and whether this reduction in disclosure increased information asymmetry among investors. Our results suggest that firms impacted by the regulatory intervention subsequently reduced management forecast frequency relative to a set of firms unaffected by the regulation. Further, the firms that reduced disclosure experienced an increase in information asymmetry among investors through an increased probability of informed trading. 

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