Secondary Titles (1)
- Sungkyunkwan University Professor
Industry Expertise (4)
Areas of Expertise (5)
Professional Judgment and Decision Making
Financial Statement Analysis
Human Information Processing
Effects of Accounting and Auditing in Capital Markets
Innovative Teaching Award (professional)
Kelley School of Business, 2013
Distinguished Contribution to the Accounting Literature Award (professional)
American Accounting Association (for Hirst and Hopkins 1998), 2011
University of Texas: Ph.D., Graduate School of Business 1995
University of Florida: M.Acc, Accounting 1986
University of Florida: B.S., Bachelor of Science 1985
Does Coordinated Presentation Help Credit Analysts Identify Firm Characteristics?Contemporary Accounting Research
2015 We present 60 experienced credit analysts with financial information for two firms: one that mainly outsources production and one that does not. We find that analysts are better able to identify firm characteristics that make an outsourcer more creditworthy when those characteristics are presented in the same general section of a financial report; either on the face of the financial statements or in the footnotes. Such coordinated presentation reduces the cognitive load necessary for integrating the related information and forming a meaningful mental model of each firm. Our results suggest that if standard setters are going to require more detailed disclosures, coordinated presentation of related decision-useful information in the same section of a firm’s financial report may benefit users, regardless of whether the information is recognized on the face of the financial statements or disclosed in the notes. Supplemental analysis cautions standard setters, however, to consider whether requiring more detailed disclosures provides an incremental benefit over how firm’s disclose information today.
The effect of alternative accounting measurement bases on investors’ assessments of managers’ stewardshipAccounting, Organizations and Society
2015 We conduct a laboratory experiment to examine investors’ assessments of managers’ stewardship. We provide evidence that investors tend to attribute external (i.e., non-manager-related) causes of firm performance to managers’ performance. We predict and find that fair value information enables investors to overcome this tendency and make better stewardship decisions than investors with amortized cost information. We also find that investors presented with amortized-cost-based financial statements perform better to the extent they access fair-value-based footnote information, while investors presented with fair-value-based financial statements perform worse to the extent they access amortized-cost-based footnote information. Collectively, our results suggest that investors’ stewardship decisions are improved because fair value information more transparently provides the information required to properly consider the opportunity costs associated with managers’ actions and disentangle endogenous actions by managers from exogenous market forces that are outside of managers’ control.
Fair Value Measurement in Financial ReportingFoundations and Trends in Accounting
2014 This monograph provides a historically informed discussion of conceptual and procedural issues related to the use of the fair value measurement attribute in financial reporting. Our goal is to provide a structure, based on the conceptual frameworks of the Financial Accounting Standards Board and International Accounting Standards Board, for researchers’ evaluations of empirical research studies that investigate the informational properties of all measurement bases, including fair values. We begin by defining, addressing misconceptions about, and providing a brief history of the fair value measurement attribute. We next discuss decision usefulness of fair value and other measurement bases, and describe and evaluate examples of empirical research that documents the decision usefulness of recognized and disclosed fair value information, focusing on predictive ability, value rel- evance, and risk relevance. We also discuss the role of verifiability in the context of relevant and faithfully represented accounting information; describe three untested, verifiability-related maintained assumptions that arise in discussions of fair-value-measurement research; and discuss research designs for investigating questions related to accounting measurement verifiability. Finally, we discuss claims that use of the fair value measurement attribute causes procyclical behavior among financial institutions and that accounting standards have become increasingly fair-value-oriented during the last two decades.
Agency Problems, Accounting Slack and Banks’ Response to Proposed Reporting of Loan Fair ValuesAccounting, Organizations and Society
2014 We investigate the determinants of bank representatives’ responses to the United States Financial Accounting Standard Board’s 2010 Exposure Draft that proposes fair value measurement for most financial instruments. Over 85 percent of the 2,971 comment letters were received from bank representatives, with most bank-affiliated letters addressing—and opposing—one issue: fair value measurement of loans. The Exposure Draft proposes that companies report both fair value and amortized cost measures for loans; thus, the proposal should result in increased levels of loan-related information and improved financial reporting transparency. We investigate three reasons for bank representatives’ resistance. First, fair value measurement should result in less accounting slack than the current incurred-loss model for loan impairments; therefore, we propose that representatives from banks that historically utilized that slack will resist fair value measurement for loans. Second, we propose that agency problems are an important motivating factor because bank representatives reaping more private benefits from their franchises have less incentive to support increases in financial reporting transparency. Third, we test whether the most common reasons for opposition included in the comment letters are associated with negative letter writing. Our analyses support the first two determinants of bank representatives’ resistance to the Exposure Draft. Specifically, accounting slack and lower demand for accounting transparency are strongly associated with resistance to the standard. However, we find that stated reasons for resistance are not associated with letter writing. Specifically, representatives at firms with difficult to value loans and firms that mostly hold loans to maturity are no more likely to resist the standard than others. The narrow scope of bank representatives’ comments and our empirical findings suggest that bankers’ responses to the Exposure Draft may be more driven by concerns over reduced availability of accounting slack and accompanying de facto regulatory forbearance than by the conceptual arguments they offer. Our results have implications for standard setters, who must navigate special interests as they attempt to promulgate high quality accounting standards, and for users of financial statements who must consider how political forces shape generally accepted accounting principles.
The Predictive Ability of Fair Values for Future Financial Performance of Commercial Banks and the Relation of Predictive Ability to Banks’ Share PricesContemporary Accounting Research
2014 The conceptual frameworks of International Accounting Standards Board (2010, QC7-QC8) and Financial Accounting Standards Board (2010b, QC7-QC8) both include predictive value as a fundamental qualitative characteristic of useful financial information. Because changes in fair value are unpredictable—that is, one period’s fair value gains (losses) cannot predict future periods’ fair value gains (losses)—fair value is criticized as diminishing the predictive ability (and, therefore, the usefulness) of financial information. We propose that the time-series relationship of fair value gains (losses) is an overly restrictive way to define predictive ability, and completely ignores the forward looking information that is impounded in fair value measures. Specifically, the fair values of interest-bearing financial instruments capture the opportunity costs and benefits of holding below- and above-market instruments. Thus, we propose that the relative levels of unrealized holding gains (losses) should predict relative levels of future realized gains (losses) and interest income across firms (hereafter, “cross-sectional predictive ability of fair values for future reported income”). Because of the significance of financial instruments to commercial banks’ balance sheets and the availability of detailed fair value information for these instruments in banks’ regulatory reports, we test our predictions for a sample of commercial banks during 1994-2008. Consistent with our predictions, we find that accumulated fair value adjustments for interest-bearing securities are positively cross-sectionally associated with future interest income, future total realized investment holding returns, and future investment-security-related cash flows. Additional analyses reveal that the cross-sectional predictive ability of fair values for future reported income is positively related to the measurement precision of reported fair value measurements. Finally, we show that cross-sectional predictive ability of fair values for future reported income is positively associated with the value relevance of reported fair value measurements.