‘Building Trust from Code: Disclosure Commitment on Blockchains’ (Job Market Paper)
Abstract: I investigate firms’ decisions to make disclosure commitments before realizations of signals in the market for initial coin offerings (ICOs). The blockchain technology allows entrepreneurs to make irreversible decisions to disclose their transaction details with investors before the transactions take place. Such decisions are coded into computer programs, known as ‘smart contracts,’ which become immutable once deployed on blockchains. I manually collected and analyzed the ‘smart contract’ code of 2085 ICO projects. I find that ICOs that make disclosure commitments with this technology are more likely to reach fundraising goals and to deliver preliminary products, suggesting that the decision to disclose information, in addition to the content of disclosures, signals project quality. I also find that transaction volumes on blockchains predict ICO outcomes and that investors punish ICOs with suspicious volumes, e.g., volumes that show signs of automated trading. Collectively, these findings indicate that blockchains can function as a self-commitment device, which enhances firms’ ability to convey private information to the market.
‘Do CFO Personal Financial Status Affect Corporate Financial Reporting? Evidence from the Housing Market’ (with Guangli Lu)
Abstract: We study the impact of CFO’s personal financial status on corporate financial reporting. We measure CFO’s financial status by tracking the value of their housing portfolios, which are constructed by matching CFO information to housing transaction data using the TF-IDF algorithm. We find that CFOs who experience declines in their housing values produce better financial statements, e.g., fewer accounting restatements. They also issue more conservative forecasts and engage in less accrual-based earnings management but more real earnings management. The results are more pronounced among firms with low institutional ownership and low analyst coverage. These findings suggest that recent deteriorations in financial status motivate CFOs to produce more conservative financial reports.
Working in Progress:
‘The Asymmetric Reaction to Earnings Announcements for Dual-listed Firms’ (with Emily Jing Wang and Jenny Li Zhang)
‘Classifications of Crypto Assets in Financial Statements and Price Volatility’