Christopher Armstrong

• Christopher Armstrong, Mirko S. Heinle, Irina Luneva (Working), Financial Information and Diverging Beliefs. Abstract

  Standard Bayesians’ beliefs converge when they receive the same piece of new information. However, when agents initially disagree and have uncertainty about the precision of a signal, their disagreement might instead increase despite receiving the same information. We demonstrate that this divergence of beliefs leads to a unimodal effect of the absolute surprise in the signal on trading volume. We show that this prediction is consistent with the empirical evidence using trading volume around earnings announcements of US firms. We find evidence of elevated volume following moderate surprises and depressed volume following more extreme surprises, a pattern that is more pronounced when investors are more uncertain about earnings’ precision. The evidence suggests that investors in the U.S. financial market in general disagree about stocks’ expected returns and do not know the quality of accounting earnings reports.

• Christopher Armstrong, Allison Nicoletti, Frank Zhou (2021), Executive stock options and systemic risk, Journal of Financial Economics.
• Christopher Armstrong, Luzi Hail, Rachel Xi Zhang, Executive Compensation Contracts in the Presence of Adverse Selection. Abstract

  We develop three complementary tests to examine how adverse selection affects the design of executive compensation contracts: First, we show that externally-hired CEOs receive higher total pay and have fewer equity incentives relative to internally-promoted CEOs, consistent with their ability to extract larger information rents due to greater private information. These differences are more pronounced when less is known about the prospective CEO, but quickly dissipate over time. Second, we show that external CEOs’ initial contracts differ more from those of their firm’s incumbent senior managers than do those of internal CEOs—particularly in terms of accounting performance metrics and equity-based pay, in line with the use of these features to elicit private information. Third, we find that following an unanticipated change in option vesting schedules prompted by SFAS 123R, newly appointed executives do not increase their option exercises and share sales—despite their newfound ability to do so—while longer-tenured executives do, consistent with contracts initially being designed to screen for certain types of managers before shifting to encourage certain behaviors. Combined, our evidence supports the distinct role of adverse selection in the design of executive compensation contracts.

   

   

• Christopher Armstrong, Stella Park, Stephen Glaeser, Intellectual Property Rights, Holdup, and the Incentives for Innovation Disclosure. Abstract

  We study how the assignment of intellectual property rights for successful innovations between inventors and their employers influences disclosures about these innovations. To do so, we examine the effect of a court ruling that significantly shifted the assignment of intellectual property rights from inventors to their employers, but that was otherwise likely exogenous with respect to disclosure. Using a within-firm-year analysis across multiple firms, we find that firms accelerate their patent disclosures for innovations created by their inventors affected by the ruling, relative to their patent disclosures for innovations created by their inventors who were unaffected. Our results suggest that the assignment of intellectual property rights and the potential for hold up problems between inventors and their employers can affect disclosures about innovation.

• Stephen Glaeser, Daniel Taylor, Christopher Armstrong, Sterling Huang (2017), The Economics of Managerial Taxes and Corporate Risk-Taking, The Accounting Review. Abstract

  We examine the relation between managers’ personal income tax rates and their corporate investment decisions. Using plausibly exogenous variation in federal and state tax rates, we find a positive relation between managers’ personal tax rates and their corporate risk-taking. Moreover — and consistent with our theoretical predictions — we find that this relation is stronger among firms with investment opportunities that have a relatively high rate of return per unit of risk, and stronger among CEOs who have a relatively low marginal disutility of risk. Importantly, our results are unique to senior managers’ tax rates –– we do not find similar relations for middle-income tax rates. We also find that the tax-induced risk-taking relates to idiosyncratic rather than systematic risk, suggesting that it will not be priced by well-diversified shareholders. Collectively, our findings provide evidence that managers’ personal income taxes influence their corporate risk-taking.

• Christopher Armstrong, John Kepler, David Tsui (Working), Inelastic Labor Markets and Directors’ Reputational Incentives.
• Christopher Armstrong, Stephen Glaeser, John Kepler (Working), Accounting Quality and the Transmission of Monetary Policy.
• Christopher Armstrong, Stephen Glaeser, S. Huang (Working), Controllability of Risk and the Design of Incentive-Compensation Contracts.
• Christopher Armstrong, Carlo Gallimberti, David Tsui (Working), Debt contracting and risk taking incentives.
• Christopher Armstrong, Yuen Kit Chau, Christopher D. Ittner, Liang (Jason) Xiao (Working), Internal Versus External Earning per Share Goals and CEO Incentives.

Past Courses

• ACCT6110 - Financial Accounting

  The objective of this course is to provide an understanding of financial accounting fundamentals for prospective consumers of corporate financial information, such as managers, stockholders, financial analysts, and creditors. The course focuses on understanding how economic events like corporate investments, financing transactions and operating activities are recorded in the three main financial statements (i.e., the income statement, balance sheet, and statement of cash flows). Along the way, students will develop the technical skills needed to analyze corporate financial statements and disclosures for use in financial analysis, and to interpret how accounting standards and managerial incentives affect the financial reporting process. This course is recommended for students who want a more in-depth overview of the financial accounting required for understanding firm performance and potential future risks through analysis of reported financial information, such as students intending to go into security analysis and investment banking.

• ACCT9410 - Research in Acct II

  This is Part II of a theoretical and empirical literature survey sequence covering topics that include corporate disclosure, cost of capital, incentives, compensation, governance, financial intermediation, financial reporting, tax, agency theory, cost accounting, capital structure, international financial reporting, analysts, and market efficiency. Please contact the accounting doctoral coordinator for information on the specific upcoming modules/topics that will be taught.

• Rodney L. White Center Aronson+Johnson+Ortiz Research Fellowship, 2011
• Dorinda and Mark Winkelman Distinguished Scholar Award, 2010
• Excellence in Teaching Award, 2009

• Executive Compensation Offers Warning Signs of Financial Misreporting, Wall Street Journal - 05/06/2013
• "Tudo como antes nos salários dos executivos americanos?" (article is in Portuguese), Exame.com - 06/06/2011

Knowledge @ Wharton

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• Bigger Hospitals, Better Care? Wharton Research Finds Benefits Are Only at the Operational Level, Knowledge @ Wharton - 11/14/2024
• Linda Dow Cash, CEO, Two Chicks Cocktails, Knowledge @ Wharton - 11/14/2024