Irina Luneva

• Irina Luneva, Explaining debt covenant amendments: a structural approach.
• Henry Friedman, Mirko S. Heinle, Irina Luneva (Working), Implications of investor-focused ESG reporting… and misreporting. Abstract

  Firms and jurisdictions worldwide are adopting ESG reporting in various forms. To better understand potential implications of ESG reporting, we develop a model in which a firm provides ESG and financial reports to investors. Investors price the firm’s stock, and stock prices provide both real and reporting incentives to management. We characterize how the introduction of ESG reporting affects ESG performance, expected cash flows, and misreporting. ESG reporting tends to encourage corporate ESG, but can discourage ESG when it has significantly negative cash flow implications. For ESG with moderately negative cash flow implications, the firm’s price can suffer from the introduction of ESG reporting. Finally, we use comparative statics to show how changes in investor preferences (e.g., concern for ESG) and ESG efforts’ cash flow implications (e.g., penalties, subsidies, or physical and transition risk) affect market responses to financial and ESG reports, corporate misreporting, and ESG and cash flow outcomes.

• Irina Luneva and Sergey Sarkisyan, Where Do Brown Companies Borrow From?.
• Irina Luneva (Working), What Does the Market Know?. Abstract

  I measure how much information market participants have about (1) firm fundamentals and (2) managers’ misreporting incentives, and the effects of the market’s information on earnings quality and price efficiency. The market knows 76.5% of fundamental and 36.8% of misreporting incentives information contained in current earnings reports before managers issue their current earnings reports. A 1% increase in the market’s fundamental information will increase earnings quality by 0.89% and price efficiency by 1.25%. A 1% increase in the market’s misreporting incentives information will decrease earnings quality by 0.16% and increase price efficiency by 0.07%. Reported earnings differ from true earnings by 74.1% of the standard deviation of true earnings. An average firm is mispriced by $0.38 billion due to information asymmetry.

• 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.

• Henry Friedman, Mirko S. Heinle, Irina Luneva (Working), A Theoretical Framework for ESG Reporting to Investors. Abstract

  We provide a theoretical framework for reporting of firms’ environmental, social, and governance (ESG) activities to investors. In our model, investors receive an ESG report and use it to price the firm. Because the manager is interested in the firm’s price, disclosing an ESG report provides effort and greenwashing incentives. We analyze the impact of different reporting characteristics on the firm’s price, cash flows, and ESG performance. In particular, we investigate the consequences of whether the report captures ESG inputs or outcomes, how the report aggregates different ESG dimensions, and the manager’s tradeoffs regarding ESG efforts and reporting bias. We find that, for example, an ESG report that weights efforts by their impact on the firm’s cash flows tends to have a stronger price reaction than an ESG report that focuses on the ESG impact per se. ESG reports aligned with investors’ aggregate preferences provide stronger incentives and lead to higher cash flows and ESG than reports that focus on either ESG or cash flow effects individually. Additionally, in the presence of informative financial reporting, ESG reports that focus on ESG impacts lead to the same cash flow and better ESG results than reports focusing on cash flow impacts alone.

Past Courses

• ACCT1020 - Strategic Cost Analysis

  Strategic Cost Analysis is the process of analyzing and managing costs in order to improve the strategic position of the business. This goal can be accomplished by having a thorough understanding of which activities and costs support an organization's strategic position and which activities and costs either weaken it or have no impact. Subsequent cost management efforts can then focus on reducing or limiting expenditures on activities that add little or no strategic value, while increasing expenditures on activities that support the strategic position of the organization. Performance can then be evaluated to ensure that the chosen actions are taken, and that these actions are yielding improved strategic performance. Throughout the course, a strategic cost analysis and management framework will be applied across functions and organizations to highlight the cost analysis and performance evaluation methods available to forecast financial performance and improve strategic position.

• Jacobs Levy Equity Management Center for Quantitative Financial Research Grant, 2022
• Duckworth Fellowship, 2022
• Financial Accounting and Reporting Section (FARS) Best Paper Award, FARS Excellence in Reviewing Award, 2022
• George James Travel Award, 2022
• Mack Institute for Innovation Management Research Grant, 2021
• Jacobs Levy Equity Management Center for Quantitative Financial Research Grant, 2021
• Jacobs Levy Equity Management Center for Quantitative Financial Research Grant, 2020
• European Finance Association Travel Grant, 1970

Knowledge @ Wharton

• CJ Handron, Co-founder of Diamond Kinetics, Knowledge @ Wharton - 04/17/2024
• The Impact of AI on Financial Literacy | Michael Roberts, Knowledge @ Wharton - 04/16/2024
• Why Staying in Your 401(k) After Retirement Makes Sense, Knowledge @ Wharton - 04/15/2024
• How Social Insurance Drives Credit Card Debt, Knowledge @ Wharton - 04/15/2024
• Understanding the Value of Networks for Mothers Reentering the Workforce, Knowledge @ Wharton - 04/11/2024
• Golf Analytics & The Masters, Knowledge @ Wharton - 04/10/2024
• Three Things All New Managers Should Be Doing, Knowledge @ Wharton - 04/09/2024
• How ‘Thinking Out of the Shoebox’ Made Stuart Weitzman a Success, Knowledge @ Wharton - 04/09/2024
• How Financial Literacy Affects Household Debt and Bankruptcy | Sasha Indarte, Knowledge @ Wharton - 04/09/2024
• How Stock Price Volatility in Closely Held Firms Distorts Capital Allocation, Knowledge @ Wharton - 04/09/2024