Luzi Hail

• Shawn Kim, Luzi Hail, Rachel Xi Zhang (Working), How Do Managers Greenwash? Evidence from Earnings Conference Calls. Abstract

  We investigate three forms of potential greenwashing during earnings conference calls, an important channel of direct communication between a company’s top management team, investors, equity analysts, and the business press. First, using analyst questions as a proxy for firms’ underlying climate change activities, we show that corporate managers’ over-discussion of climate change issues is associated with favorable external ESG ratings, investment from green mutual funds, and lower likelihood of forced CEO terminations. Second, we show that within the same conference call, managers are more likely to mention climate change, and in a more optimistic and confident tone, when responding to difficult questions. This is consistent with managers using climate change to shift the narrative and to avoid difficult questions. Finally, within the same call, managers talk about firm-related climate change issues more positively and with greater certainty, as compared to how they talk about the firm’s current and future performance, as well as compared to how analysts talk about climate change-related issues. These results are consistent with managers overstating their firm’s environmental performance. Overall, our evidence suggests that greenwashing is prevalent in the regular communication between managers and investors and that such greenwashing occurs at the top management team’s discretion.

• 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.

   

   

• Luzi Hail, Maximilian Muhn, David Oesch, Do risk disclosures matter when it counts? Evidence from the Swiss franc shock. Abstract

  We examine the relation between disclosure quality and information asymmetry among market participants following an exogenous shock to macroeconomic risk. In 2015 the Swiss National Bank (SNB) abruptly announced that it would abandon the longstanding minimum euro-Swiss franc exchange rate. We find evidence suggesting that firms with more transparent disclosures regarding their foreign exchange risk exposure ex ante exhibit significantly lower information asymmetry ex post. The gap in bid-ask spreads appears within 30 minutes of the SNB announcement and persists for two weeks. We validate the informational role of past risk disclosures with three field surveys: (1) Sell-side analysts emphasize the importance of existing (risk) disclosures in evaluating the translational and transactional effects of the currency shock. (2) Lending banks’ credit officers rely on past disclosures as the primary information source available for smaller (unlisted) firms in the immediate aftermath of the shock. (3) Investor-relations managers use existing financial filings as a key resource when communicating with external stakeholders. The results imply that risk disclosures continue to attenuate information asymmetry and the costs of adverse selection well beyond their initial publication date.

• Hans Christensen, Luzi Hail, Christian Leuz, Economic analysis of widespread adoption of CSR and sustainability reporting standards. Abstract

  This report provides an economic analysis for a widespread adoption of corporate social responsibility (or sustainability) disclosure and reporting standards in the United States. It is based on an extensive review of the academic literature in accounting, economics, finance, and management. We discuss possible economic consequences, including capital-market effects, real effects in firm behavior, and implementation issues related to the adoption of CSR standards. The report focuses on the economic effects of standards for disclosure and reporting, not on the economic effects of CSR activities and policies themselves. Our analysis yields a number of insights that are relevant to the current debate on CSR and sustainability reporting standards.

• Ryan Ball, Luzi Hail, Florin Vasvari (2018), Equity cross-listings in the U.S. and the price of debt, Review of Accounting Studies, 23 (2), pp. 385-421. Abstract

  Using a large panel from 46 countries over 20 years, we find that non-U.S. firms issue corporate bonds more frequently and at lower offering yields following an equity cross-listing on a U.S. exchange. Firms issue more bonds through public offerings instead of private placements and in foreign markets rather than at home, in both cases at significantly lower yields. Moreover, the debt-related benefits are concentrated among firms domiciled in countries with less private benefits of control, efficient debt enforcement, and developed bond markets, suggesting that equity cross-listings cannot completely offset the impact of weak home country institutions. The results support the notion that the monitoring, transparency, and visibility benefits brought about by equity cross-listings on U.S. exchanges are valuable to bond investors.

• Brandon Gipper, Luzi Hail, Christian Leuz, On the economics of audit partner tenure and rotation: evidence from PCAOB data. Abstract

  We provide the first partner tenure and rotation analysis for a large cross-section of U.S. publicly listed firms over an extended period. We analyze the effects on audit quality as well as economic tradeoffs with respect to audit hours and fees. On average, we find no evidence for audit quality declines over the tenure cycle and, consistent with the former, little support for fresh-look benefits after five-year mandatory rotations. Nevertheless, partner rotations have significant economic consequences. We find increases in audit fees and decreases in audit hours over the tenure cycle, which differ by partner experience, client size, and competitiveness of the local audit market. Our findings are consistent with efforts by the audit firms to minimize disruptions and audit failures around mandatory rotations. We also analyze special circumstances, such as audit firm or audit team switches and early partner rotations. We show that these situations are more disruptive and more likely to exhibit audit quality effects. In particular, we find that low-quality audits give rise to early engagement partner rotations and in this sense have (career) consequences for partners.

• Luzi Hail, Ahmed Tahoun, Clare Wang (2018), Corporate scandals and regulation, Journal of Accounting Research, 56 (2), pp. 617-671. Abstract

  Are regulatory interventions delayed reactions to market failures or can regulators proactively pre‐empt corporate misbehavior? From a public interest view, we would expect “effective” regulation to ex ante mitigate agency conflicts between corporate insiders and outsiders, and prevent corporate misbehavior from occurring or quickly rectify transgressions. However, regulators are also self‐interested and may be captured, uninformed, or ideological, and become less effective as a result. In this registered report, we develop a historical time series of corporate (accounting) scandals and (accounting) regulations for a panel of 26 countries from 1800 to 2015. An analysis of the lead‐lag relations at both the global and individual country level yields the following insights: (1) Corporate scandals are an antecedent to regulation over long stretches of time, suggesting that regulators are typically less flexible and informed than firms. (2) Regulation is positively related to the incidence of future scandals, suggesting that regulators are not fully effective, that explicit rules are required to identify scandalous corporate actions, or that new regulations have unintended consequences. (3) There exist systematic differences in these lead‐lag relations across countries and over time, suggesting that the effectiveness of regulation is shaped by fundamental country characteristics like market development and legal tradition.

• Luzi Hail, Stephanie Sikes, Clare Wang (2017), Cross-country evidence on the relation between capital gains taxes, risk, and expected returns, Journal of Public Economics, 151 (), pp. 56-73. Abstract

  This study empirically examines the role of risk sharing between taxable investors and the government on the relation between capital gains taxes and expected returns. Specifically, using an international panel from 26 countries over the period 1990 to 2004, we find evidence that the general positive relation between capital gains taxes and expected returns becomes weaker or even reverses when (i) a firm’s systematic risk is high, (ii) the market risk premium is high, or (iii) the risk-free rate is low. The results are particularly pronounced in countries with substantive changes in tax rates, more trust in government institutions, less integrated and less liquid capital markets, and lower foreign institutional ownership as well as around substantive increases and decreases in the risk parameters. We corroborate our findings in a single country setting, using the 1978, 1997, and 2003 capital gains tax rate changes in the United States as events. Our results underscore the importance of macroeconomic and firm-specific factors in determining the effect of tax capitalization, and suggest that tax rate changes can sometimes have opposite valuation implications than what policymakers have in mind.

• Hans Christensen, Luzi Hail, Christian Leuz (2016), Capital-market effects of securities regulation: Prior conditions, implementation, and enforcement, Review of Financial Studies, 29 (11), pp. 2885-2924. Abstract

  We examine the capital-market effects of changes in securities regulation in the European Union (EU) aimed at reducing market abuse and increasing transparency. To estimate causal effects for the population of EU firms, we exploit that for plausibly exogenous reasons, like national legislative procedures, EU countries adopted these directives at different times. We find significant increases in market liquidity, but the effects are stronger in countries with stricter implementation and traditionally more stringent securities regulation. The findings suggest that countries with initially weaker regulation do not catch up with stronger countries, and that countries diverge more upon harmonizing regulation.

• Jannis Bischof, Holger Daske, Ferdinand Elfers, Luzi Hail (Working), A tale of two regulators: Risk disclosures, liquidity, and enforcement in the banking sector. Abstract

  This paper examines the effects of heterogeneity in regulatory supervision on firms’ disclosure behavior and the ensuing capital market consequences. The effectiveness of regulation depends not only on the written rules, but also on how regulators and the firms they regulate enforce and adhere to these rules. We exploit the fact that banks are subject to quasi-identical risk disclosure rules under securities laws (IFRS 7) and banking regulation (Pillar 3 of the Basel II accord), but that different regulators enforce these rules at different points in time. We find that banks substantially increase their risk disclosures upon the adoption of Pillar 3 even if they had to comply with the same requirements under IFRS 7 beforehand. The increase is larger in countries where the banking regulator has more supervisory powers and resources and is less involved in the general oversight of securities markets. It is also larger for banks most likely to attract regulatory scrutiny from the banking supervisor due to higher distress risk. The improved risk disclosures translate into higher market liquidity around Pillar 3 but not around IFRS 7. The results indicate that the success of regulation depends on the institutional fit between regulator and regulatee, and that having multiple regulators may lead to inconsistent implementation and enforcement of the same rules.

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Current Courses

• ACCT1010 - Accounting And Financial Reporting

  This course is an introduction to the basic concepts and standards underlying financial accounting systems. Several important concepts will be studied in detail, including: revenue recognition, inventory, long-lived assets, present value, and long term liabilities. The course emphasizes the construction of the basic financial accounting statements - the income statement, balance sheet, and cash flow statement - as well as their interpretation.

  ACCT1010001 ( Syllabus )

  ACCT1010002 ( Syllabus )

• ACCT9810 - Workshop Colloquium I

  Students attend workshops in departments outside of accounting to provide student exposure to theory, research designs and methods that are being explored outside of accounting to provide breadth of exposure to foster innovative research ideas. Students are required to attend 7 non-accounting workshops over the semester and write up a referee report for 4 of those workshop papers. They are also required to write up at least one research proposal that stems from theories or research methods gleaned from one or more of the workshops attended.

  ACCT9810301 ( Syllabus )

Past Courses

• ACCT1010 - Acct & Financial Report

  This course is an introduction to the basic concepts and standards underlying financial accounting systems. Several important concepts will be studied in detail, including: revenue recognition, inventory, long-lived assets, present value, and long term liabilities. The course emphasizes the construction of the basic financial accounting statements - the income statement, balance sheet, and cash flow statement - as well as their interpretation.

• ACCT6130 - Fin and Mngl Acct

  This course provides an introduction to both financial and managerial accounting, and emphasizes the analysis and evaluation of accounting information as part of the managerial processes of planning, decision-making, and control. A large aspect of the course covers the fundamentals of financial accounting. The objective is to provide a basic overview of financial accounting, including basic accounting concepts and principles, as well as the structure of the income statement, balance sheet, and statement of cash flows. The course also introduces elements of managerial accounting and emphasizes the development and use of accounting information for internal decisions. Topics include cost behavior and analysis, product and service costing, and relevant costs for internal decision-making. This course is recommended for students who will be using accounting information for managing manufacturing and service operations, controlling costs, and making strategic decisions, as well as those going into general consulting or thinking of starting their own businesses.

• ACCT9430 - Research in Acct Iv

  This is Part IV 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.

• ACCT9810 - Workshop Colloquium I

  Students attend workshops in departments outside of accounting to provide student exposure to theory, research designs and methods that are being explored outside of accounting to provide breadth of exposure to foster innovative research ideas. Students are required to attend 7 non-accounting workshops over the semester and write up a referee report for 4 of those workshop papers. They are also required to write up at least one research proposal that stems from theories or research methods gleaned from one or more of the workshops attended.

• ACCT9820 - Workshop Colloquium II

  Students attend workshops in departments outside of accounting to provide student exposure to theory, research designs and methods that are being explored outside of accounting to provide breadth of exposure to foster innovative research ideas. Students are required to attend 7 non-accounting workshops over the semester and write up a referee report for 4 of those workshop papers. They are also required to write up at least one research proposal that stems from theories or research methods gleaned from one or more of the workshops attended.

• ACA Prize in Financial Governance, Institute of Accounting, Control and Auditing, University of St. Gallen, 2018
• WRDS Best Conference Paper Award, Annual meeting, European Financial Management Association, 2018
• "Tough but we'll thank you in five years" MBA Core Curriculum Teaching Award, 2017
• AAA Distinguished Contributions to Accounting Literature Award, 2016
• AAA Financial Accounting and Reporting Section (FARS) Best Paper Award, 2016
• Emerald Management Reviews/Citations of Excellence Award, 2016
• Referee of the Year Award, Journal of Accounting Research, 2016
• GARP Risk Management Research Award, Annual meeting of the European Financial Management Association, 2015
• Emerald Management Reviews/Citations of Excellence Award, 2014
• Emerald Management Reviews/Citations of Excellence Award, 2012
• AAA/Deloitte Wildman Medal Award, 2011
• AAA Notable Contributions to Accounting Literature Award, 2010
• Golub Faculty Scholar Award, 2009
• Best Paper Award, 31st Annual meeting of the European Accounting Association, 2008
• Geewax, Terker & Company Prize in Investment Research, Honorable Mention, 2004
• Best Paper Award, German Academic Association for Business Research (Verband der Hochschullehrer für Betriebswirtschaft), 2003
• Research Scholarship by the University of Zurich Association (Zürcher Universitätsverein ZUNIV), 2003

Knowledge @ Wharton

• Building Stronger Family Offices by Sharing Knowledge and Securing the Future, Knowledge @ Wharton - 11/21/2024
• State of the NBA with Seth Partnow, Knowledge @ Wharton - 11/20/2024
• How Are Companies Really Using AI? A New Report Has Answers, Knowledge @ Wharton - 11/19/2024
• Impact vs. Time: A Leader’s Guide to Slow Productivity, Knowledge @ Wharton - 11/19/2024
• Kevin O’Leary Illustrates the Benefits of Tariffs for U.S. Businesses, Knowledge @ Wharton - 11/19/2024
• Boosting Donations Through Self-expressive Choices | Jonah Berger, Knowledge @ Wharton - 11/19/2024
• Why Are Hospitals So Expensive?, Knowledge @ Wharton - 11/18/2024
• New Phenomena in Behavioral and Social Investing, Knowledge @ Wharton - 11/18/2024
• 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