Research

Publications:

• "Out of Site, Out of Mind? The Role of the Government-Appointed Corporate Monitor" with Lindsey Gallo and Rimmy Tomy 

  • Journal of Accounting Research, 61: 1633-1698. 2023
  • Abstract:  We study the role of a relatively new type of external firm monitor, an on-site government-appointed Corporate Monitor, and assess whether such appointments reduce firms' propensity to violate laws. Using a sample of deferred and non-prosecution agreements, we first document the determinants of Monitor-appointment. We find firms that voluntarily disclose wrongdoing and have more independent directors are less likely to have Corporate Monitors, whereas those with more severe infractions, mandated board changes, and increased cooperation requirements are more likely to have Monitors. We find such appointments are associated with an 18% - 25% reduction in violations while the Monitor is on site, however, the effect does not persist after the Monitorship ends. Using a semi-supervised machine learning method to measure changes in firms' ethics and compliance norms, we find that the reduction in violations is associated with changes in ethics and compliance that also do not persist. Finally, we document that firms under Monitorship experience a persistent reduction in innovation, highlighting a previously unexplored cost of these interventions. Overall, our results suggest that, although Corporate Monitors on site are associated with fewer violations, Monitors are less successful in changing firms' long-term behavior.
  • 2022-2023 recipient of the Glen McLaughlin Prize for Research in Accounting Ethics from the Steed School of Accounting (University of Oklahoma)
  • https://doi.org/10.1111/1475-679X.12502
  • Media mentions:
    • Featured on the Business Scholarship Podcast with Andrew K. Jennings: https://andrewkjennings.com/2023/09/11/lindsey-gallo-kendall-lynch-on-corporate-monitors/ or https://podcasts.apple.com/us/podcast/lindsey-gallo-kendall-lynch-on-corporate-monitors/id1470002641?i=1000627451848

Working Papers:

• “Can enforcement leniency policies discourage investment? Evidence from the Foreign Corrupt Practices Act”

  • Abstract:  I study the impact of the U.S. Department of Justice's self-reporting policy for the Foreign Corrupt Practices Act (FCPA) on firm investment decisions. I find that the establishment of a policy that rewards firms for self-reporting corruption violations reduces the likelihood that FCPA-exposed acquirers engage in highrisk mergers and acquisitions. These effects are more pronounced among larger acquirers, who face relatively greater enforcement uncertainty. Consistent with the policy increasing uncertainty regarding enforcement costs, further analyses document longer due diligence periods for high-risk targets. Affected firms are also more likely to form high-risk subsidiaries and maintain exposure to high-risk countries, suggesting the policy did not raise expected enforcement costs on average, but instead increased uncertainty over those costs. Additional tests rules out alternative explanations related to enforcement by foreign jurisdictions. Taken together, my findings suggest that when self-reporting policies make significant cooperation an implicit requirement for leniency, they may heighten perceived enforcement uncertainty and, in turn, deter firms from certain risky cross-border investments.
  • Job market paper
  • Draft available here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5316464

• "When the Cat's Away: United States Attorney Departures and Insider Opportunism" with Phillip J. Quinn and Madeline Thompson

  • Abstract: This paper examines whether insiders are more opportunistic when faced with a perceived reduction in the threat of prosecution. We exploit United States Attorney resignations arising from political turnover to test whether insiders engage in more opportunistic insider trades when there is a reduction in the perceived threat of criminal prosecution. Analyzing non-routine sales by insiders, we find robust evidence that insiders of firms headquartered in a district with a U.S. Attorney vacancy see increased insider opportunism. This increased opportunistic behavior continues as the vacancy persists but does not exceed the maximum length of federal vacancies. Using a survival analysis, we demonstrate that this opportunistic behavior occurs sooner after the resignation than in a comparable period. We find that these trades are more profitable, that results hold for an officers-only sample, and that results are robust to concurrent vacancies at the Securities Exchange Commission. Collectively, our results suggest that U.S. Attorney vacancies have important implications for the opportunistic behavior of insiders. 

• "Copying FASB Language in Initial Narrative Disclosures: Evidence from ASC 842, Leases" 

  • Abstract:  I evaluate the extent to which firms copy FASB-provided language in initial narrative disclosures upon adoption of new accounting standards. Specifically, I use the adoption of ASC 842 and relevant disclosures to gauge how prevalent copying FASB-provided language is, as well as, the determinants of using this repetitive language. Using three measures of copying, I find that the median (mean) lease disclosure uses “tetragrams” found in ASC 842 requirements in 21.1% (21.9%) of its sentences. Moreover, I find that the median (mean) lease disclosure has a cosine similarity score with a FASB-provided example disclosure of 69.4% (67.5%). In response to SEC fears that these types of repetition create boilerplate disclosures, I evaluate market outcomes associated with varying degrees of copying. I find that my copying measures have no significant relation with the proxies for information asymmetry or information processing costs. When interacting the copying measures with an indicator for high leasing intensity, I find that for firms with high leasing intensity, a one-standard deviation increase in copying ASC 842 requirements is associated with a 0.74 day reduction in median analyst revision time. On balance, these findings suggest that copying FASB-provided language can beneficial to financial statement users when done properly.
  • Solo-authored, based on Second-Year Paper
  • Draft available upon request

• "Does the FASB's Disaggregation Principle Improve Disclosure Quality?" with Mallory Bell and Elizabeth Blankespoor

Research in Progress:

• "The Changing Landscape of Shareholders' ESG Proposals" with Wren Belskus, Lindsey Gallo, and Greg Miller

• "Lease Accounting and Debt Contracting" with Christopher Williams and Regina Wittenberg-Moerman

• "Fundamentals in Crisis Periods" with Heather Graham and Christopher Williams