Accounting - Theses
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ItemEssays on the intermediation of investors( 2020)Institutions that intermediate between investors and companies are crucial to the proper functioning of capital markets. These institutions provide marketplaces for and facilitate the transaction activity of investors, gather and disseminate information, and record the property rights of securities holders. The effectiveness of these institutions should be valuable to economies as they allow investors to effectively exercise and maximize the rights of ownership (La Porta et al., 2002; Claessens and Laeven, 2003; Hail and Leuz, 2006; Dixit, 2009). This thesis contains two essays that examine the value of different institutions involved in such intermediation. In the first essay, I examine the effect of securities transfer agents. Transfer agents are used to intermediate between the company and company-registered shareholders. Their primary responsibility is the proper maintenance of shareholder records, and the administration of shareholder transactions. Recent compliance failures by transfer agents, including reported acts of malfeasance by transfer agent staff, have increased regulatory scrutiny of the industry. Follow these events, the Securities and Exchange Commission (“SEC”) has released draft updates to the existing transfer agent regulatory requirements designed to improve the quality of transfer agent services and prevent further failures. Given concerns regarding the effect of this regulation on the costs of operating securities transfer agencies and competition, I examine two questions relevant to the regulatory discussion: Do transfer agents differ in quality? And, do these quality differences matter to investors? In the second essay, I examine the effect of the minimum price requirements (“MPRs”) of the NASDAQ and New York Stock Exchange (“NYSE”). MPRs permit exchanges to delist firms with stock prices persistently below $1.00. Proponents of MPRs argue they allow exchanges to maintain the quality of listed companies. Critics of the requirements argue they lack fundamental basis, limit access to capital, and harm investors. The merits of MPRs are likely rooted in the quality of firms subject to MPRs, the response of firm managers to (potential) breaches of MPRs, and the steps taken in the event of forced delisting. In this essay, I focus on the actions of firms in response to noncompliance with MPRs and examine whether these noncompliant firms respond by increasing news flow to the market.
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ItemThe economics of disclosure decisions in equity crowdfunding( 2017)Equity crowdfunding (ECF) has transformed the way many businesses raise capital and how the general public can take part in small and early stage firms. In the ECF market, firms promote their equity offerings to potential investors through the Internet. Regulatory oversight on ECF firm disclosure is relatively relaxed, with a greater focus on lowering compliance costs for small and early stage firms. However, holding ownership in emerging unlisted companies comes with risk. Regulators must balance investor protection against increasing the ability of businesses to raise capital from the public. While earlier research in accounting and finance has mostly focused on regulated markets, the less-regulated environment in the ECF market implies that managers have greater discretion over their disclosure. Using a novel dataset, my thesis, which includes three essays, investigates managerial discretion through use of disclosure and the resulting impacts in the ECF market. The first study examines a disclosure strategy for enhancing ECF success. ECF firm disclosure is subject to lower regulatory oversight. Nevertheless, ECF investors prefer greater requirements on firm disclosure (Cumming and Johan 2013). The market implications of ECF firm disclosure are unclear ex ante. Based upon the contracting role of disclosure, disclosure quality is hypothesized to be positively associated with ECF success. I find that high disclosure quality not only improves funding success but also accelerates speed of capital allocation. I also document a positive, non-linear relation between length of voluntary disclosure and ECF outcomes. The second study investigates the interplay between disclosure and investors’ sophistication. Due to the relatively lower regulatory oversight on ECF firm disclosure, managers may use tone (biased language) to mislead investors, particularly those who have lower levels of financial knowledge. In contrast to the prior findings in regulated markets, results indicate that ECF investors react negatively to use of net positive words in offer documents. I further demonstrate that the use of biased language is associated with poor post-fundraising outcomes, suggesting that tone is misleading. Investors see through use of tone, although the negative response appears to be stronger for investors who are more sophisticated. The last study explores disclosure decisions made by managers of ECF who return to the market to promote new offerings. Unlike in traditional markets, returning ECF firms comprise those with both previously funded and unfunded offerings, and their disclosure and the outcomes of all ECF attempts are observable. This study is the first to examine how ECF firm disclosure evolves over time. Results suggest that the disclosure strategies for subsequent offerings depend on past ECF outcomes. In the second offerings, returning firms with previously funded offerings make more changes in their offer documents, employ costly disclosure, and become increasingly conservative in their disclosure while using less biased language.