Research

(1) US Capital Market Consequences of the Brussels Effect: Evidence from Sustainability Reporting (job market paper)

This paper examines the equity market pricing of regulatory risk associated with the Brussels Effect—theoretical expectations that European Union regulations exert extraterritorial influence (Bradford, 2020). Specifically, I assess the risk-driven short-window market reaction of US firms exposed to the Corporate Sustainability Reporting Directive (CSRD). I document significantly negative abnormal returns to key events leading to CSRD passage, driven by increases in discount rates (reflected in both increased return volatility and decreased call-put skewness). These effects occur for US firms directly exposed to CSRD requirements (i.e., having European subsidiaries exceeding its reporting thresholds), as well as for US firms indirectly exposed (i.e., having European subsidiaries below reporting thresholds). Further, the observed negative market effects are accentuated for firms’ exhibiting high green-house gas emissions. Consistently, I also find reduced uncertainty of risk, reflected in lowered variance risk premia and delta implied volatility. Collectively, these findings are consistent with investors pricing increased regulatory risk associated with US firms’ exposure to the Brussels Effect.

(2) Unveiling Government Disclosures: Evidence from Government Transparency on Terrorist Attacks 

(revising for 2nd round at JAR)

Government transparency is a crucial feature of democracies. This paper examines the trade-offs and consequences of government disclosures of sensitive information about security threats. Using a unique, hand-collected database on government disclosure of foiled terrorist attacks in European countries, we find that governments trade off economic losses with expected electoral benefits in this disclosure decision. Turning to the consequences of disclosure, we document significant reductions in economic activity as measured by lower foreign tourist flows to countries disclosing foiled terrorist attacks. These reductions are more pronounced if foreign tourists are from countries with a wider media coverage of other countries disclosures of foiled terrorist attacks, or from countries where voters exhibit negative views on immigration. Moreover, government disclosures of foiled terrorist attacks are associated with increased voting intentions for far-right/anti-immigration parties, especially in countries with negative views on immigration and during electoral periods. Taken together, we provide evidence on how government disclosures of sensitive information significantly impact economic activity and public opinion.

(3) Tone at the Bottom: Junior Auditors and Audit Quality (preparing for submission)

This paper examines the impact of “tone at the bottom”—the culture among junior auditors—on audit quality. To proxy for a compromised culture among junior auditors, we exploit multi-regulatory sanctions issued against a Big 4 auditor’s Canadian operations for wide-spread misconduct principally among junior auditors regarding internal training during 2016–2020. Using three proxies for audit quality (two measures of absolute discretionary accruals and the likelihood of receiving a modified audit opinion) and a difference-in-differences design, we document lower audit quality for the charged audit firm during the treatment period compared to other Big 4 auditors. Results are robust to parallel trends, placebo tests, entropy-balancing, and alternative samples. We also confirm accentuated effects within smaller audit clients, reflecting contexts in which audit outcomes are more likely influenced by junior auditors. We infer our findings as consistent with a negative tone at the bottom correlating with decreased audit quality.