Latest Research Publications

We investigate an editorial review program for which a review platform supplements user reviews with editorial ones written by professional writers. Specifically, we examine whether and how editorial reviews influence subsequent user reviews (reviews written by noneditor reviewers). A quasiexperiment conducted on a leading review platform in Asia, based on several econometric and natural language processing techniques, yields empirical evidence of an overall positive effect of editorial reviews on subsequent user reviews from the platform’s perspective. First, more reviews are provided for restaurants that receive editorial reviews. In addition, these reviews discuss substantive topics while also including a discussion on other topics, leading to a net increase in content length and variety. They also are more neutral in sentiment and are associated with lower rating valences. Further analysis of the mechanism reveals that the subsequent user reviews of the restaurants that receive editorial reviews become more similar to the editorial reviews in regard to topics, sentiment/rating, length, and readability, indicating a herding effect in how to write a review as the main driver of the change in the subsequent reviews. We further empirically isolate this herding effect among long-time reviewers. The findings suggest that review platforms could use an editorial review program not only to boost the quantitative aspect of user reviews but also, to manage the qualitative aspect as well.

This study examines how the market share of dark venues changes at earnings announcements. Our analysis shows a statistically significant increase in dark market share in the weeks prior to, during, and following the earnings announcement. We also predict and find evidence that increases in dark market share around earnings announcements are higher for firms with high quality accounting information. In addition, we find a positive relation between the change in dark market share and the speed of resolution of investor disagreement-a key dimension of informational efficiency, which suggests that dark trading is associated with an improvement in market quality. How market fragmentation changes around news events, the role accounting information plays in market fragmentation, and how changes in market fragmentation relate to market quality can help provide insights to securities regulators.

This paper presents an economic framework to study strategic interactions along the analyst-auditor-owner disciplinary chain, in which the auditor examines the financial reports prepared by the owner, and the analyst uncovers financial misreporting as well as audit failure. We find that although analyst scrutiny ex post detects misreporting, it ex ante aggravates the owner's misreporting behavior and further impairs financial statement reliability if the legal penalties for the auditor and the owner are small. We also show how the effects of a regulation depend on its target's disciplinarian(s). Specifically, (i) although enhancing the auditor's legal liability always increases audit quality and financial statement reliability, it decreases investment efficiency if and only if the analyst is highly independent; and (ii) increasing the owner's misreporting penalty decreases investment efficiency if and only if either of (but not both) the regulations on the auditor and the analyst is strict.

This paper studies whether and how mandatory nonfinancial disclosure affects firms’ real decisions. I exploit a disclosure regulation enacted in California, which mandates that firms disclose how they conduct due diligence to address their suppliers’ human rights abuses. I find that treated firms increase their supply chain due diligence, and their suppliers’ human rights performance improves following the regulation. The effects are stronger when firms face greater pressure from non-governmental organizations (NGOs) and socially conscious shareholders, when customers have greater incentives to use the newly disclosed information, and when the regulation leads to a larger increase in information comparability. Collectively, the results suggest that mandatory nonfinancial disclosure can affect firms’ real decisions through market mechanisms and that stakeholder responses play a key role.

We study the optimal contracting problem with subjective evaluation when the principal can ask the agent to revise his work. The possibility of revision benefits the principal by providing the option value of making another attempt at the work. However, it also introduces a new type of incentive problem for the principal: she may ask for revision even if it is inefficient to do so. This new incentive issue for the principal also affects the incentive of the agent: he may procrastinate his effort in anticipation of excessive revision. This results in a trilemma: The optimal contract cannot simultaneously provide for efficient revision, efficient effort, and minimal ex post surplus destruction. The optimal contract will of necessity contain at least one of the following problems: revision, the principal asks for excessive revision; procrastination, the agent shirks in the early stage; or punishment, excessive surplus destruction at low-quality final output.

Companies that provide a two-sided platform for users to proactively seek a match face great challenges in increasing matching efficiency and ensuring match quality. This paper examines how information designs can be used to improve matching outcomes when users derive utility from a match's vertical attribute (i.e., quality) and its horizontal attribute (i.e., idiosyncratic fit). We consider a game-theoretic model in which competing senders propose matching requests to competing receivers and users on the two sides are differentiated both horizontally and vertically. We first demonstrate that users' preference for the vertical attribute intensifies competition and hurts matching efficiency, and to avoid competition a sender may switch from a close receiver to a distant receiver even when the weight that he places on a match's horizontal closeness increases. Second, we examine four information designs in which one type of information from one side of the market is withheld. Designs that withhold either side's vertical information increase the number of matches, with the improvement from withholding receivers' information being greater. By contrast, designs that withhold either side's horizontal information can cause all requests to concentrate on one receiver and lead to the most severe match failure. Third, an increase in matching volume comes at the expense of certain users' welfare, as withholding one side's vertical information can hurt not only high-quality users on both sides but also the low-quality users on the opposite side. Although withholding one side's horizontal information may increase the matching volume under certain conditions, it can be Pareto dominated by a design that withholds one side's vertical information. Fourth, when strategic user pricing is involved, it not only redistributes user welfare but also corrects for matching distortion. Finally, in contrast to the result when strategic pricing is absent, when strategic pricing is present the platform withholding one side's vertical information can benefit all users on the opposite side, while withholding one side's horizontal information can benefit all users on the same side.

We develop a data-sales model to study the implications of alternative data for financial markets. Investors acquire skills to process the purchased raw data, and developing such skills is costly and involves considerable uncertainty. The data vendor controls the size of the data sample to influence the precision of the information investors can extract from the purchased data. Price informativeness is hump-shaped in skill-acquisition costs although the cost of capital and return volatility are U-shaped in skill-acquisition costs. Similar patterns can arise for skill mean and volatility. Our analysis suggests that the funds and data industries foster each other.

This paper studies how globalization affects the corporate tax policies of U.S. manufacturing firms. Using U.S.-granting China Permanent Normal Trade Relations as a quasi-natural experiment, we find a significant increase in tax reduction activities for firms facing higher exposure to Chinese imports. The effect is more pronounced for firms with higher managerial slack. We also find that the effect is stronger for firms in less diversified products market and faster changing industries. We also show that U.S. firms facing higher Chinese import competition are more likely to engage in other tax-motivated activities: acquisition of subsidiaries in low-tax regions and suspected transfer pricing. Furthermore, we explore the 2017 tax cut and the recent U.S.-China trade dispute and find that firms engage less in tax reduction activities after the 2017 tax cut and after the tariff increase for Chinese imports.

Views differ on whether individuals with a calling orientation toward work (i.e., seeing work as personally fulfilling and contributing to a better world) enjoy more favorable objective career outcomes, such as higher income and chance of promotion, versus those with a job orientation (i.e., seeing work as a means to a financial end). We suggest that the impasse is partially due to prior research’s exclusive focus on how work orientation affects one’s effort and subsequent job performance. Drawing on theories of signaling, cognitive biases, and reciprocity, we propose that calling-oriented employees enjoy better objective career outcomes than job-oriented employees via an external pathway: managers misperceive employees’ calling orientation as evidence of better performance and stronger organizational commitment. In Study 1—analyses of the Wisconsin Longitudinal Study—we find support for the main effect, and in Study 2—an online experiment—we constructively replicate this effect and find evidence for our predicted explanatory mechanisms. Furthermore, observing a calling-oriented employee prompts managers to perceive them more favorably in other domains, creating a halo effect. Our research sheds light on how individuals’ subjective view of the meaning of work influences their objective career success, highlighting workplace signals and managerial perceptions as important mechanisms.