Po-Chang Chen
With the generous support provided by the Department, I was able to make significant progress on two of my research projects in the summer. The first project, co-authored with Philips Smith ’20 (MAcc, now at PwC), investigates whether and how financial restatements by banks affect the pricing of loans issued to borrowers in subsequent periods. To the extent that restatements cast doubt on banks’ true performance, restating banks have the incentive to show improvements in their operational results, which can be achieved by increasing the interest spreads on loans subsequently issued. On the other hand, however, the reputational damage from a restatement could cause a shift in negotiation power (from the bank to the borrower), making it difficult for the restating bank to charge its borrowers a higher interest rate. The refined main analysis we conducted in the summer produced findings consistent with the first argument, i.e., restating banks, relative to their non-restating counterparts, charge higher interest rates on new loans in the post-restatement period.
The second project advanced during the grant period studies the voluntary disclosures of web traffic metrics, i.e., the active users and customers, by some internet firms such as Facebook and Twitter. My co-authors, Theodore Sougiannis (University of Illinois) and Zach Wang (Cornerstone Research), and I find that this unique disclosure choice by some internet firms is influenced by certain predictable factors and conveys value-relevant information to market participants. We completed the empirical analysis and worked on getting the paper ready for conference/journal submission – as of now, the paper is under review at Review of Accounting Studies.