How Optimistic Earnings Forecasts Are Kept in Check

By Zachary Kaplan, Xiumin Martin and Yifang Xie December 21, 2021 by renholding

Consensus earnings estimates, prominently quoted at major media outlets such as CNBC, Bloomberg, and the Wall Street Journal, play an important role in capital markets by providing investors with a proxy for earnings expectations. The common belief is that they …

China Experiments with Cross-Border Payments of Central Bank Digital Currencies

By Lerong Lu and Alice Lingsheng Zhang December 17, 2021 by renholding

According to the Financial Stability Board (FSB), there is a consensus among major economies, such as the G20, to enhance cross-border payments.[1] Providing faster, cheaper, and more transparent and inclusive cross-border payment services would be beneficial for citizens, businesses, …

Skadden Discusses SEC’s Final Amendments Under Holding Foreign Companies Accountable Act

By Brian V. Breheny, Raquel Fox, Julie Gao, Kenneth W. Chase and Leo W. Chomiak December 15, 2021 by benzonenshayn

On December 2, 2021, the U.S. Securities and Exchange Commission (SEC) adopted final amendments implementing the disclosure and submission requirements of the Holding Foreign Companies Accountable Act (HFCA Act). In addition, the adopting release establishes the SEC’s procedures for (i) …

Offshore Activities and Corporate Tax Avoidance

By Zhihong Chen, Ole-Kristian Hope, Qingyuan Li and Yongbo Li December 9, 2021 by renholding

Taxation of multinational companies (MNCs) has received increasing attention from politicians, the media, regulators, and academics. While the popular press provides considerable anecdotal evidence that large MNCs pay lower taxes than their domestic counterparts, academic research provides mixed evidence on …

A Ranking Season Would Help Combat Discrimination by Commercial Banks

By Nizan Geslevich Packin and Srinivas Nippani December 3, 2021 by renholding

Last October, the U.S. Department of Justice (DOJ), the Consumer Financial Protection Bureau (CFPB) and the Office of the Comptroller of the Currency (OCC) launched what they are referring to as an aggressive effort to combat deliberate financial discrimination against …

Cleary Gottlieb Discusses Federal Banking Agencies’ Crypto Initiative

By Derek Bush, Lauren E. Semrad, Colin D. Lloyd, Hugh C. Conroy, Jr. and Julia Knight December 1, 2021 by renholding

On November 23, 2021, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency issued a joint statement on an inter-agency initiative to address bank and bank …

Debt and Taxes: Why Loans Are Really Leases

By David Hasen November 22, 2021 by renholding

Debt has been a ubiquitous form of finance for millennia, and one might reasonably assume that we have a good handle on exactly what it is by now. It turns out that may not be the case.

A loan is …

ISS Discusses Intangible Assets and Company Valuation

By Anthony Campagna and Kevin Spellman November 18, 2021 by renholding

Intangible assets continue to represent a significant portion of the overall Balance Sheet globally. Over 40% of capital in the US today is in the form of intangible assets, as assessed by our ISS EVA (Economic Value Added) methodology. The

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Debevoise & Plimpton Discusses Federal Regulators’ Focus on AI and Consumer Protection in Finance

By Courtney M. Dankworth, Avi Gesser, Gregory J. Lyons, James B. Amler and Anna R. Gressel November 15, 2021 by renholding

As financial institutions increasingly deploy artificial intelligence (“AI”), including machine learning and automated decision-making technologies, across their business lines, U.S. federal regulators have started to scrutinize the consumer protection implications of these technologies. Most recently, the Department of Justice (“DOJ”), …

Sullivan & Cromwell Discusses Stablecoins Report of President’s Working Group on Financial Markets

By Sullivan & Cromwell November 11, 2021 by renholding

The President’s Working Group on Financial Markets (the “PWG”),[1] the Federal Deposit Insurance Corporation (“FDIC”) and the Office of the Comptroller of the Currency (the “OCC”) published the Report on Stablecoins on November 1, 2021.^[2] The Report (1) …

The Dark Side of Information Dissemination

By Charles G. McClure, Shawn X. Shi and Edward M. Watts November 8, 2021 by renholding

For decades, there has been an important debate over how much securities regulators should focus on protecting small investors. The regulators themselves have generally aimed to create a level playing field among investors, and historically, new technology has been an …

Are Climate-Change Risks Reflected in Stock Prices?

By Renato Faccini, Rastin Matin and George Skiadopoulos November 3, 2021 by renholding

Climate-change risks can result from physical forces like wildfires, floods, or droughts or from changes in policy, the so-called transition risks created by government actions or the adoption of new technologies. A key question for academics, policy makers, firms, and …

Davis Polk Discusses the FSOC Climate Report: 10 Key Takeaways for the Banking Sector

By Joseph A. Hall, Betty M. Huber, Gabriel D. Rosenberg and Margaret E. Tayhar November 1, 2021 by benzonenshayn

The FSOC Climate Report views “climate-related financial risk as an emerging threat to the financial stability of the United States.” Here are our 10 key takeaways on a critical step in what will be a long and complex journey.

10

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Comparing Angels and Venture Capitalists as Investors in Entrepreneurial Firms

By Thomas J. Chemmanur, Harshit Rajaiya and Jiajie Xu October 22, 2021 by renholding

Angel investors (angels) and venture capital (VC) investors are both important sources of financing for entrepreneurial firms, but some critics, particularly VCs, often believe that angels are less able than VCs to perform due-diligence. However, an alternative view holds that …

Stablecoins, National Currencies, CBDCs, and Banks

By Kimberly A. Houser and Colleen Baker October 18, 2021 by renholding

The Federal Reserve is set to release a much anticipated discussion paper on the prospect of a digital U.S. dollar. According to the Bank for International Settlements (BIS), over 86 percent of central banks are investigating the possibility of a …

Economic Downturns and the Informativeness of Management Earnings Forecasts

By David A. Maslar, Matthew Serfling and Sarah Shaikh October 15, 2021 by renholding

Economic downturns brought about by events such as the financial crisis and COVID-19 pandemic create substantial uncertainty for companies. While some firms endure the downturns unscathed or even thrive, others see their businesses decline drastically and their bankruptcy risk increase. …

The Leverage Effect of Bank Disclosures

By Philipp J. König, Christian Laux and David Pothier October 7, 2021 by renholding

In a new paper, The Leverage Effect of Bank Disclosures, we challenge the widespread view that disclosure requirements prompt banks to reduce their risk and leverage. That view has prevailed since at least 2004, when the Basel Committee introduced Pillar …

COVID-19, Corporate Leverage, and Financial Fragility

By Sharjil M. Haque and Richard Varghese October 5, 2021 by renholding

The COVID-19 pandemic and efforts to combat its spread were an unprecedented shock to corporate cash flows and consequent need for external financing. How did corporate leverage respond? More important, what does the impact on leverage mean for financial stability? …

Attention to Dividends, Inattention to Earnings?

By Charles Ham, Zachary Kaplan and Steven Utke October 4, 2021 by renholding

Why do firms pay dividends? A well-known finance theory proposes that, in frictionless markets, dividends are irrelevant for firm valuation because an investor’s wealth does not change if the firm holds a dollar in the bank or if the firm …

The Economics of Crypto Funds

By Paul P. Momtaz September 15, 2021 by renholding

Crypto funds are a new financial intermediary that trade in cryptographically protected digital assets, known as coins or tokens. Both the number of crypto funds and investments in crypto funds are soaring. As of the second quarter of 2021, more …

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