Secondary-Default Remedies: Should Harshness Limit Enforcement?

By Steven L. Schwarcz March 26, 2025 by renholding

Most financing agreements define “Events of Default” as being triggered not only by serious defaults, such as a borrower’s failure to repay its debt, but also by relatively minor or technical “secondary” defaults not involving debt repayment. Typical examples of …

Scaling Core Earnings Measurement With Large Language Models

By Matthew Shaffer February 28, 2025 by renholding

Large language models (LLMs) are capturing headlines and users as AI researchers push the limits of their capabilities. Those of us who work on understanding and analyzing corporations, whether as practitioners or researchers, are presented with two practical questions: What …

Is Financial Disclosure Worth It for Private Firms?

By Joachim Gassen and Maximilian Muhn October 2, 2024 by renholding

Private firms are the backbone of our economies, influencing everything from investment levels to job creation to market competition. Given their collective significance, various regulatory agencies outside the U.S. impose financial disclosure (and sometimes audit) requirements on these firms. In …

How IRS Monitoring Increases Corporate Non-Financial Misconduct

By Duke Ferguson, Robert Hills and Trent Krupa September 25, 2024 by renholding

The Internal Revenue Service (IRS) routinely monitors public companies to assess compliance with tax laws. The frequency of this monitoring is expected to increase significantly since the IRS recently announced its updated Strategic Operating Plan associated with the Inflation Reduction …

Will Large Language Models Propel Financial Statement Analysis Into a New Era?

By Alex G. Kim, Maximilian Muhn and Valeri Nikolaev September 16, 2024 by renholding

Since the introduction of ChatGPT, large language models (LLMs) have completed a variety of tasks with impressive results, from summarizing complex documents to conducting sentiment analysis to extracting relevant information. But are LLMs up to even greater challenges like, say, …

SEC Chief Accountant Speaks on Updated Conceptual Framework in FASB Standard Setting

By Paul Munter August 13, 2024 by renholding

Recently,[1] the Financial Accounting Standards Board (“FASB” or the “Board”) completed a comprehensive update to its Conceptual Framework for Financial Reporting (“Conceptual Framework”).[2] Now that it has finalized this significant project, it is important that the Board actively …

Do Investors Care Who Led the Audit?

By Daniel Aobdia, Vincent Castellani and Paul Richardson April 23, 2024 by renholding

Following a lengthy and contentious standard setting process, the Public Company Accounting Oversight Board (PCAOB), the U.S. regulator overseeing the auditors of publicly traded companies, implemented Rule 3211 in 2017. This rule requires audit firms to disclose the name of …

Does Context Matter in Interpreting Financial Information?

By Alex Kim and Valeri V. Nikolaev October 25, 2023 by renholding

The Management Discussion and Analysis (MD&A) section of annual reports is widely credited with providing valuable information about public companies. Yet largely unexplored is the extent to which narrative context influences and complements the numerical data presented in that section. …

Latham & Watkins Discusses the Proposed ESG Auditing Rule You Know Nothing About

By Sarah E. Fortt and Malorie R. Medellin September 20, 2023 by renholding

On June 6, 2023, the Public Company Accounting Oversight Board (PCAOB), the nonprofit corporation established by Congress to oversee the audit of public companies, proposed new auditing standards designed to further its “investor-protection mandate.”[1]These standards, if adopted, would …

How Financial Statement Fraud Affects People’s Desire to Become Accountants

By Robert Carnes, Dane Christensen and Paul Madsen August 4, 2023 by renholding

Financial statement fraud has many negative effects, including a reduction in people’s willingness to participate in the stock market. It may also cast accountants in a negative light because they prepare and audit financial statements – sometimes even fraudulent ones. …

Why Passive Investors Care About Audit Quality

By Ting Dong, Florian Eugster and Antonio Vazquez January 19, 2023 by renholding

In recent decades, the rise of index funds (or passive investors), has caused heated debates over the efficacy of their stewardship role in corporate governance. Passive owners cannot influence the governance of a firm by selling its stock because the …

How Accounting Comparability Between Bidders and Targets Affects Deal Outcomes

By Seraina C. Anagnostopoulou and Andrianos E. Tsekrekos September 21, 2022 by renholding

How comparable are the financial statements of M&A bidders and acquirers in the same industry? And does financial statement comparability affect the outcome of a deal? In a recent paper, available here, we investigate these questions, using a sample …

Revisiting the Audit Expectations Gap

By Wendy Heltzer and Mary Mindak July 25, 2022 by renholding

As the regulation of public company audits evolves, questions persist over whether there is still a gap between the public and auditors over expectations for the responsibilities of auditors – what we call the expectations gap. In a recent study, …

Corporate Culture and Financial Reporting Quality

By Avishek Bhandari, Babak Mammadov, Maya Thevenot and Hamid Vakilzadeh July 12, 2022 by renholding

Corporate culture is an important determinant of companies’ behavior and success and, as a result, has drawn much attention, particularly from the business press. While some companies have received praise for their corporate cultures, others such as Wells Fargo, Valeant …

Do Public Financial Statements Influence Venture Capital and Private Equity Financing?

By Brian K. Baik, Natalie Berfeld and Rodrigo S. Verdi July 13, 2021 by renholding

Venture capital and private equity funds are important equity investors in private companies (Hand 2005; Stromberg 2008; Kaplan and Stromberg 2009), and their investments are characterized by an extensive search process that imposes significant upfront costs for the funds (Chen …

SEC Chief Accountant on Importance of High-Quality Financial Reporting in Light of Covid-19

By Sagar Teotia June 25, 2020 by renholding

On April 3, 2020, the Office of the Chief Accountant (OCA) issued a statement[1] regarding the importance of high-quality financial reporting in light of the significant impacts of COVID-19.[2] At that time, in addition to facing a number

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SEC Commissioner Jackson Comments on Proposed Rule on Financial Disclosures for Mergers and Acquisitions

By Robert J. Jackson, Jr. May 6, 2019 by renholding

Let me begin by thanking the staff in the Division of Corporation Finance, including Division Director Bill Hinman, for their hard work in developing the May 3 release and for helpful briefings throughout this process.

The May 3 proposal governs …

SEC Chief Accountant Talks Financial Reporting and Innovation

By Wesley Bricker June 7, 2018 by renholding

Thank you, Robert [Hodgkinson] for the kind introduction. Thank you, also, to the Institute of Chartered Accountants in England and Wales (“ICAEW”) for sponsoring this event. I am delighted to be in London and with you this afternoon. London continues …

Takeover Threats, Job Security Concerns, and Earnings Management

By Edward Sul October 5, 2017 by renholding

The market for corporate control is widely regarded, at least theoretically, as an important corporate governance mechanism for aligning the interests of managers and shareholders of a firm. A healthy takeover market can also help countries attract domestic and foreign …

How Conservative Accounting Helped Boost Investment during the Financial Crisis

By Karthik Balakrishnan, Ross L. Watts and Luo Zuo August 10, 2016 by renholding

A host of studies have examined the link between accounting and the 2007-2008 global financial crisis, most of them focusing on whether fair value accounting or accounting discretion at financial institutions helped skew valuations on bank balance sheets. In our …

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