Electronic Theses and Dissertations (2010 - Present)
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The University of Houston Libraries collect and make publicly available all electronic theses and dissertations (ETDs) produced in UH graduate and PhD programs through the UH institutional repository. ETDs become available after the student submits them to the UH Graduate School, the document is approved by all appropriate parties, and any embargo on the document expires.
Collection Scope
UH Libraries began publishing ETDs from several UH Colleges in 2010. As of Summer 2014, all UH Colleges that require a thesis or dissertation for graduation began submitting these documents in electronic format. Below is a list of UH Colleges that currently participate in the ETD program and their coverage dates in this repository.
UH College | Coverage Dates |
---|---|
C.T. Bauer College of Business | 2010-Present |
Cullen College of Engineering | 2012-Present |
Conrad N. Hilton College of Hotel and Restaurant Management | 2015-Present |
College of Education | 2010-Present |
College of Liberal Arts and Social Sciences | 2012-Present |
College of Natural Sciences and Mathematics | 2012-Present |
College of Optometry | 2010-Present |
College of Pharmacy | 2010-Present |
College of Technology | 2012-Present |
K. G. McGovern College of the Arts | 2016-Present |
G. D. Hines College of Architecture & Design | 2016-Present |
Graduate College of Social Work | 2012-Present |
Additional Information
- Online access for content outside these coverage dates may be available electronically through ProQuest.
Note: As of Fall 2017, all theses and dissertations produced at UH will be submitted to ProQuest. Additionally, some UH Colleges have contributed content to ProQuest at different periods of time in the past. - For print theses and dissertations found outside these coverage dates, please consult UH Libraries’ catalog.
- Additional information on submitting ETDs can be found at the UH Graduate School.
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Browsing Electronic Theses and Dissertations (2010 - Present) by Department "Accountancy and Taxation, Department of"
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Item Accounting for Uncertain Tax Positions and Lenders’ Tax Risk Evaluations(2018-08) Lee, Sung Sil; Newberry, Kaye J.; Meade, Janet A.; Muslu, Volkan; Rude, DaleThis study explores how unrecognized tax benefit (UTB) disclosures are associated with the cost of bank loans. Previous studies have shown that lenders penalize borrowers in the form of a higher cost of bank loans (e.g., Hasan, Hoi, Wu, and Zhang 2014). I extend these studies by investigating how financial reporting related to tax risk, UTB disclosures in particular, is associated with the cost of bank loans. UTB disclosures would be associated with the cost of bank loans for two reasons. First, the UTB balance may signal borrowers’ tax risk, as it represents a potential future obligation to the taxing authorities for an uncertain tax position (FASB 2006a). Second, UTB quality would influence tax risk. When lenders are provided with informative UTB disclosures, they could protect themselves from risk due to uncertain tax positions by predicting the outcome of these positions. In this study, I develop UTB comovement as a measure of UTB quality, and find that both the UTB balance and UTB comovement are associated with the cost of bank loans. While borrowers’ UTB balances increase the cost of bank loans, the degree of increase lowers as UTB comovement increases. In addition, the UTB balance and UTB comovement are more closely related with the cost of bank loans when the ratio of UTB balance to loan amount is above the median. These findings suggest that the cost of bank loans is affected not only by an uncertain tax position, but also by how this uncertain tax position is reported in the financial statement.Item CEO Extraversion and Management Earnings Forecasts(2019-08) Qiu, Yue; Lobo, Gerald J.; Meade, Janet A.; Kong, Dejun TonyThis study investigates the effects of CEO extraversion, the single most salient personality trait (Cain 2012), on management earnings forecasts. An extraverted individual is characterized as being energetic, talkative, assertive, decisive and sociable (Wilt and Revelle 2009). I examine whether and how CEO extraversion influences the likelihood of issuing management earnings forecasts and the bias of issued forecasts. I also explore how CEO extraversion interacts with two industry-level determinants of voluntary disclosure in management earnings forecasting decisions. I find that extraverted CEOs are more likely to issue earnings forecasts. In addition, extraverted CEOs issue less upward biased forecasts and are less likely to miss their own forecasts. Furthermore, I document that the impact of CEO extraversion on the issuance and bias of management earnings forecasts is attenuated when a firm faces high proprietary cost or high litigation risk of voluntary disclosure. My results are robust to the control for potential endogeneity issues. Analyzing the stock market reaction to management forecasts, I also show that increases in CEO extraversion are associated with stronger stock market reaction to news conveyed in management forecasts. My study adds to the management forecast literature by providing direct evidence on the strong effects of CEO extraversion on management earnings forecasts. My study also extends the Upper Echelons Theory (Hambrick and Mason 1984; Hambrick 2007) by showing that management forecasting, a complex and important corporate decision, reflects the personalities of top managers.Item COMPENSATION DISCLOSURE AND INFORMATION TRANSPARENCY: EVIDENCE FROM REGULATION S-K 402(B)(2012-08) Yang, Ziyun; Lobo, Gerald J.; Sivaramakrishnan, Konduru; Karuna, Christo; Ramchand, LathaThis research investigates the determinants and consequences of compensation disclosure in the context of the SEC compensation regulation of 2006. Specifically, it focuses on the incentive-related compensation disclosure required by Reg. S-K 402(b). I find that compensation disclosure is negatively associated with managerial power and proprietary cost, but is positively associated with external monitoring. These relations are significant in both the pre- and post-regulation periods. With respect to the consequences of disclosure, I find that corporate information is more transparent when compensation disclosure is higher; however, this relation holds only in the post-regulation period. Additional tests further reveal that compensation disclosure may bring negative consequences that reduce corporate information transparency. For example, I show empirically that such disclosure fails to limit CEO excess compensation and may induce earnings management in the post-regulation period.Item Discussions on Asymmetric Cost Behavior(2023-08) Katuri, Sai Harsha; Lobo, Gerald J.; Sivaramakrishnan, Konduru; Muslu, Volkan; Crawford, Steven; Doshi, Hitesh; Manchiraju, HariomMy dissertation includes two papers on Asymmetric Cost Behavior. In the first paper, "Change in a Firm’s Access to Cash and Asymmetric Cost Behavior", I examine the effect of an increase in cash on managers’ resource adjustment decisions, as reflected in the asymmetric behavior of SG&A costs. I use the recent tax law change that resulted in tax savings for most firms as my setting. Using a sample of 10,970 firm years, I find that increased cash from reduced taxes is associated with decreased asymmetric cost behavior. Furthermore, the association is stronger when the cash increase is from a one-time tax saving. My results vary with the firm characteristics related to cash, such as cash holdings, financial constraints, and the future value-creating nature of SG&A costs, indicating that an increase in cash affects the firms’ operating decisions. Overall, my results show that the increased cash decreases managers’ cost constraints and plays a key role in the asymmetric cost behavior of firms. My study adds to the literature on asymmetric cost behavior. The second paper, "Reputation Risk and Firm Asymmetric Cost Behavior" is a joint work with Dr. Gerald J. Lobo and Dr. Devendra Kale. ESG is an area of growing economic importance. More and more investors are incorporating ESG into their investment decisions, making ESG crucial for firm value. However, maintaining ESG focus can also require significant investment in resources, which may not have immediate short-term benefits in terms of profitability. Exploiting this tension, we investigate how firms’ ESG risks influence their cost behavior (cost asymmetry). We find that as firms’ ESG risks increase, their cost asymmetry reduces. Further, we find that this relation significantly weakened after the onset of the COVID pandemic, when ESG initiatives received increased focus. We further show that our results are moderated by analyst following and institutional shareholding. This result also shows that managerial opportunism is a potential driver of our results. Our results are important for regulators as well as investors and hedge fund managers.Item Do Bank Managers Strategically Exploit the Wiggle Room in Loan Loss Provisioning for Securitized Loan Seller’s Interests?(2015-08) Yi, Lin; Lobo, Gerald J.; Kilic, Emre; Langberg, Nisan; Ranasinghe, TharindraExtant literature on the use of securitization as an earnings management tool focuses solely on the one-off use of securitization gains/losses to manage earnings at the inception of securitization transactions. In contrast, I conjecture that securitizations provide managers with greater wiggle room to manage earnings via loan loss provisions (LLP) for retained seller’s interest of securitized loans (SIL) over the term of the loan because managers possess relatively less information about securitized loans vis-à-vis regular loans. Consistent with this conjecture, I find that bank managers’ use of LLP for income smoothing is greater when the bank holds the SIL and is increasing in the ratio of SIL to total loans. Further tests reveal that the incremental use of the SIL’s LLP for income smoothing is lower for public banks because they face greater external capital market scrutiny than private banks. I also find that SIL is particularly useful for income smoothing in the fourth quarter, when greater auditor scrutiny makes it more difficult to manage earnings via LLP of non-securitized loans.Item Do Firms Specifically Manage Gross Margin Ratio? Evidence from Analyzing Losers’ Earnings Management Decisions(2014-08) Zhang, Zhenyu; Lobo, Gerald J.; Kilic, Emre; Muslu, Volkan; Susmel, RaulEarnings management can target specific components of earnings. Evidence suggests that the gross margin ratio (GMR) is more value relevant than other earnings components, especially for firms that miss earnings forecasts (losers), and that firms have some discretion managing cost of goods sold. To the extent that losers intend to cast their financial information in a favorable light without incurring the costs associated with managing earnings from missing to meeting/beating forecasts, the incremental value relevance and discretion create a natural incentive to manage GMR. Using a sample of firms whose earnings and GMR are both forecasted by analysts, I provide evidence suggesting that losers inflate GMR. I also show that the probability of firms missing earnings forecasts and resorting to managing GMR increases in the detection risk and litigation costs associated with managing earnings from missing to meeting/beating forecasts as well as the benefits expected from managing GMR. Finally, I show that losers with better future performance use more production management and discretionary accruals to manage GMR, whereas such an association is not found in firms meeting/beating earnings forecasts (winners).Item Does Auditor Choice Affect Financial Debt Covenants?(2016-08) Fried, Zev; Newberry, Kaye J.; Kilic, Emre; Larson, Chad R.; Rude, Dale; Zhao, YupingI examine the effects of auditor choice on debt contracting, particularly in regards to the number and types of financial covenants included in debt contracts. Using four audit quality proxies previously identified in the literature, I predict and find that higher quality auditors act as substitutes for lender monitoring via financial covenants, thereby decreasing the number of financial covenants. Furthermore, I predict that firms with higher quality auditors are likely to receive contracts with more performance (income statement based) covenants relative to capital (balance sheet based) covenants as performance covenants require a higher degree of contractible accounting information. Here, however findings are mixed with only one of the audit quality proxies being associated with an increase in performance covenants relative to capital covenants while two other proxies show the opposite effect. I also examine the effect of switching auditors on financial covenants. I predict and find that firms that recently switched auditors have more total covenants and relatively fewer performance covenants than those that did not recently switch auditors. I further find that amongst firms that have recently switched auditors, the number and type of financial covenants vary depending on the perceived quality of the previous and new auditors. Additional tests are employed to study if these effects change from the pre- to post- SOX era as well as the pre- and post- financial crisis years. This study adds to the literature by examining the ramifications of auditor choice on an important feature of debt contracting.Item Does the Past Cast a Shadow over the Present? Evidence from Corporate Tax Avoidance(2018-08) Xue, Chunxiao; Lobo, Gerald J.; Sun, Amy; Meade, Janet A.; Miller, C. ChetI investigate the effects of CEOs’ work experience on corporate tax avoidance and find that CEOs who experienced a negative firm-wide economic environment (negative work experience) tend to avoid more taxes. Further, I show that the frequency, recency, and length of the negative work experience are positively associated with tax avoidance. The results also indicate that CEOs with negative work experience have less incentive to avoid taxes when their firm obtains external capital and maintains higher liquidity. The findings are robust to propensity score matching analysis. Further analysis suggests that negative work experience has a more profound impact on tax avoidance when CEOs are under greater career pressure. Taken together, the results indicate that CEOs’ work experience has significant explanatory power for tax avoidance outcomes.Item Does Tightening Auditing Standards Improve or Impair Welfare?(2019-05) Ruan, Lijun; Lu, Tong; Lin, Haijin; Langberg, Nisan; Seo, Sang ByungThis study investigates the effects of tightening auditing standards in a setting of an oligopolistic audit market and a competitive capital market. I look at how tightening auditing standards affects audit quality, audit fee, audit market share, stock price, and investment decisions. Two audit firms engage in a two-stage competition: audit quality competition and audit fee competition. Audit quality has a dual role: (a) audit quality affects the credibility of the accounting reports (precision effect); (b) a company’s choice of a high-quality versus a low-quality audit firm signals its hidden information about its economic prospects (signaling effect). I find that tightening auditing standards will improve the credibility of accounting reports of those companies that stick to original auditors and impair the credibility of accounting reports of those companies that switch auditors.Item Effects of Board Composition on Pricing of Charity Care among Nonprofit Hospitals(2016-08) Swift, Orrin James; Khumawala, Saleha B.; Forgione, Dana A.; Muslu, Volkan; Rude, DaleIn recent years, nonprofit hospitals have been steadily raising listed prices for patient care, primarily due to competitive pressures from for-profit hospitals, increasing costs, and regulatory pressures. Prior literature shows that one reason for this trend has been to increase reported charity care to meet state regulatory reporting requirements for the measure. This study hypothesizes that the composition of the board of directors in nonprofit hospitals significantly influences the discretionary accounting choices that lead to increased reported charity care. Additional literature and anecdotal evidence suggest that CFOs will exert considerable influence over the trend in increased pricing among smaller hospitals. Lastly, regulation on charity care disclosure is expected to inhibit the increasing trend in gross charges due to greater transparency of charity care policies. The findings in this study support the board composition and disclosure assertions, while mixed evidence is found for CFOs. This study adds to the literature by analyzing board influence on the rising price of patient care in nonprofit hospitals and by examining whether regulation has a significant impact on the relative price of patient care over time.Item Executive Equity Compensation and Corporate Tax Behavior: Exploring The Role of Cash ETR Persistence(2019-08) Ruseva, Marina Yordanova; Meade, Janet A.; Sun, Amy X.; Crawford, Steven; Werner, SteveThis paper examines the relation between executive equity compensation and corporate tax behavior. Specifically, it asks whether executive equity compensation motivates managers to minimize future cash effective tax rates (Cash ETR) without increasing future unrecognized tax benefits (UTB). To address this question, I develop a measure of Cash ETR persistence that captures the state of a firm’s existing tax strategy as well as its effect on future tax outcomes. After accounting for the effect of the extant firm tax strategy, I find support for the predictions of De Waegenaere, Sansing, and Wielhouwer (2015). I document that the informational content of Cash ETR about future effective tax rates, as measured by Cash ETR persistence, allows managers to improve firm tax strategy by saving taxes (Cash ETR) while maintaining the level of tax risk (UTB).Item How Do Firms Change Investments Based on MD&A Disclosures of Peer Firms?(2018-05) Cho, Hyunkwon; Muslu, Volkan; Larson, Chad R.; Sun, Amy; Susmel, RaulI study whether and how firms change their investments based on information in their peers’ management discussion and analysis disclosures (PMD&As). PMD&As may change firms’ investments by providing information about the industry’s growth prospects (industry effects hypothesis) or competitive pressures (competition effects hypothesis). I find a positive association between changes in firms’ future investments and the change in the tone of PMD&As, consistent with the industry effects hypothesis. This association is stronger in settings of homogenous environments, smaller firm size, and poor firm performance, while it is weaker in settings of low-quality PMD&As. Moreover, firms alter their short-run investments based on PMD&As, and investments that deviate from the peers’ tone damage firm values. Additional analyses show that competition-related topics in PMD&As adversely affects firms’ investment decisions. Overall, my findings show that firms actively change their investments based on information provided by PMD&As.Item Implications of Advisory Fee Structures for Risk-Taking and Fair Valuation in Bond Mutual Funds(2022-12-08) Koo, Minjae; Lobo, Gerald J.; Kilic, Emre; Muslu, Volkan; Zhao, Yuping; Wang, Annika; Doshi, HiteshThis dissertation consists of two essays on the implications of advisory fee structures in bond mutual funds. In the first essay, I explore the risk-taking implications of advisory fee structures. Mutual funds compensate their investment advisors with fees based on assets-under-management (AUM). The fees can be either linear or concave functions of AUM. While prior literature on equity mutual funds finds that advisors with a more linear fee structure engage in more risk-taking, I find the opposite in bond mutual funds: they assume less risks. This noteworthy difference is likely because bond mutual fund advisors have a greater incentive to avoid AUM decline than to grow AUM, and those with a more linear fee structure have an even greater incentive to do so. Further, I find that the negative association between fee linearity and risk-taking is increasing in fund importance, redemption risk, and market uncertainty. My findings suggest that the dynamics of the relation between advisory fee structure and risk-taking in bond mutual funds differ from those in equity mutual funds. In the second essay, I explore the relation between the advisory fee structure of bond mutual funds and the valuation of their security holdings. Investment advisors typically engage in accounting valuations along with the asset management of mutual funds. Based on the reasoning that advisors with a more linear fee structure have a greater incentive to increase AUM and avoid AUM declines, I predict that fee linearity induces a greater degree of fair value overstatement than fee concavity. My empirical results support this prediction. Furthermore, the positive association between fee linearity and fair value overstatements is increasing in fund importance and redemption risk. My findings indicate that advisory fee structure is among the factors that explain the variation in security valuation of bond mutual funds.Item INTRAINDUSTRY INFORMATION TRANSFERS: AN ANALYSIS OF CONFIRMATORY AND CONTRADICTORY EARNINGS NEWS(2012-05) Ranasinghe, Tharindra 1979-; Lobo, Gerald J.; Kilic, Emre; Karuna, Christo; Sivaramakrishnan, Konduru; Ramchand, LathaPrior research on intraindustry information transfers finds that earnings announcements are information events not only for the announcing firm but also for others in the industry. This paper adds to this literature by investigating whether the informativeness of a firm’s earnings surprise is conditional on the nature of the earnings news previously announced by other firms in the industry and whether the ability of current earnings to signal future firm performance (earnings persistence) differ along this dimension. I define a firm’s earnings surprise as “confirmatory” if its sign is same as that of the majority of industry members that announced their earnings previously and as “contradictory” otherwise. I hypothesize that confirmatory earnings surprises are more informative with respect to how industry-wide trends affect firm performance while contradictory earnings surprises can be more revealing of a firm’s innate strengths and weaknesses. Hence the valuation implications of earnings news can differ depending on whether they are confirmatory or contradictory. I find that the market assigns a confirmation premium to nonnegative earnings surprises that are confirmatory but that no such effect emerges for confirmatory earnings with negative surprises. Moreover, in comparison to value firms, growth firms exhibit a larger confirmation premium. Further analysis also reveals that confirmatory earnings with nonnegative (negative) surprises are more (less) persistent than earnings with contradictory surprises. Although the presence of a confirmation premium for confirmatory nonnegative earnings surprises appears to be a rational response to their greater persistence, the market does not seem to recognize the lower persistence of confirmatory negative earnings surprises. A hedge portfolio strategy of simultaneously buying and holding firms with confirmatory negative earnings surprises while short selling firms with contradictory negative earnings surprises generates an annual abnormal return of approximately 3 percent.Item Managerial Overconfidence and Bank Loan Contracting(2014-08) Yu, Xiaoou; Newberry, Kaye J.; Lu, Tong; Zhao, Yuping; Langberg, NisanI study the effect of managerial overconfidence on bank loan contracting. I find empirical evidence supporting that overconfidence as a personal trait of borrowing firm’s manager impacts loan contracting terms. Specifically, loans initiated between banks and firms with overconfident managers have significantly lower interest rates on average. However, I also find that overconfident managers are willing to accept a higher initial interest rate if the loan contract includes a performance pricing provision, and that the likelihood of including a performance pricing provision is greater for overconfident managers. These results are consistent with predictions that performance pricing provisions are a useful mechanism for alleviating the agency conflicts arising from managerial overconfidence. Furthermore, I find that managerial overconfidence is associated with higher covenant intensity, longer maturity, and larger loan amounts. For syndicated loans with overconfident managers, lead banks reduce their risk exposure by inviting more participant lenders, retaining lower shares of the loans, and reducing syndicate concentrations.Item Mandatory Audit Rotation: An International Investigation(2012-05) Harris, Kathleen; Whisenant, J. Scott; Lobo, Gerald J.; Lu, Tong; Ramchand, LathaThis study investigates whether mandatory auditor rotation rules are associated with changes in audit quality using available data from three countries that have adopted mandatory auditor rotation (MAR) rules. Consistent with prior literature, I assume that earnings management measures capture the various methods employed by corporate insiders to exercise their discretion to manage earnings that is not constrained by the audit firm. The more discretion, ceteris paribus, in earnings, the lower the audit quality. First, I investigate the debonding effect of an MAR policy. Debonding describes the effect that is often the primary motivation for adopting MAR rules. That is, end the possibility of long-term audit engagements and the economic bond of audit firms to their clients will be broken (by enhancing auditor independence and objectivity). In the sample after adoption of MAR rules, the data show evidence of less earnings management, less managing to earnings targets, and more timely loss recognition compared to the sample before adopting MAR rules. From these results, I conclude that audit markets appear to improve, on average, from enactment of MAR rules. I then investigate the allowed discretion in the year before and the year after auditor changes in which rotation rules have been adopted (termed the low client-specific knowledge effect). I find evidence of lower audit quality in both years. These results highlight the importance, particularly to regulators of audit markets, of considering ways to mitigate the erosion of audit quality when making the transition to new auditors under MAR rules (e.g., the use of detailed handover files between predecessor and successor audit firms or “four-eyes principle” in years of initial audits).Item Non-Earnings Conference Calls: Content, Determinants, and Consequences(2018-05) Wang, Lin; Muslu, Volkan; Sun, Amy; Crawford, Steven S.; Yerramilli, VijayI use computational linguistic techniques to study the content, determinants, and stock market consequences of conference calls that are not held in conjunction with quarterly earnings releases (hereafter, non-earnings conference calls). I find that loss firms, growth firms, and firms with complex operations and a greater number of analysts following hold more both non-earnings and earnings conference calls. However, large firms and firms with more volatile earnings hold relatively more non-earnings conference calls than earnings conference calls. Firms with volatile earnings and greater operational complexity discuss more about earnings and investment-related topics in non-earnings conference calls. These results are consistent with the notion that firms facing greater informational problems hold more non-earnings conference calls. I also find that, controlling for other disclosure types, non-earnings conference calls incrementally explain quarterly abnormal stock returns, suggesting that they indeed help improve firms’ information environment.Item Prudential Regulation and Bank Accounting(2019-05) Zhang, Yan; Lu, Tong; Lin, Haijin; Kumar, Praveen; Langberg, NisanThis study focuses on how to design a mechanism that coordinates prudential regulation and bank accounting. I study a setting in which a bank chooses its loan quality and makes its asset substitution decision. The social planner sets the regulatory leverages for banks, and the accounting regime (either fair value accounting or historical cost accounting) for banks to report on loan performance. Using the ex ante bank value as the criterion, I find that the historical cost regime dominates the fair value regime for medium values of asset substitution risk; medium values of asset substitution constraint; low values of asset specificity; low values of fundamental risk of loans; high values of marginal benefit or low values of marginal cost of loan quality; and high values of the liquidity benefit of bank debtholders. Fair value accounting dominates for other values of these parameters. This study contributes to the theoretical literature on the debate about bank opacity by incorporating both the asset side and the liability side of bank's balance sheets in designing a mechanism to coordinate prudential regulation and bank accounting. The paper makes important policy implications on prudential regulation and bank accounting such as cycle-contingent regulations, asset risk class-contingent regulations and country-contingent accounting standard.Item Regulation and Opinion Shopping: Evidence from the U.S. Broker-Dealer Industry(2019-05) Bai, Yu; Lobo, Gerald J.; Zhao, Yuping; Lu, Tong; Rude, DaleThis study investigates the opinion shopping behavior of SEC-registered broker-dealers (BDs) and examines the changes in this behavior around recent regulatory interventions related to BD audits. Specifically, I report the following important findings. First, using a regulatory shock-based instrumental variable design (shock-IV design), I find empirical evidence suggesting that BDs successfully engage in opinion shopping. Second, BDs intensified their opinion shopping activities, at least in the short term, following the regulatory change that mandated BD auditors to register with the Public Company Accounting Oversight Board (PCAOB). Third, BD opinion shopping activities subsided to some extent after the PCAOB assumed the sole authority over the BD audit market. This effect was mainly driven by the elimination of the regulatory gap between public auditors, those who also engaged in public issuer audits and nonpublic auditors, those who do not engage in public issuer audits. Fourth, I find evidence suggesting that BD opinion shopping activities have significantly reduced after the adoption of the U.S. Securities and Exchange Commission (SEC) rules and PCAOB attestation standards for BDs in 2014. Finally, results from testing the association between BD audit opinions and Financial Industry Regulatory Authority (FINRA) enforcement actions against BDs suggest that the informational value of the internal control audit opinions has been significantly reduced after the implementation of these rules and standards.Item RISK SHIFTING AND FAIR VALUE ACCOUNTING IN THE BANKING INDUSTRY(2014-08) Kuiate, Christian; Lobo, Gerald J.; Francia, Arthur J.; Kilic, Emre; Susmel, RaulI examine whether and how the improvements in fair value disclosures resulting from the adoption of Statement of Financial Accounting Standard No. 157, Fair Value Measurement,s affect banks’ investment decisions. Using a sample of the largest one hundred publicly-traded bank holding companies, I find that, SFAS 157 does not affect the extent to which banks invest in high or low liquidity risk securities. Further cross-sectional analyses reveal that, following the adoption of SFAS 157m banks with high (low) funding liquidity needs reduce (increase) their holdings of high liquidity risk securities. These findings are consistent with the improved fair value disclosures contributing to mitigating the risk shifting incentives of banks with high funding liquidity needs and having no effect on a liquidity risk arbitrage strategy for banks with low funding liquidity needs. Consistent with the risk overhang hypothesis, I also find that banks with high funding liquidity needs use their discretion in fair value measurements to conceal the losses on their investment securities.