Ph.D. Candidate in Accounting
Tepper School of Business
Carnegie Mellon University
Carnegie Mellon University - M.S. Accounting, Minor in Finance - 2010
Fudan University (China) - M.S. Accounting - 2008
Wuhan University (China) - B.A. Accounting - 2005
Financial Accounting, Managerial Accounting
See my Teaching Experience & Results
Strategic Production, Communication, and Use of Information
The Independent and Affiliated Analysts: Disciplining and Herding
(Job Market Paper)
The paper investigates strategic interactions between an independent analyst and an affiliated analyst when the analysts' information acquisition and the timing of their recommendations are endogenous. Compared to the independent analyst, the affiliated analyst has superior information but faces a conflict of interest. I show that the independent analyst's recommendation, albeit endogenously less informative than the affiliated analyst's, disciplines the affiliated analyst's biased forecasting behavior. Meanwhile, the independent analyst sometimes herds with the affiliated analyst in order to improve forecast accuracy. Contrary to conventional wisdom, I show that herding with the affiliated analyst may actually motivate the independent analyst to acquire more information upfront, reinforce his ability to discipline the affiliated analyst, and ultimately benefit investors.
The A Multi-period Foundation for Bonus Pools
(With Jonathan Glover)
The paper explores optimal discretionary rewards based on subjective/non-verifiable performance measures in a multi-period, principal-multi-agent model. The multi-period relationship creates the possibility of trust, since the agents can punish the principal for bad behavior. At the same time, the multi-period relationship creates opportunities for both cooperation/mutual monitoring (good implicit side-contracting) and collusion (bad implicit side-contracting) between the agents. When the expected relationship horizon is long, the optimal contract emphasizes joint performance, which incentivizes the agents to use implicit contracting and mutual monitoring to motivate each other. When the expected horizon is short, the solution converges to the static bonus pool. A standard feature of a static bonus pool is that it rewards agents for bad performance in order to make the evaluator's promises to provide honest evaluations credible. For intermediate expected horizons, the optimal contract allows for more discretion in determining total rewards but also rewards the agents for bad performance, but for a different reason: paying for bad performance allows the principal to create a strategic independence in the agents' payoffs that reduces their incentives to collude. If the principal did not have to prevent tacit collusion between the agents, she would instead use a relative performance evaluation scheme. The unappealing feature of relative performance evaluation is that it creates a strategic substitutability in the agents' payoffs that encourages them to collude on an undesirable equilibrium that has the agents taking turns making each other look good-they alternate between (work, shirk) and (shirk, work). We also extend the model to include an objective/verifiable team-based performance measure. Productive complementarities in the objective team-based measure take pressure off of the individual subjective measures, allowing for a greater degree of relative performance evaluation than would otherwise be possible. Large complementarities can facilitate cooperation/mutual monitoring, even when the objective measure is not that sensitive to individual efforts.
Paying Out to Commit to Monitoring
(A short student summer paper written in 2010, will be posted shortly)
The paper provides a rationale for the observation that firms continue to pay large dividends in spite of a widely anticipated liquidity deficiency (e.g., Acharya et al., 2012). In the model, firms face an exogenous liquidity shock in the future and holding additional cash helps decrease the loss caused by liquidity deficiency. The principal contracts with a manager whose productive effort affects the outcome of the firm. The manager's wage contract is based on a noisy signal of the firm's outcome and the principal's monitoring effort determines the precision of that signal. Since cash holdings and the firm's outcome are substitutive in mitigating the liquidity deficiency, an ex-ante fully liquid principal is tempted to shirk her monitoring effort after the manager's productive effort is sunk in order to save the ex-post compensation. By paying out dividends and exposing herself to a potential liquidity deficiency, the principal commits to monitoring effort (to be vigilant), which reduces the expected cost of motivating the agent. The decision to pay out dividends and make the firm less solvent arises endogenously as a commitment device.
Work in Progress:
Why do Analysts Withhold their Information?
How are Large Shareholders Compensated for Idiosyncratic Risk? - A Structural Modeling Investigation
(With Robert A. Miller)