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Research

Credit Ratings and Intermediary Scrutiny

Solo Authored

Abstract: This paper studies how firms communicate information to investors through rating agencies that map a firm’s disclosures into finite rating categories (e.g., letter grades). I show that this discrete structure can improve informativeness by disciplining strategic misreporting. However, a fundamental tension arises: while a finer rating scale enhances precision, it exacerbates rating inflation. When intermediaries provide sufficient scrutiny and employ an appropriate number of ratings, intermediation improves informational efficiency and reduces aggregate signaling costs, driving voluntary adoption. Furthermore, optimally designed rating standards generate rating distributions that are typically less skewed than the underlying fundamentals, and a quantile-based rating system better reflects the true distribution.

• Committee: Beatrice Michaeli (Chair), Judson Caskey, Henry Friedman, Alexander Bloedel
• Presented at: UCLA, 2026 Western Region Doctoral Student/Faculty Interchange (scheduled)

Dynamic Capacity Management: Implications for Operating, Investing, and Financing Activities

with Felix Zhiyu Feng, Henry Friedman, and Beatrice Michaeli

Abstract: Firms adjust operating capacity via substantial acquisitions, expansions, divestitures, and spin-offs, and exert significant search effort identifying opportunities to do so cost effectively. We embed capacity adjustment and search in a dynamic model to understand how they interact with the firm’s operating decisions (risk-management), financing decisions (distributions and capital raises), and liquidity (cash position). We find that capacity-related search efforts are U-shaped in firm liquidity: highest when firms have either small or large cash positions. The firm’s costly efforts to mitigate operational risk move with capacityrelated search (acting as strategic complements) when liquidity is low and diverge (acting as substitutes) when liquidity is high. We provide testable predictions related to the frequency of major capacity adjustments, net capacity growth, payout timing, cash-flow volatility, and capital raises. We also relate our predictions to firm life cycle classifications based on firms’ cash flows.

• Presented at: Bocconi University, 2025 AES Annual Conference, 14th Zurich Accounting Research Workshop, Accounting Summer Camp 2025 – VIII Edition (Naples), 2025 HKU Accounting Theory Conference

Voluntary Compliance

with Judson Caskey

Abstract: We develop a model where firms choose whether to comply with an accounting rule that places an upper bound, such as historical cost, on the report and mandates recognition of bad news. Firms may also make unregulated assertions that their value exceeds the upper bound permitted by the accounting rule. In this context, improved enforcement of accounting rules enhances the credibility of firms’ unregulated claims. Firms’ willingness to recognize large impairments depends mostly on misreporting costs, while their willingness to recognize small impairments depends mostly on investors’ prior beliefs and whether a small impairment would be interpreted favorably. Consistent with our model, we find preliminary empirical evidence that investors respond favorably to small impairments by firms with low market values relative to book value.

• Presented at: UCLA, Purdue University, 2025 AES Winter Retreat

The Value Relevance of Goodwill and Subsequent Impairments

Solo Authored