Luzi Hail joined the Accounting Department at the Wharton School in 2004 as a Visiting Scholar and Lecturer and is now an Associate Professor of Accounting. His research interests focus on international accounting, disclosure regulation, cost of capital and the interrelation between countries’ institutional framework and the reporting behavior by corporations. His research has been published in the Accounting Review, the Journal of Accounting Research, the Journal of Financial Economics and the Review of Accounting Studies.
Prior to joining the Wharton School, Luzi Hail spent three years as a Visiting Scholar at the University of Washington in Seattle. He earned his doctorate from the University of Zurich, where he later joined the Economics and Business faculty as an Assistant Professor. He has also worked for Credit Suisse and the Union Bank of Switzerland in the Accounting & Control Group and the Asset & Liability Management Department.
Luzi Hail, Stephanie Sikes, Clare Wang (2017), Cross-Country Evidence on the Relation between Capital Gains Taxes, Risk, and Expected Returns, Journal of Public Economics.
Abstract: This study empirically examines the role of risk sharing between taxable investors and the government on the relation between capital gains taxes and expected returns. Specifically, using an international panel from 26 countries over the period 1990 to 2004, we find evidence that the general positive relation between capital gains taxes and expected returns becomes weaker or even reverses when (i) a firm’s systematic risk is high, (ii) the market risk premium is high, or (iii) the risk-free rate is low. The results are particularly pronounced in countries with substantive changes in tax rates, more trust in government institutions, less integrated and less liquid capital markets, and lower foreign institutional ownership as well as around substantive increases and decreases in the risk parameters. We corroborate our findings in a single country setting, using the 1978, 1997, and 2003 capital gains tax rate changes in the United States as events. Our results underscore the importance of macroeconomic and firm-specific factors in determining the effect of tax capitalization, and suggest that tax rate changes can sometimes have opposite valuation implications than what policymakers have in mind.
Hans Christensen, Luzi Hail, Christian Leuz (Working), Capital-market effects of securities regulation: Prior conditions, implementation, and enforcement.
Abstract: This paper examines the economic effects of changes in securities regulation. We analyze two key directives in the European Union (EU) that tightened market abuse and transparency regulation. All EU member states were required to adopt these two directives, but did so at different points in time. Our research design exploits this staggered introduction of the same regulation to identify capital-market effects. We also examine cross-sectional variation in the strictness of implementation and enforcement as well as in prior regulatory conditions. We find that, on average, market liquidity increases as EU countries tighten market abuse and transparency regulation. The effects are larger in countries that implement and enforce the directives more strictly. They are also stronger in countries with traditionally stricter securities regulation and with a better prior track record of implementing regulation and government policies. The results indicate that the same forces that limited the effectiveness of regulation in the past are still at play when new rules are introduced, leading to hysteresis in regulatory outcomes. The findings further illustrate that harmonizing regulation in countries with different prior conditions can make countries diverge more, rather than move them closer together. This insight has important implications for global regulatory reform.
Jannis Bischof, Holger Daske, Ferdinand Elfers, Luzi Hail (Working), A tale of two regulators: Risk disclosures, liquidity, and enforcement in the banking sector.
Abstract: This paper examines the effects of heterogeneity in regulatory supervision on firms’ disclosure behavior and the ensuing capital market consequences. The effectiveness of regulation depends not only on the written rules, but also on how regulators and the firms they regulate enforce and adhere to these rules. We exploit the fact that banks are subject to quasi-identical risk disclosure rules under securities laws (IFRS 7) and banking regulation (Pillar 3 of the Basel II accord), but that different regulators enforce these rules at different points in time. We find that banks substantially increase their risk disclosures upon the adoption of Pillar 3 even if they had to comply with the same requirements under IFRS 7 beforehand. The increase is larger in countries where the banking regulator has more supervisory powers and resources and is less involved in the general oversight of securities markets. It is also larger for banks most likely to attract regulatory scrutiny from the banking supervisor due to higher distress risk. The improved risk disclosures translate into higher market liquidity around Pillar 3 but not around IFRS 7. The results indicate that the success of regulation depends on the institutional fit between regulator and regulatee, and that having multiple regulators may lead to inconsistent implementation and enforcement of the same rules.
John Core, Luzi Hail, Rodrigo Verdi (2015), Mandatory disclosure quality, inside ownership, and cost of capital, European Accounting Review, 24 (1), pp. 1-29.
Abstract: This paper examines whether and how inside ownership mediates the relation between disclosure quality and the cost of capital. Both ownership and more transparent reporting have the potential to align incentives between managers and investors thereby reducing systematic risk. Employing a large global sample across 35 countries over the 1990 to 2004 period, we show that country-level disclosure regulation is negatively related to (i) inside ownership, and (ii) firms’ implied cost of capital and realized returns. We then introduce ownership into the cost-of-capital model, and also find a negative relation. These relations extend to the systematic component of the cost of capital, estimated from Fama-French portfolio sorts on ownership and disclosure regulation. Thus, while the direct effect of disclosure on cost of capital is negative, the indirect effect via ownership is positive, consistent with disclosure quality and ownership acting as substitutes. Using path analysis to assess the relative magnitude, our estimates suggest that the direct effect of disclosure quality outweighs the indirect effect by a ratio of about five to one.
Abstract: We examine changes in firms’ dividend payouts following an exogenous shock to the information asymmetry problem between managers and investors. Agency theories predict a decrease in dividend payments to the extent that improved public information lowers managers’ need to convey their commitment to avoid overinvestment via costly dividend payouts. Conversely, dividends could increase if minority investors are in a better position to extract cash dividends. We test these predictions by analyzing the dividend payment behavior of a global sample of firms around the mandatory adoption of IFRS and the initial enforcement of new insider trading laws. Both events serve as proxies for a general improvement of the information environment and, hence, the corporate governance structure in the economy. We find that, following the two events, firms are less likely to pay (increase) dividends, but more likely to cut (stop) such payments. The changes occur around the time of the informational shock, and only in countries and for firms subject to the regulatory change. They are more pronounced when the inherent agency issues or the informational shocks are stronger. We further find that the information content of dividends decreases after the events. The results highlight the importance of the agency costs of free cash flows (and changes therein) for shaping firms’ payout policies.
Hans Christensen, Luzi Hail, Christian Leuz (2013), Mandatory IFRS reporting and changes in enforcement, Journal of Accounting and Economics, 56 (2-3 (Supplement 1)), pp. 147-177.
Abstract: In recent years, reporting under International Financial Reporting Standards (IFRS) became mandatory in many countries. The capital-market effects around this change have been extensively studied, but their sources are not yet well understood. This study aims to distinguish between several potential explanations for the observed capital-market effects. We find that, across all countries, mandatory IFRS reporting had little impact on liquidity. The liquidity effects around IFRS introduction are concentrated in the European Union (EU) and limited to five EU countries that concurrently made substantive changes in reporting enforcement. There is little evidence of liquidity benefits in IFRS countries without substantive enforcement changes even when they have strong legal and regulatory systems. Moreover, we find similar liquidity effects for firms that experience enforcement changes but do not concurrently switch to IFRS. Thus, changes in reporting enforcement or (unobserved) factors associated with these changes play a critical role for the observed liquidity benefits after mandatory IFRS adoption. In contrast, the change in accounting standards seems to have had little effect on market liquidity.
Hans Christensen, Luzi Hail, Christian Leuz Proper inferences or a market for excuses? The capital-market effects of mandatory IFRS adoption.
Abstract: Christensen, H., L. Hail, and C. Leuz. 2013. “Proper inferences or a market for excuses? The capital-market effects of mandatory IFRS adoption.” Research note. University of Pennsylvania, Philadelphia, and University of Chicago, Chicago. October. Available at: http://ssrn.com/abstract=2319475.
Holger Daske, Luzi Hail, Christian Leuz, Rodrigo Verdi (2013), Adopting a label: Heterogeneity in the economic consequences around IAS/IFRS adoptions, Journal of Accounting Research, 51 (3), pp. 495-547.
Abstract: This study examines liquidity and cost of capital effects around voluntary and mandatory IAS/IFRS adoptions. In contrast to prior work, we focus on the firm-level heterogeneity in the economic consequences, recognizing that firms have considerable discretion in how they implement the new standards. Some firms may make very few changes and adopt IAS/IFRS more in name, while for others the change in standards could be part of a strategy to increase their commitment to transparency. To test these predictions, we classify firms into “label” and “serious” adopters using firm-level changes in reporting incentives, actual reporting behavior, and the external reporting environment around the switch to IAS/IFRS. We analyze whether capital-market effects are different across “serious” and “label” firms. While on average liquidity and cost of capital often do not change around voluntary IAS/IFRS adoptions, we find considerable heterogeneity: “Serious” adoptions are associated with an increase in liquidity and a decline in cost of capital, whereas “label” adoptions are not. We obtain similar results when classifying firms around mandatory IFRS adoption. Our findings imply that we have to exercise caution when interpreting capital-market effects around IAS/IFRS adoption as they also reflect changes in reporting incentives or in firms’ broader reporting strategies, and not just the standards.
Luzi Hail (2013), Financial reporting and firm valuation: relevance lost or relevance regained?, Accounting and Business Research, 43 (4), pp. 329-358.
Abstract: In this study, I examine whether balance sheet and income statement numbers have lost or regained their relevance over the last 30 years. Institutional and macroeconomic factors like the global trend towards strengthening regulation and harmonising financial reporting, the extended use of fair values over historical cost, and the recurring occurrence of accounting scandals, market bubbles, and financial crises make it likely that the role of financial reporting for firm valuation has changed. Following prior research, I estimate four models for the concurrent relation between market value and accounting numbers, and then examine the pattern in explanatory power over time. I find that the loss in relevance of the income statement continues in recent years and is present in a large international sample, in particular in countries with strong institutions. While the overall relevance of the balance sheet remains stable, I find a downward trend during the first sample half, which reverses in the second half, especially in common law countries with strong investor protection, strict disclosure requirements, and integrated markets. Even though several caveats apply, the results suggest that changes in the economy, the institutional environment, and in how firms operate affect the relative importance of accounting information for the use in firm valuation by outside stakeholders.
Ryan Ball, Luzi Hail, Florin Vasvari (Working), Equity cross-listings in the U.S. and the price of debt.
Abstract: This study examines whether foreign firms raise debt capital more often and at lower rates after cross listing their equity shares in the U.S., and the sources of these debt market benefits. Employing a large global sample from more than 40 countries, we find that firms raise debt capital more frequently in the bond market and issue fewer syndicated loans following an equity cross-listing on a U.S. exchange. Offering yields of bonds are significantly lower after the cross-listing, while syndicated loan spreads do not change. We also find that cross-listed firms are more likely to conduct public bond offerings, at lower rates, instead of placing their bonds privately. Moreover, cross-listed firms domiciled in countries with a relatively weak regulatory and reporting environments issue bonds more frequently outside the U.S., while those located in countries that protect lenders well, issue more Yankee bonds, again at a lower cost. These results support the notion that bonding, information disclosure, and liquidity benefits from U.S. equity cross-listings extend to the debt holders of the firm.
This course provides an introduction to both financial and managerial accounting, and emphasizes the analysis and evaluation of accounting information as part of the managerial processes of planning, decision-making, and control. A large aspect of the course covers the fundamentals of financial accounting. The objective is to provide a basic overview of financial accounting, including basic accounting concepts and principles, as well as the structure of the income statement, balance sheet, and statement of cash flows. The course also introduces elements of managerial accounting and emphasizes the development and use of accounting information for internal decisions. Topics include cost behavior and analysis, product and service costing, and relevant costs for internal decision-making. This course is recommended for students who will be using accounting information for managing manufacturing and service operations, controlling costs, and making strategic decisions, as well as those going into general consulting or thinking of starting their own businesses.
The course covers empirical research design and provides students with a perspective on historically important accounting research. Topics covered such as research on the time-series and cross-sectional properties of financial accounting measures, capital markets behavior, financial intermediaries, and international accounting research.
The course covers empirical research design and provides students perspective on historically important accounting research. Topics covered such as research on the time-series and cross-sectional properties of financial accounting measures, capital markets behavior, financial intermediaries, and international accounting research. Topics covered may include corporate governance, executive compensation, debt contracting, accounting regulation, tax, and management accounting.
The federal Securities and Exchange Commission proposed last summer that U.S. Generally Accepted Accounting Principles be set aside by 2014 and replaced by international standards followed in most other nations. The change is opposed by the Financial Accounting Standards Board, which would see its status as America's chief accounting authority diminished. A Wharton finance professor's research raises questions about the benefits that have been touted by proponents of the transition.Knowledge @ Wharton - 2009/04/1