How Does Recognition of Forward-Looking Estimates Affect Learning About the Macroeconomy? Evidence from CEC
14 Jun 2024
10:45 -12:30
Times are shown in local time.
Open to: All
Castle Teaching Room (Cambridge Judge Business School)
Trumpington St
Cambridge
CB2 1AG
United Kingdom
Join our Accounting seminar
Speaker: Dr Oliver Binz, ESMT
About the seminar topic
We use the adoption of current expected credit loss reporting for banks as a setting to examine the implications of recognition of managers’ forward-looking estimates for managerial learning from secondary equity markets. We posit that recognition of banks’ expected credit losses can reduce managerial learning in 2 ways. First, managers are forced to invest in information systems that allow them to generate decision-useful information and to rely less on alternative sources, such as stock price. Second, the disclosure of expected credit losses reduces incentives for investors to privately collect and trade based on this information, thereby reducing the informativeness of stock price for banks’ lending decisions. We find robust evidence of banks’ managerial learning from stock price under the incurred loss model and that this learning is attenuated upon adoption of the expected credit loss model. The results vary with banks’ information advantage over equity market participants and are robust to employing alternative treatment and control groups and measurement approaches. We present some evidence that the reduction in learning hurts banks’ lending efficiency.
Speaker bio
Oliver is an Assistant Professor of Accounting at ESMT. He received his PhD in Business Administration from Duke University. Prior to his appointment at ESMT, Oliver was a faculty member at INSEAD and a visiting scholar at the University of Pennsylvania’s Wharton School. Oliver’s interests lie at the intersection of equity valuation, macroeconomics, and economic history. Some of his recent projects explore how macroeconomic developments affect managers’ and consumers’ decision-making, and the resulting consequences for corporate investment efficiency and profits. His research has been published in leading academic journals including the Journal of Accounting Research, the Journal of Accounting and Economics, and The Accounting Review.
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No registration required. If you have any questions about this seminar, please email Eleanor Stefiuk.