Essays on Corporate Intangibles and Misconduct

This dissertation examines three different aspects of corporate intangibles or misconduct and their impact on firms. The first essay examines the impact of employee flexibility on firm value, the second essay examines whether the SEC can deter financial misconduct through its enforcement, and the third essay examines the impact of mandating risk disclosure on firm innovation.

In the first essay, I hypothesize that employee flexibility enhances firm value because a flexible and empowered workforce helps the firm to respond to exogenous shocks. I estimate employee flexibility scores through textual analysis of online job reviews and I find that a high employee flexibility score leads to superior stock returns, especially for firms with high exposure to exogenous risk.

In the second essay, I examine whether the Securities and Exchange Commissions (SEC) enforcement actions, and who these actions target, deter future financial misconduct. An enforcement action reduces the incidence of misconduct in other firms in the same industry and metropolitan statistical area (MSA) in the future. Furthermore, an enforcement that punishes a guilty company has a larger deterrence effect on future misconduct than punishing an officer, auditor, attorney, or other entity.

Finally, in the third essay, I test whether mandatory risk disclosure reduces firm innovation. Based on text analysis of risk disclosure in 10-K filings for over 44,000 firm-years, I find that an increase in disclosed risk is linked to a decline in research and development, patents filed, and citation-weighted value of patents. Furthermore, by exploiting two natural experiments and a regression discontinuity design, I am able to show that mandatory disclosure of risk in the 10-K exacerbates the effect. The mechanism for this negative association with innovation appears to be linked to firms financial constraints; firms with financial constraints experience even larger declines in innovation when risk disclosure is high than other firms. These results show that increased disclosure requirements can have a negative impact on some firms.