Department of Finance, Insurance and Business Law
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- Audit Committee-CFO Political Dissimilarity and Financial Reporting QualityAlthough a large literature in accounting examines the role that audit committees play in the oversight of the financial reporting process, little is known about how the interactions between the audit com-mittee as a group and top management affects financial reporting choices. In this study, we investigate the effect of an important type of group dynamic, namely the political dissimilarity between the audit committee and the CFO, on financial reporting quality. Using a large sample of hand-collected political donation data, we find that audit committee–CFO political dissimilarity is associated with lower like-lihoods of financial restatements, lower likelihood of material weaknesses, and lower audit fees. Im-portantly, these positive financial reporting quality outcomes exist even after controlling for other features of the audit committee–CFO relationship, namely gender, age, and relative power, local ide-ological heterogeneity, and CEO ideological dissimilarity with both the audit committee and the CFO. Further testing shows that the effects of CFO–political dissimilarity on financial reporting quality is salient in settings within the purview of the audit committee where decisions are inherently complex, can be subjective, and are more likely to be associated with disagreements with management–goodwill impairments, tax avoidance, and pro-forma reporting. Overall, our results suggest that heterogeneity in political beliefs between audit committee members and the CFO is valuable.
- Civil Cyberconflict: Microsoft, Cybercrime, and BotnetsHiller, Janine S. (Santa Clara University School of Law, 2014-01)Cyber “warfare” and hackback by private companies is a hot discussion topic for its potential to fight cybercrime and promote cybersecurity. In the shadow of this provocative discussion, Microsoft has led a concerted, sustained fight against cybercriminals by using traditional legal theories and court actions to dismantle criminal networks known as botnets. This article brings focus to the role of the private sector in cybersecurity in light of the aggressive civil actions by Microsoft to address a thorny and seemingly intractable global problem. A botnet is a network of computers infected with unauthorized code that is controlled from a distance by malicious actors. The extent of botnet activity is staggering, and botnets have been called the plague of the Internet. The general public is more commonly aware of the damaging results of botnet activity rather than its operation, intrusion, or infection capabilities. Botnet activity may result in a website being unavailable due to a denial-of-service (DoS) attack, identity theft can occur because the botnet collects passwords from individual users, and bank accounts may be emptied related to botnet activity. Spam, fraud, spyware, and data breaches are all the result of botnet activity. Technical remedies for stopping botnet attacks and damages are ongoing, but technical solutions alone are inadequate. Law enforcement is active in tracking down criminal activities of botnets, yet the number and sophistication of the attackers overwhelm it. In a new development, multiple civil lawsuits by Microsoft have created the legal precedent for suing botnet operators and using existing law to dismantle botnets and decrease their global reach. This article reviews the threats created by botnets and describes the evolution of legal and technical strategies to address botnet proliferation. The distinctive aspects of each of the cases brought by Microsoft are described and analyzed and the complex questions surrounding a botnet takedown are identified. Discussion of the details of the lawsuits are important, because over a relatively short period of time, government and private sector roles have evolved considerably in the search for a methodology to deal effectively with botnets. Theoretical and international questions surrounding the sustainability and policy ramifications of private sector leadership in cybersecurity are examined, and questions for future research are identified.
- Retail Investors' Attention and Insider TradingMansi, Sattar A.; Peng, Lin; Qi, Jianping; Shi, Han (2019-01-07)We document a significant increase in opportunistic insider trades when retail investors are paying greater attention to the stock. Using Google SVI to proxy for their level of attention, we find that a higher (lower) SVI on a stock is associated with more insider sales (purchases) of the stock and greater abnormal returns on the sales (purchases). A value-weighted long-short portfolio mimicking insider trades would earn an abnormal return of 1.19% per month (14.28% per year), excluding transaction costs. We also find that the SVI-related insider traders tend to be non-independent directors who have long tenures but no senior executive positions in their firm and the firm tends to exhibit weaker governance, lower reputation, and poorer social responsibility. Our results are stronger for lottery-type stocks but are weaker for stocks with large attention of local investors. Interestingly, the risk of SEC investigation and litigation is lower on SVI-related insider sales and this type of sales actually rises following an increase in news releases of SEC enforcement action. Our results are robust to various identification tests. Overall, certain insiders appear to engage in trades to take advantage of variations of retail investors’ attention to their stock.