Ralph Winter


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Doctoral Student Supervision (Jan 2008 - Nov 2020)
Essays on foreign firms listed in the United States (2018)

This thesis is a collection of two essays on US listed foreign firms, which represent a significant proportion of firms trading in US markets. These firms, like listed US firms, are subject to the litigation system in the US and are subject to monitoring by the US regulators, such as the Securities Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB). Because of US regulators’ tripartite mission to protect investors, maintain efficient markets, and facilitate capital formation, it is not obvious how the US regulators monitoring of foreign firms compares with US firms. In addition, it is not trivial how the foreign auditors react to the legal environment in the US compared with the US auditors. The first chapter of this thesis explores whether SEC’s monitoring activities differ for US versus foreign firms and whether monitoring varies based on attributes of the home country’s institutions. We find that, on average, SEC monitors foreign firms with less frequency and SEC provides increased monitoring for those foreign firms where SEC monitoring is most valuable to US. In addition, SEC reduces monitoring when it can rely on public and private enforcement in the foreign firm’s home country. Our study highlights the heterogeneity in SEC monitoring of foreign firms. The second chapter examines the effects of cross-listings in the United States on the pricing and quality of foreign auditors. The Bonding hypothesis suggests that foreign auditors can leapfrog their home countries’ weak legal institutions and provide quality similar to US auditors for their cross-listed clients because they abide by U.S. legal requirements. However, recent evidence, such as the first chapter of these essays, suggests that the U.S. legal enforcement is weaker for foreign entities because U.S. regulators focus their resources on domestic firms. This study finds that despite the nuances of the functional convergence hypothesis, foreign auditors are found to provide quality at least as good as the U.S. non-Big4 auditors. The findings of this paper can mitigate some recent concerns about the quality of foreign auditors practicing in the U.S. cross-listing market.

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Essays in industrial organization (2017)

Chapter 2 examines the role of sales (temporary price reductions) in the pricing of perishable products. When products can be stored, periodic sales are explained using inventories: the ability to store lets consumers wait for better prices. When consumers differ in their ability to wait, firms keep prices regularly high, using sales to target the low prices to the most patient consumers. This explanation is not reasonable for perishable goods, since they cannot be stored. Using a retail dataset, I show that nonetheless a cyclic pattern of sales is a major feature of how perishable products are priced. I explain this pattern using a dynamic model of loss leadership. I then test my model using grocery store data. Chapter 3 studies large contributions to crowdfunding projects and their impact on project success. I find large contributions display a preference for being effective in helping projects succeed: they are often pivotal in the success of a project. These findings matchpredictions from a consumer choice explanation of how large contributions are made. I then examine the role large contributions play in project success. Using an instrumental variables approach, I show the ability of a project to attract large contributors is important: a project is 40-60% more likely to succeed if they can attract a large contributor. This inverts the logic of crowdfunding: the crowd may be important, but the success of many projects is driven by large contributors. Chapter 4 develops a method for determining whether a given observation is a sale or not in the context of a sequence of prices for a retail product. This classification, based on a hidden Markov model framework has the advantage of using all the information available or classifying sales. I develop identification requirements for this method, and illustrate its utility in directly testing questions of correlation for sales and other variables: allowing models to be evaluated without reduced-form analysis. I perform simulations, demonstrating the method’s accuracy method in classifying sales and understanding correlations. This chapter adds to the toolbox industrial economists have for studying sales, with advantages over existing methods of sales classification.

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Organizational Form and the Provision of Quality in Healthcare Markets (2010)

The quality of healthcare is an important issue in any society. In the US the question "Which hospitals provide higher quality of care: Non-Profit (NP) or For-Profit (FP) ones?" is interesting both from the consumer and the policymaker perspective. The Arrow-Hansmann hypothesis states that NPs provide a higher level of quality, because of the lower incentive to exploit the opportunity to increase profits by reducing quality. Substantial empirical literature, however, rejects the main implication of this hypothesis: that quality of output is higher at NP organizations than at FP organizations. This thesis proposes a theory of information asymmetry in healthcare markets that is consistent with the empirical evidence and generates additional testable implications. US hospital data on 2006-2007 mortality rates (a measure of quality) support the central implication of the model: FPs have higher variance of quality than NPs; 2006 data on US emergency room waiting times support the second implication: NPs have longer waiting times than FPs. Three additional implications find support in the data as well. Since the theory finds support in the data, I use it as a basis for policy recommendations. I review the various policy alternatives toward FP healthcare provision in the US. The theory developed herein supports government policies that encourage conversions of low-quality FPs into NPs. The analysis is built on two innovations. In the model presented doctors-entrepreneurs self-select between the NP and FP sectors based on ability and not the degree of altruism, as in the previous literature. In the empirical analysis related to quality I use a newly constructed dataset and test implications, not at the nation-wide level, as in the previous literature, but at the market level. The last feature makes my testing of NP theories the most direct to date. These innovations reveal a new picture of the healthcare markets that is in accordance with all of the existing empirical evidence that was previously regarded as contradictory.

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The economics of auditing standards (2009)

Auditing standards provide the objectives to be achieved in an audit and methods to be used by auditors. Standards differ across countries and vary over time. This thesis explores variations in auditing standards, focusing on the questions of how players with different economic incentives influence (or set) auditing standards and how those choices vary with different legal liability regimes. The thesis analyzes the process of setting auditing standards by considering two of the standards' properties: toughness (stringency) and vagueness (imprecision). I present a contracting model between an auditor and prospective investors. The properties of auditing standards are incorporated into the model because they affect the auditor's expected liability to investors and thereby affect the level of effort the auditor chooses to exert. The model predicts that auditors and investors each weakly prefer precise auditing standards if they can choose both the toughness and precision of the standards. Given precise auditing standards, investors are likely to choose tougher standards than the auditors' professional organization. If the toughness is fixed at a non-optimal level, however, the auditors and investors will prefer vaguer auditing standards whether the toughness is too high or too low. These predictions are supported by empirical evidence. When the legal regime becomes stronger, the standard setters (auditors or investors) initially prefer tougher auditing standards, but when the regime is stronger than a negligence-based liability regime with auditing standards defining due care, they prefer less tough auditing standards. Furthermore, if the toughness is fixed at an optimal level, the players have stronger incentives to choose precise standards as the legal regime becomes stronger.This thesis adds to the literature by investigating the standard setters' economic incentives in influencing (in this thesis, choosing) the properties of auditing standards. By understanding the economic impact of different standards, regulators, investors, and auditors are more able to anticipate the implications of a change in standards. This research is timely given the recent transfer of authority over auditing standards for public companies from the AICPA to the PCAOB in the U.S., and the world-wide trend of improving the clarity of auditing standards.

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