Samuel Tan

PhD Candidate in Accounting

Haas School of Business, UC Berkeley

Selected Research

“Accounting Choices and the Legal Environment: the Impact of the Ex Post Loss Rule”. Job market paper.

Abstract: Using a landmark Supreme Court decision as a natural experiment, I examine the impact of a fundamental requirement in securities litigation—the ex post loss rule—on income-decreasing accounting choices. Dura Pharmaceuticals v. Broudo (2005) established that plaintiffs must show that the alleged misrepresentations caused an actual economic loss. The case resolved a circuit split, allowing me to identify a treatment jurisdiction affected by Dura, and control jurisdictions in which the rule was already the prevailing legal standard. Motivated by legal analyses suggesting that Dura incentivizes firms to withhold or delay negative corrections, I hypothesize and find that treatment firms in high-litigation industries became more likely to delay write-downs and avoid income-decreasing accrual error reversals at the firm level after Dura, relative to matched control firms. This study sheds light on the relationship between securities law and accounting practices, and informs policy makers on the accounting impact of a key feature of the legal environment.

I’m currently revising the paper to incorporate very much appreciated feedback and suggestions. Latest version: PDF, SSRN.

“How Do Accounting Practices Spread? An Examination of Law Firm Networks and Stock Option Backdating”, with Patricia Dechow.

Abstract: We hypothesize that one way that accounting practices spread is through law firm connections. We investigate this prediction by examining companies that avoided reporting compensation expense by engaging in stock option backdating. We hypothesize that executives engaged in backdating because they were desensitized to its inappropriateness when they learned through their legal counsel that other companies were engaging in this practice. We identify backdating companies through backdating-related restatements of earnings. Using network analysis, we document that backdating companies are more highly connected with other backdating companies via shared law firms. Logistic regressions indicate that the odds of a company backdating are 53 to 88 percent higher when its law firm has another client that backdates. We find that sharing a law firm is incremental to the impact of board interlocks and geographic location for explaining backdating. Finally, we document that law firms that have more clients that restate earnings due to backdating also have more other clients that are “lucky” (grant options at low prices). This is consistent with other client companies also engaging in backdating but not being required to restate. Our evidence is consistent with law firms acting as “system supporters” in enabling executives to engage in backdating.

Second round at The Accounting Review. Latest version: PDF, SSRN.

“Individual Lawyers, the SEC Revolving Door, and Comment Letters”, with Michael Shen.

Abstract: Government officials, advocacy groups, and the business press have raised concerns that former SEC employees may continue to influence the SEC after leaving the agency. Using a hand-collected database of individual lawyers that represent firms in responding to SEC comment letters, we examine the impact of individual lawyers, and lawyers formerly employed by the SEC, on the comment letter process. We document significant differences between lawyers and law firms in their clients’ resistance to SEC comment letters, and find that firms that retain former SEC employees are larger, more profitable, and more likely to have received a comment letter raising accounting issues. After matching on lawyer, comment letter, and firm characteristics, we find evidence consistent with former SEC employees increasing resistance in the comment letter process: conversations involving former SEC employees involve more negotiation, and result in fewer financial statement amendments.

Manuscript available on request.

Please refer to my CV for more information about my work!