Maximilian Muhn
Chicago Booth

October 2018

Job Market Paper

Financial Transparency of Private Firms: Evidence from a Randomized Field Experiment
(Joint with Joachim Gassen)
Abstract. This paper examines why firms choose to be financially transparent or opaque by conducting a field experiment with more than 25,000 private firms in Germany. We inform a randomly chosen set of treatment firms about a disclosure option that allows eligible firms to restrict access to their otherwise publicly available financial statements. We also vary the messaging of these emails in subtle ways to induce experimental variation in the probability that firms take transacting (capital providers or customers and suppliers) versus non-transacting stakeholders (competitors or general interest parties) into consideration when making their filing decision. Using administrative data uncovering each firm’s actual filing decision, we find that treated firms are 15% more likely to restrict access to their financial statements. This intention-to-treat effect is persistent and concentrated among firms that should derive lower net benefits from disclosure (smaller, more mature firms in less capital intensive industries). These findings indicate that informational constraints affect firms’ disclosure practice. Additionally, we show that the treatment effect is almost 40% larger for firms that have a higher, exogenously induced, probability of considering non-transacting stakeholders when making their disclosure decision.

Working Papers

Do Risk Disclosures Matter When It Counts? Evidence from the Swiss Franc Shock
(Joint with Luzi Hail and David Oesch)
Abstract. We examine the relation between disclosure quality and information asymmetry among market participants following an exogenous shock to macroeconomic risk. In 2015 the Swiss National Bank (SNB) abruptly announced that it would abandon the longstanding minimum euro-Swiss franc exchange rate. We find evidence suggesting that firms with more transparent disclosures regarding their foreign exchange risk exposure ex ante exhibit significantly lower information asymmetry ex post. The gap in bid-ask spreads appears within 30 minutes of the SNB announcement and persists for two weeks. We validate the informational role of past risk disclosures with three field surveys: (1) Sell-side analysts emphasize the importance of existing (risk) disclosures in evaluating the translational and transactional effects of the currency shock. (2) Lending banks’ credit officers rely on past disclosures as the primary information source available for smaller (unlisted) firms in the immediate aftermath of the shock. (3) Investor-relations managers use existing financial filings as a key resource when communicating with external stakeholders. The results imply that risk disclosures continue to attenuate information asymmetry and the costs of adverse selection well beyond their initial publication date.

Who Falls Prey to the Wolf of Wall Street? Investor Participation in Market Manipulation
(Joint with Christian Leuz, Steffen Meyer, Eugene Soltes and Andreas Hackethal)
Abstract. Manipulative communications touting stocks are common in capital markets around the world. Although the price distortions created by so-called “pump-and-dump” schemes are well known, little is known about the investors in these frauds. By examining 421 “pump-and-dump” schemes between 2002 and 2015 and a proprietary set of trading records for over 110,000 individual investors from a major German bank, we provide evidence on the participation rate, magnitude of the investments, losses, and the characteristics of the individuals who invest in such schemes. Our evidence suggests that participation is quite common and involves sizable losses, with nearly 6% of active investors participating in at least one “pump-and-dump” and an average loss of nearly 30%. Moreover, we identify several distinct types of investors, some of which should not be viewed as falling prey to these frauds. We also show that portfolio composition and past trading behavior can better explain participation in touted stocks than demographics. Our analysis offers insights into the challenges associated with designing effective investor protection against market manipulation.

Work in Progress

Cash Versus Accrual Accounting: Evidence from a Randomized Field Experiment
(Joint with Pietro Bonetti and Matthias Breuer)
Do Government Grants Crowd in Private Donations?
(Joint with Raphael Duguay)