UCLA

The first essay, titled Privacy Lost? Consumer Digital Privacy and Earnings Benchmarks, examines whether earnings benchmarks influence firms’ aggressiveness toward consumer digital privacy. I find that firms narrowly beating the prior year’s earnings engage in significantly higher third-party online tracking within their domains, even after controlling for conventional accrual-based and real activity-based earnings management (EM) channels. Two mechanisms explain these findings: increased tracking boosts site visits via personalized ads and enhances discretionary spending effectiveness. However, using the Sustainability Accounting Standards Board (SASB) materiality indicator to assess the overall costs ofconsumer privacy, I find that the main effect weakens when consumer privacy poses a material sustainability risk or when firms assign a board committee to oversee data governance. Overall, this research highlights firms’ responses to earnings benchmarks in the increasingly important yet often hidden digital space, affecting almost everyone via the Internet.

The second essay, titled Do ESG-linked loans increase the credibility of ESG disclosures?, examines whether ESG-linked loans enhance the credibility of firms’ voluntary ESG disclosures. Our predictions are based on a model in which firms may choose to withhold or voluntarily disclose information, subject to potential misreporting costs. Higher misreporting costs lead to more revealing reports and more informative “cheap talk” communications. ESG-linked loans increase misreporting costs by (1) imposing additional monitoring and liability, as misreporting can impact loan terms and potentially defraud creditors; and (2) encouraging caution in voluntary reporting, as syndicated loan contracts typically extend across multiple years. Consistent with our predictions, under a staggered difference-indifferences setting, we find that after issuing ESG-linked loans, firms are more cautious in reporting positive ESG news and more forthcoming with negative ESG news, with some evidence of more specific commitments. However, we do not find incremental effects from the stringency of ESG-linked contractual clauses.