“Audit Firms Face Downward-Sloping Demand Curves and the Audit Market Is Far from Perfectly Competitive”
Review of Accounting Studies, Forthcoming
Joseph Gerakos, associate professor of business administration and the Harvey H. Bundy III T’68 Faculty Fellow, explores how demand estimation can be applied in auditing research. He analyzes difficulties in the interpretation of the audit fee regression and discusses the mechanics of the discrete choice demand estimation approach. The findings from his work imply that audit firms have market power.
“Decomposing Value”
Review of Financial Studies, Forthcoming
Gerakos finds that only those firms with high book-to-market (B/M) ratios that have decreased in size earn the value premium. These firms follow conservative investment policies, while those high B/M firms that do not earn the value premium generate low cash flows. His findings on the relation between the value premium and changes in firm size provides a testable restriction for theories of value: if a value premium within the model remains when controlling for changes in firm size, such a model is inconsistent with the data.
“Do Risk Management Practices Work? Evidence from Hedge Funds”
Review of Accounting Studies, Forthcoming
Gerakos looks at hedge fund risk management practices and their association with left-tail risk during the 2008 financial crisis. Consistent with risk management practices reducing left-tail risk, funds in his sample that use formal risk models performed significantly better in the extreme down months of 2008. He finds that funds employing value at risk models had more accurate expectations of how they would perform in a short-term equity bear market.
“Hedge Fund Voluntary Disclosure”
The Accounting Review, Forthcoming
Using a dataset of 3,234 letters sent by 434 hedge funds to their investors during 1995-2011, Gerakos studies what motivates hedge fund managers to make voluntary disclosures. Contrary to the hedge fund industry's reputation for opacity, he observes that managers provide their investors with an array of quantitative and qualitative information about fund returns, risk exposures, holdings, benchmarks, performance attribution, and future prospects. He finds that the tensions between the agency costs faced by investors and the proprietary costs faced by managers affect fund disclosures.
Presentations
- “Asset Managers: Institutional Performance and Smart Betas,” Q-Group Seminar and Center for Monetary and Financial Studies Asset Management Workshop, Spring 2017
- “Book-to-Market, Retained Earnings, and Earnings in the Cross Section of Stock Returns,” 14th Annual Interdisciplinary Center Herzliya Conference in Financial Economic Research, May 2017