The Role of Gatekeepers in Capital Markets

Suraj  Srinivasan; Sugata  Roychowdhury

Article | Journal of Accounting Research | May 2019

The Role of Gatekeepers in Capital Markets

by Suraj Srinivasan and Sugata Roychowdhury

Abstract

Gatekeepers in financial markets have the power to provide the institutional stability, fortitude and direction necessary for the development and the smooth functioning of capital markets. At the same time, they are often motivated by their own private incentives. This, along with the trade-offs they face and the at-times unintended consequences of the regulations they propose and enforce, can undermine their effectiveness. A thorough understanding of gatekeepers and their roles can thus illuminate academics, the financial community and regulators on how such gatekeepers can be the most effective and generate the greatest benefits for capital markets. Since gatekeeping roles and the literature they have inspired encompass a wide array of institutions and agencies, our overview concentrates on those that the conference papers appearing in this volume focus on. We conclude that collectively, the papers contribute to significant progress, point out some crucial areas that call for further investigation, and offer opportunities for future research.

Keywords: gatekeepers; Capital Markets; Governing Rules, Regulations, and Reforms; Performance Effectiveness;

Format: Print

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Citation:

Srinivasan, Suraj, and Sugata Roychowdhury. "The Role of Gatekeepers in Capital Markets." Journal of Accounting Research 57, no. 2 (May 2019): 295–322.

Working Paper | HBS Working Paper Series | 2019

Going Digital: Implications for Firm Value and Performance

Wilbur Chen and Suraj Srinivasan

We examine the firm value and performance implications of the growing trend of non-technology (non-tech) companies adopting digital technologies such as artificial intelligence, big data, cloud computing, and machine learning. For the entire universe of U.S. publicly listed firms, we identify companies that are going digital using textual analysis of corporate financial reports and conference calls. We first show that digital adoption by non-tech firms has dramatically grown in recent years. Non-tech digital adopters exhibit greater stock price co-movement with technology companies than with their industry peers, suggesting that the digital activities are making them similar to tech firms. The digital adopters hold more cash and are larger, younger, and less CapEx-intensive. Digital adoption is associated with higher valuation―market-to-book ratio is higher by 7%–21% compared to industry peers—and is higher for firms that are younger, more CapEx-intensive, exhibit higher sales growth, and are in industries where digital adoption is prevalent. However, markets are slow to respond to the disclosure of digital activity. Portfolios formed on digital disclosure earn a size/book-to-market adjusted return of 25% over a 3-year horizon and generate a monthly alpha of 40 basis points. Finally, while there is no significant improvement in financial performance as measured by return-on-assets conditional on digital activities, there is a significant increase in asset turnover as well as a significant decline in margins and sales growth. Managerial expertise is important for digital technology adoption, as firms with senior technology executives perform better when going digital.

Keywords: digital technologies; Business Ventures; Technology Adoption; Valuation; Performance; Management; Experience and Expertise;

Citation:

Chen, Wilbur, and Suraj Srinivasan. "Going Digital: Implications for Firm Value and Performance." Harvard Business School Working Paper, No. 19-117, May 2019. View Details

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The Role of Gatekeepers in Capital Markets

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