By Stephen A. Jones
Born in Stratford, Ontario, and earning BA and MAcc degrees from the University of Waterloo, Christine Wiedman received her PhD from Cornell University in 1994. Before returning to Waterloo in 2006, she taught at the historic College of William and Mary in Williamsburg, Virginia, and at the Richard Ivey School of Business at Western University. She was elected FCA in 2006, and was named KPMG professor at the School of Accounting and Finance in 2009. Wiedman’s research focuses on quality and governance in financial reporting, and the determinants and consequences of firm disclosure. Her findings have appeared in the Journal of Business, Finance & Accounting, The Accounting Review, Canadian Journal of Administrative Science, Contemporary Accounting Research, and other leading journals. She regularly presents the results of her work at academic conferences in Canada and the US, and serves on conference committees. In March she kindly spent time with us, talking about her research and about what motivates her.
What is the value of the KPMG Professorship?
“It is an honour to hold the KPMG Professorship,” Wiedman told us. “It’s a very welcome source of funding. What’s really great about it is that it gives me a lot of flexibility.” The Professorship allows her to hire students as needed, purchase special materials, and attend conferences to present her latest findings. About the latter, she adds, “It’s important for me to keep current [in the field], and for others to see what I’m doing.” In today’s globally interconnected network of scholars, this is standard practice across all academic fields.
Are there any constraints on what you choose to investigate?
“No, not at all,” replies Wiedman. “The funds are to be spent at my discretion, and I’m free to pursue new projects.” This is significant because, as she puts it, “research develops organically and dynamically.” Much of the path is unpredictable, with new questions often springing up alongside the original questions and demanding answers.
SAF alumni may wonder what accounting and finance research is “contributing to,” what “relevance” it has. How do you respond?
“I try to choose research topics that will have relevance to investors, accounting standard setters, and regulators,” Wiedman offers, adding that academic researchers are uniquely placed to “add real value” to the fields they examine. “We can objectively investigate a problem, and offer an independent voice that can speak for or against different interests,” she explains. “This is a role that academics should play.” Researchers can offer the “deep analysis” and evidence-based judgment that important issues demand. In this regard, says the KPMG professor, they are like business journalists but with a key difference: they have the liberty to explore the bigger picture, survey large data samples as distinct from individual cases, and detect industry-wide patterns.
What is it about research that excites you?
“If I can shed light – even a small amount – on a real problem, that to me is very exciting!” says Wiedman, stressing her long-time interest in deterring and detecting fraud, and in ensuring that investors can rely on financial statements.
As a case in point, she recently examined the use of COCOs – contingently convertible bonds – bonds that are convertible only if and when certain conditions are met. First entering the market in 2000, these instruments offer “a hybrid form of capital that can strengthen a firm’s finances in times of stress” and can act as a cushion between senior bondholders and shareholders, who suffer first if capital is lost. COCOs do not have to be included in a company's diluted earnings per share until eligible for conversion. Wiedman suspected that some firms were using COCOs not for economic reasons but for accounting reasons, namely to benefit certain managers. Following extensive study, she and colleague Carol Marquardt, an expert in corporate financial reporting strategy who teaches at Baruch College in New York, wrote up their findings in a paper. “My co-author and I received a Best Paper Award in 2007 for it,” reports an obviously delighted Wiedman.
“Not only did the research help contribute directly to an improvement in financial reporting, but it convinced several of us at the SEC that we should look to the academic community more often in seeking to solve financial reporting problems,” noted Scott Taub, the SEC’s former Deputy Chief Accountant, who brought the paper to the attention of the US Financial Accounting Standards Board. “I can think of no better example of a research paper promoting effective communication and interaction between academics and practicing accountants,” he added, “and I can only hope that others follow in the footsteps of the authors of this paper, by analyzing specific, real-life issues facing the reporting community.”
The research by the SAF professor and her colleague helped close a loophole and contributed to a SEC regulatory change.
Wiedman’s recent projects are geared into the post-2008 world, business ethics, and rule changes. SAF alumni will recall media coverage of the passage of Dodd–Frank Reform Act, which was signed into US federal law in 2010. This act aims to promote financial stability by improving accountability and transparency in the financial system, to end the ‘too big to fail’ era, to protect taxpayers by ending bailouts, and to protect consumers from abusive practices. Going beyond the 2002 Sarbanes-Oxley Act (“SOX”), a new whistleblower bounty program incentivizes those who inform the SEC on violations of securities laws, protects their confidentiality, and shields them from retaliation.
Wiedman and her colleagues ̶- her former PhD student Vishan Baloria (now of Boston College) and Carol Marquardt ̶- wanted to find out why some firms were lobbying strongly against Dodd-Frank, claiming it undermined the ethics codes they set up after SOX. Weighing net costs and benefits, the three researchers discovered that excess stock returns related to implementing new whistleblower rules were “significantly more positive” for the protesting firms, which had weaker internal fraud reporting systems and more entrenched management that could potentially gain unfair advantage under the old rules. “Their practices were not consistent with the story they were telling the SEC,” Wiedman explains. “Our paper informs the current debate over whether the new whistleblower protections are likely to achieve their intended objectives.” She notes that the Ontario Securities Commission is currently considering adopting similar rules. Marquardt presented the results of the trio’s work to the SEC in Washington, DC. Their research, which extends the literature on compliance and business ethics, whistleblowing, corporate lobbying, and economic consequences of regulation, is now under review for publication.
The KPMG professor has also taken a close look at shareholder activism and political spending. The controversial 2010 US Supreme Court ruling for Citizens United against the Federal Electoral Commission on corporate contributions to political campaigns opened another field of inquiry for Wiedman and her associates. A study she undertook with Vishal Baloria and SAF faculty colleague Ken Klassen saw them analyze more than 500 political spending shareholder proposals from 2002 to 2012.
Companies are not required by law to disclose certain types of political contributions, notably those made to trade associations and to campaign “Super PACs” (Political Action Committees). Hardly any companies voluntarily make such disclosure unless targeted by shareholder activists, who can possess various motivations. “Shareholder activism has become a very important mechanism for increasing disclosure of this information,” Wiedman observes. “If we know what the corporations are doing, we can hold them accountable.”
While stressing that her role as an impartial researcher is not to “fix the problem,” she insists that disclosure is “an absolutely necessary condition for accounting and transparency” and agrees that it can serve as a basis for reform. “Our findings contribute to the ongoing debate,” she explains, “in an era where firms face fewer restrictions in directing corporate funds towards political spending.” Their study is being prepared for submission to an academic journal. Further research is needed, say the authors, to assess firm-specific and market-wide costs and benefits of enhanced political spending disclosure in US capital markets.
How do you and your co-authors work out the logistics of collaboration?
“I work with people I’ve come to know and trust,” Wiedman explains. “Where they’re located isn’t important.” She began her research activity at William and Mary, a prestigious but relatively small school, and soon realized she had to reach out to specialized colleagues at other campuses. That established the pattern she still follows. She and her co-investigators communicate via e-mail and other means, and covet the opportunity to get together face to face at conferences. Two of her regular co-authors were her fellow students at Cornell years ago. She also works with her own doctoral students, such as Kai Chen, in his fourth year at SAF, and Vishal Baloria (PhD ’14), now a professor at Boston College.
How does your research activity relate to your classroom teaching?
“I will squeeze it in when I can,” she laughs. She teaches mainly MAcc students in a course on Financial Reporting, which allows her to bring into play research on regulation and fraud. She is now adapting this course to reflect the new CPA education model and changes to the SAF undergraduate curriculum. In recognition of her classroom and research talents, she received a UWaterloo Outstanding Performance Award in Teaching and Scholarship in 2011.
How would you characterize your doctoral students?
“They’re really bright people,” Wiedman is quick to reply. “I try to guide them through the complex process of learning how to do effective research. We need to train good academics. Eventually they become our colleagues!” She feels fortunate to have the opportunity both to interact with PhD students in class and to conduct research with them. “Both activities are rewarding, but in different ways,” she observes, describing the professor-student relationship at this level as “like an apprenticeship.” She currently supervises one doctoral student.
Many SAF alumni grapple with work-life balance. Could you comment on it, from your own experience?
“I like to compartmentalize,” says Weidman. “I always made it a rule to carve out time for family.” Married to Wilfrid Laurier School of Business and Economics professor and sometime research collaborator Kevin Hendricks, she has two children, now 16 and 19. The work-life balance issue was more of challenge when the children were young, but she managed to develop an effective strategy early on. She concedes that as an academic she had more flexibility in her daily schedule than women in other careers typically have. She still tries to lead a healthy, balanced lifestyle, finding from experience that it is “more likely to be productive” than the alternative.
Do you have a word of wisdom for SAF alumni?
“We have a lot to be proud of at SAF,” says Wiedman. “What we do, we do very well, and we’ve been doing it for a very long time.” She extols the quality of today’s students as attested in their classroom presentations and case analyses, and observes that they are developing a “broader set of skills” than ever before.