Research Interests

Topics: Performance measurement, accounting systems, aggregation rules, managerial incentives, accounting standards, organizational design, CEO talent.

Methodologies: Analytical, archival


"Toward an Accounting-Centric Principal-Agent Framework: Theory and Some Applications”

I develop a principal-agent framework in which agents take actions that influence a firm's general ledger accounts, which can serve as performance measures themselves or can be aggregated to construct other measures such as earnings. My framework is tractable and facilitates optimal closed-form solutions without assuming preferred actions or imposing exogenous restrictions on contractual form. I apply the framework to several settings and a consistent theme emerges: it is cheaper to motivate efficiency improvements than revenue growth. This is driven by a seemingly trivial property of bookkeeping, that general ledger accounts are bounded below by zero. I find that this accounting feature influences task allocation, organizational design and optimal aggregation rules. My analyses produce many readily-testable predictions and can help explain empirical regularities; for example, I predict that the low pay-performance sensitivities empirically observed in loss firms may be driven in part by life cycle. My findings demonstrate that when studying the optimal use of accounting information, properties of the double-entry systems which generate that information should be taken seriously.

Working Paper

“Size Attracts Talent, but Talent Creates Size,” with David De Angelis and Thomas Hemmer

Using theoretical insights from Holmström and Milgrom (1987) and Hellwig and Schmidt (2002), we construct a novel empirical measure of CEO marginal product and test its relation with wage and corporate outcomes. Our measure helps explain residual variation in excess compensation models, indicating that it reflects CEO talent. Our measure also varies predictably with economic cycles and across industries, and responds predictably to competition shocks. While our measure predicts growth in firm size for up to 15 years, it is inversely related to current firm size. This result is at odds with the common notion that the most talented CEOs are matched to the largest firms and underscores the endogeneity of firm size with respect to talent, consistent with dynamics in income inequality.

Selected Work in Progress

“The Role of Aggregation in Coordinating Efficient Resource Allocation,” with Jonathan Bonham

We develop a model that illustrates how strategic aggregation of accounting information facilitates coordinated resource allocation in the economy. When stakeholders disagree about the implications of particular transactions and events for future profits, disaggregated information leads to equilibria in which stakeholders forgo the gains of coordination and spread their investments across different firms. In contrast, an accounting regime that aggregates transactions about which stakeholders disagree leads exclusively to socially efficient equilibria in which stakeholders coordinate their investments in a few firms with the best prospects.

Undergraduate Publications

  • Smith, S.R. and Riggs, A., 2012. Anomalies of Tax Legislation: The First-Time Homebuyer Credit. Journal of Business and Accounting, 5 (1): 103-111.

  • Smith, S.R. and Riggs, A., 2011. Temporary Tax Benefits Under Economic Stimulus Legislation: How Temporary? Journal of Business and Behavioral Sciences 23 (2).

  • Smith, S.R. and Riggs, A., 2010. Ethical and Public Policy Issues in Tax Legislation: The Case of the First-Time Homebuyer Tax Credit. Journal of Accounting, Ethics & Public Policy, 11 (2): 167-192.

  • Riggs, A. & Smith, S.R. (2010). Attributes of Good Tax Policy and the First-Time Homebuyer Credit. Tax Notes, 127 (5), 94-99.