Thursday, June 13, 2019
By Lesanne Fliehler

Among U.S. institutions of higher education, 62 hold the distinguished research university designation from the Association of American Universities (AAU), including the University of Iowa. Why is this important?

“It means that our faculty are advancing knowledge through research, they are recognized by their peers as contributing to knowledge creation,” says Amy Kristof-Brown, the college’s senior associate dean for faculty. “Not only that, they are having an impact on our current students, the state of Iowa, and the world.”

How Whistleblowing Changes the Game

Financial fraud can be difficult to detect unless someone within the company points out the infractions. The SEC and IRS have increased the financial rewards for whistleblowers to remarkable amounts. Last year, two whistleblowers shared a nearly $50 million award.

Jaron Wilde, the Thomas and Margaret Kloet Fellowship and Palmer Faculty Fellow in accounting, is among a small set of researchers exploring how whistleblowing is associated with tax and financial reporting behavior. Wilde’s hopes to better understand how employee whistleblowers complement traditional external monitoring mechanisms.

“I wondered whether whistleblowing has a deterrence effect, do companies become less aggressive in financial reporting, and do they become less aggressive in their tax behavior?”

Wilde used information from Occupational Safety and Health Administration (OSHA) data from 2003 to 2010, where employees have alleged discrimination related to internal whistleblowing complaints about potential misconduct covered under Section 806 of the Sarbanes Oxley Act. He then compared the reporting results to other firms that were selected based on various benchmark or control samples.

“Firms subject to whistleblowing show significant decreases in financial misreporting and tax aggressiveness. This effect persists for at least two years following the allegations,” he says.

Wilde has also conducted research on the association between the presence of whistleblowers and the severity of government penalties levied on employees and companies. Wilde says the rewards can be substantial, ranging from 10% to 30% of the collected penalty amount.

For example, in 2012, Bradley Birkenfeld—a former UBS employee who blew the whistle on the Swiss bank’s massive fraud scheme—ended up in prison for enabling a client’s tax evasion, yet the IRS awarded him $104 million for speaking up. The Department of Justice has said they could not have cracked the case without his help.

Wilde’s research indicates that potential whistleblower involvement in financial fraud cases is associated with higher penalties for employees and companies. The presence of a potential whistleblower is associated with:

  • an average of $39.18 million in penalties to the firm as opposed to $8.72 million when there is no apparent whistleblower involvement,
  • employee penalties of $69.35 million vs. $22.83 million when no whistleblower appeared to come forward, and
  • prison sentences for employees that were nearly double (41.87 months vs. 22.5 months) when no one whistleblower appeared to be involved.

He is careful to acknowledge that this research (1) documents statistical associations rather than causal effects and (2) the setting is characterized by some very large penalties that significantly influence the documented associations.

“There is some debate about the efficacy of whistleblowing programs, but I hope my research contributes to the conversation,” he says.

Filling the Gap: Recruiting Physician Assistants to Rural Iowa

Access to health care, especially for rural Iowans, is a consistent research focus for Professor Tom Gruca. Already facing a shortage of primary care physicians, the state of Iowa also may soon face a shortage of physician assistants.

“Iowa faces a challenge to recruit and retain 30 percent of its entire physician assistant workforce in the next 15 years,” says Gruca, the Henry B. Tippie Research Professor of Marketing. A higher proportion of Iowa’s PAs practice in primary care—56 percent—when compared to the nation as a whole—30 percent, he says.

Gruca’s research found that 32 percent of the state’s 873 physician assistants (PAs) were age 50 or older in 2015. The dropout rate already averages 5 percent per year, a number that will increase significantly as PAs retire, if the trend continues, he says.

Iowa has become increasingly dependent upon PAs to provide primary care services, filling the gaps as the number of practicing primary care physicians has declined in most parts of the state. This is particularly true in rural counties. Forty-four percent of the state’s PAs practice in the 61 counties the federal government designates as underserved by primary care physicians.

For years, the state had only two schools with PA training programs—the UI Roy J. and Lucille A. Carver College of Medicine (since 1972) and Des Moines University. Gruca’s study found only about 25 percent of graduates from those programs were still practicing in Iowa in 2015, the remaining having either moved to another state, left clinical practice, or retired.

“The historical retention rate may be not be sufficient to meet the growing demands of an aging, rural population in Iowa,” Gruca says. “A statewide strategy is needed to recruit PAs into primary care, especially in rural or underserved areas, as well as to retain PAs already practicing in the state.”

Among Gruca’s suggested strategies to turn the shortage around:

  • Incentive programs such as student loan repayments to recruit and retain PAs in high-need areas.
  • Funding and time off to help PAs complete the considerable amount of required continuing professional education.
  • Practices could interact with them while they’re still students, such as through job fairs and other face-to-face interactions.

Learning from International IPO Markets

Sometimes research crosses oceans yet has application back home in the United States.

Associate Professor of Finance Yiming Qian studies initial public offering (IPO) markets in Taiwan and mainland China. With an IPO, a private company is selling their securities to the general public so it becomes a publicly traded company.

“It’s an important financing event in which various parties on the financial market come together to interact, including the issuing firm, the investors, the financial intermediaries, and sometimes the regulators. It also provides a very rich setting for studying many questions in corporate finance,” she says.

“International IPO markets have some interesting and unique institutional features,” says Qian, who is also a Henry B. Tippie Research Fellow. “The unique data allow us to examine theories and issues that U.S. data does not allow us to do.”

Qian and Tippie alum Yao-Min Chiang, PhD96, of Taiwan, have studied three methods for selling IPOs in Taiwan: auctions, fixed price offerings, and bookbuilding (when underwriters determine the selling price based on demand from institutional investors, and the underwriters have a lot of power in both pricing and allocating the shares).

“The dominant selling method in the U.S. has always been bookbuilding,” she says, but financial regulators in Taiwan are very innovative and tried all three methods. Another thing they tried is a mandatory pre-IPO market, Taiwan’s Emerging Stock Market—the only one of its kind in the world.”

In their research of IPOs selling on the market from 2005 to 2011, they found that the stock price shortly before the IPO informs the stock’s after-IPO value, so it’s useful in setting the IPO offer price. In addition, the riskier the stock, the less informative the pre-market price is, which is consistent with mainstream bookbuilding theories, she says.

Despite the informative pre-market price, IPO underpricing remains at a high average level—55%, according to the research.

“Evidence shows that underwriters have monetary incentives to underprice shares—both their fees collected from investors and their brokerage revenues increase when underpricing increases,” she says. “Our results suggest that agency problems can lead to high levels of IPO underpricing, even with little information asymmetry or valuation uncertainty about the stock.”

The study has several policy implications.

“Pre-IPO markets are useful for price discovery, but our research casts doubt on the benefit of the bookbuilding method, especially in the presence of a pre-IPO market from which price discovery is largely achieved.”

Researcher, Writer, Reviewer

When a faculty member’s piece of research is complete, the next stage in the process is to submit it to a peer-reviewed, academic journal for publication. Tippie faculty members hold positions as editors, co-editors, associate editors, and editorial board members on 88 different academic journals. As a result, they are influencing what is considered legitimate, high-quality work in their respective fields.

Appointments to academic journal can be one step in a faculty member’s career progression, says Paul Hribar, the Leonard A. Hadley Research Professor of Accounting, who serves as an editor for Contemporary Accounting Research.

“Very rarely would you have an editor who hasn’t received tenure, but being on an editorial board would be an important factor in the tenure decision,” he says. “It shows your national reputation and that your research is highly thought of.”

“Although most are not paid positions, faculty do increase their knowledge and visibility in a field,” he says. “When serving as an editor, it has increased and broadened my knowledge and I’m seeing some possible ideas to pursue in my own research.”

Hribar thinks refereeing papers is something that all faculty should do.

“I can understand why some faculty don’t—I’m often reading about 40 a year, and if each one takes 8-10 hours to review, that’s a lot of time to carve out from teaching and doing research.”

Senior Associate Dean Amy Kristof-Brown adds, “Google Scholar pages provide a snapshot of the impact our faculty have had in their fields. With more than 225,000 citations to research by Tippie faculty, there is no doubt that people are reading and citing the work done here at Tippie.”

This article first appeared in the summer 2019 edition of Tippie Magazinea semiannual publication for alumni and friends of the Tippie College of Business. A complimentary subscription is provided to those who make an annual gift of $10 or more to the college.