Driving a More Prosperous Future
Public Pension Contract Minimalism
American Business Law Journal, November 2024
The national pension debt and COVID crises have collided. Post-pandemic economic decline has escalated existing financial strains on state and local pension plans, impacting workers and the public welfare. With unfunded obligations exceeding one trillion dollars, many of these plans are in jeopardy. But the movement to reform government pension contracts has yet to adopt an anchoring idea, leaving judicial decisions in disarray and policymakers without guidance about how to shore up troubled retirement systems. The crux of the problem is the many meanings of contract under state and U.S. Contract Clauses that prevent pension reform. This Essay endorses a promising path forward—contract minimalism. “Contract minimalism” concentrates on the duration of government pension contracts. It posits that public and private employment law should be treated the same. Like its private law counterpart, public sector employment at-will ought to consist of a daily contract interval. A contract-a-day concept entitles employers to change the plan prospectively, with employees receiving a proportionate share of benefits for work performed. Just as several agreements safeguard salaries for labor, they should also mirror the protection afforded to deferred benefits like pensions. Contract minimalism additionally puts public and private sector employers on the same legal footing as to the authority to change pension plan terms. Thus, it aligns public pension benefits with overlapping fields of law, placing them on a firm conceptual foundation. The minimalist approach also has the advantage over approaches that are insufficiently attentive to scarce government resources or employee old-age security. By protecting pension benefits early and incrementally, it advances a middle path with fairer, more coherent results. In the present post-pandemic era of hard choices, minimalism provides an equilibrium between the over and under-protection of pension benefits.
T. Leigh Anenson, Professor of Business Law, University of Maryland and Hannah R. Weiser, Assistant Professor of Law, Bentley University
How to Talk When a Machine Is Listening: Corporate Disclosure in the Age of AI
The Review of Financial Studies, March 2023
Growing AI readership (proxied for by machine downloads and ownership by AI-equipped investors) motivates firms to prepare filings friendlier to machine processing and to mitigate linguistic tones that are unfavorably perceived by algorithms. Loughran and McDonald (2011) and BERT available since 2018 serve as event studies supporting attribution of the decrease in the measured negative sentiment to increased machine readership. This relationship is stronger among firms with higher benefits to (e.g., external financing needs) or lower cost (e.g., litigation risk) of sentiment management. This is the first study exploring the feedback effect on corporate disclosure in response to technology.
Sean Cao, Associate Professor (with tenure), Robert H. Smith School of Business, University of Maryland, United States of America
Distributed Ledgers and Secure Multi-Party Computation for Financial Reporting and Auditing
August 2024
To understand the disruption and implications of distributed ledger technologies for financial reporting and auditing, we analyze firm misreporting, auditor monitoring and competition, and regulatory policy in a unified model. A federated blockchain for financial reporting and auditing can improve verification efficiency not only for transactions in private databases but also for cross-chain verifications through privacy-preserving computation protocols. Despite the potential benefit of blockchains, private incentives for firms and first-mover advantages for auditors can create inefficient under-adoption or partial adoption that favors larger auditors. Although a regulator can help coordinate the adoption of technology, endogenous choice of transaction partners by firms can still lead to adoption failure. Our model also provides an initial framework for further studies of the costs and implications of the use of distributed ledgers and secure multiparty computation in financial reporting, including the positive spillover to discretionary auditing and who should bear the cost of adoption.
Author: Sean Cao, Associate Professor (with tenure), Robert H. Smith School of Business, University of Maryland, United States of America