Time:​ 10:00 a.m., Tuesday, March 17, 2026

Venue:​ Room 301, Starr Building

Host:​ Professor Xin Zhang

Speaker:​ Frank Zhang (Yale University)

Topic:​ Beyond the Spotlight: How Managers Exploit Regulation-Induced Misperceptions and Investor Inattention

Abstract:​ We exploit a novel financial reporting regulation in China that requires firms to report R&D expenses as a separate line item on the income statement, rather than as part of administrative expenses, to examine how managerial behavior responds to investor inattention to regulatory changes. Although the regulation directly targets R&D expenses, our focus is on administrative expenses, the account from which R&D was removed. Using a difference-in-differences design, we find a statistically and economically significant increase in administrative expenditures among treated firms relative to control firms, driven primarily by managerial perk consumption. We argue that the mechanical reduction in reported administrative expenses caused by the regulation, combined with investor inattention, creates opportunities for managerial opportunism. We further predict and find that this opportunistic behavior is more pronounced among firms characterized by a less sophisticated investor base, stronger managerial incentives for private consumption, and weaker governance structures. Notably, firms that explicitly explain the regulatory change in their annual reports exhibit less opportunistic behavior. Our findings highlight an underappreciated consequence of financial regulation: rules that target one financial item may unintentionally distort the reporting or use of related accounts.