Faculty & Research

Haresh Sapra

Professor of Accounting

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5807 South Woodlawn Avenue
Chicago, IL 60637

Haresh Sapra studies the real effects of accounting measurement policies, disclosure regulation, and corporate governance. His current research deals with issues of disclosure, transparency and financial reporting for financial institutions. For example, how do accounting measurement rules impact the optimal design of prudential regulation for financial institutions? What are the costs and benefits of disclosing banks’ stress tests results? His research has been published in journals such as The Accounting Review, Journal of Accounting Research, and Games and Economic Behavior. He is a certified public accountant in Illinois and teaches financial accounting to Executive students, an MBA elective on Mergers and Acquisitions and Corporate Restructuring Issues to full time and part time students and a PhD course on the economic modeling of accounting issues.

At Chicago Booth, Sapra has won numerous teaching awards. In 2005, Sapra was named one of the top-ranked professors in BusinessWeek's Guide to the Top Business Schools. In 2005, Sapra also won the Ernest R. Wish Accounting Research Award for his paper "Do Mandatory Hedge Disclosures Discourage or Encourage Excessive Speculation?"

Sapra earned a PhD in Business Administration in 2000 from the University of Minnesota and then joined the Chicago Booth faculty in 2000.

Sapra is an accomplished runner who has competed in over twenty marathons.


2013 - 2014 Course Schedule

Number Name Quarter
30117 Accounting and Financial Analysis II 2014 (Winter)
30800 Financial Accounting 2013 (Fall)
30901 Economic Modeling of Accounting Issues 2014 (Winter)

2014 - 2015 Course Schedule

Number Name Quarter
30117 Accounting and Financial Analysis II 2015 (Spring)
30800 Financial Accounting 2014 (Fall)
30901 Economic Modeling of Accounting Issues 2015 (Winter)

Other Interests

Running marathons.


Research Activities

Disclosure regulation; economic consequences of accounting measurement policies; corporate governance.

With G. Plantin and H. Shin, "Mark-to-Market Accounting: Panacea or Pandora's Box," Journal of Accounting Research (2008).

With F. Gigler, C. Kanodia, and R. Venugopalan, "Accounting Conservatism and the Efficiency of Debt Contracts," Journal of Accounting Research (2009).

"The Economic Trade-offs in the Fair Value Debate," Journal of Law, Economics, and Policy (2010).

With T. Lu and A. Subramanian, “Agency Conflicts, Prudential Regulation, and Marking to Market,” Chicago Booth working paper (2012).

With I. Goldstein, “Should Banks’ Stress Test Results be Disclosed? An Analysis of the Costs and Benefits,” Chicago Booth working paper (2012).

For a listing of research publications please visit ’s university library listing page.

REVISION: How Frequent Financial Reporting Can Cause Managerial Short-Termism: An Analysis of the Costs and Benefits of Increasing Reporting Frequency
Date Posted: Jan  23, 2014
We develop a cost-benefit tradeoff that provides new insights into the frequency with which firms should be required to report the results of their operations to the capital market. The benefit to increasing the frequency of financial reporting is that it causes market prices to better deter investments in negative net present value projects. The cost of increased frequency is that it increases the probability of inducing managerial short-termism. We analyze the tradeoff between these costs and benefits and develop conditions under which greater reporting frequency is desirable and conditions under which it is not.

New: Should Banks' Stress Test Results Be Disclosed? An Analysis of the Costs and Benefits
Date Posted: Dec  15, 2013
Stress tests have become an important component of the supervisory toolkit. However, the extent of disclosure of stress-test results remains controversial. We argue that while stress tests uncover unique information to outsiders – because banks operate in second-best environments with multiple imperfections – there are potential endogenous costs associated with such disclosure. First, disclosure might interfere with the operation of the interbank market and the risk sharing provided in this market. Second, while disclosure might improve price efficiency and hence market discipline, it might also induce sub-optimal behavior in banks. Third, disclosure might induce ex post market externalities that lead to excessive and inefficient reaction to public news. Fourth, disclosure might also reduce traders incentives to gather information, which reduces market discipline because it hampers the ability of supervisors to learn from market data for their regulatory actions. Overall, we ...

REVISION: Corporate Governance and Innovation: Theory and Evidence
Date Posted: Feb  28, 2013
We develop a theory to show how external and internal corporate governance mechanisms affect innovation. We show that there is a U-shaped relation between innovation and external takeover pressure, which arises from the interaction between expected takeover premia and private benefits of control. We show strong empirical support for the predicted relation using ex ante and ex post innovation measures. We exploit the variation in takeover pressure created by the passage of anti-takeover laws acro

REVISION: Corporate Governance and Innovation: Theory and Evidence
Date Posted: Jul  08, 2012
We develop a theory to show how external corporate governance mechanisms, such as the market for corporate control, and internal governance mechanisms interact to affect innovation by …firms. Our model generates the novel testable implication that there is a non-monotonic U-shaped relation between the degree of innovation undertaken by …firms and the external takeover pressure they face. The U-shaped relation arises from the incentive effects of the interaction between expected takeover premia

New: Agency Conflicts, Prudential Regulation, and Marking to Market
Date Posted: Jan  13, 2011
We develop a theory of how agency conflicts between the shareholders and debt holders of a financial institution, accounting measurement rules, and prudential capital regulation interact to affect the institution’s capital structure and project choices. We show that, relative to a benchmark historical cost regime in which assets and liabilities on the institution’s balance sheet are measured at their origination values, fair value or mark-to-market accounting could mitigate asset substitution, b

REVISION: The Economic Trade-Offs in the Fair Value Debate
Date Posted: Mar  27, 2010
In this paper, I provide two general insights that are useful in evaluating the economic trade-offs of alternative accounting measurement rules. First, when there are multiple imperfections in the world, restricting a strict subset of it need not always improve welfare. Second, a firm is not a black box that operates independently of the measurement environment. Measuring a firm’s operations affects the firm’s actions which, in turn, affect the underlying distribution of cash flows that is being

Should Intangibles be Measured: What are the Economic Trade-Offs?
Date Posted: May  26, 2009
We investigate whether a firm's intangible investments should be measured and separated from operating expenses. We find that the information extracted from accounting reports of investments and earnings is different when intangibles are measured and identified separately from operating expenses than when intangibles are left commingled with operating expenses. This difference in the market's information causes a change in the behavior of market prices, inducing changes in the firm's investments

New: Accounting Conservatism and the Efficiency of Debt Contracts
Date Posted: May  06, 2009
In this paper we examine whether accounting conservatism facilitates or detracts from the efficiency of debt contracting. We consider both “unconditional” and “conditional” conservatism as discussed in the literature. In both cases, our analysis does not support the positive relationship between accounting conservatism and the efficiency of debt contracting, as suggested by Watts [2003], and as hypothesized in numerous empirical studies.1 In fact, we find the opposite can be true. Under very pla

REVISION: Auditor Conservatism and Investment Efficiency
Date Posted: Feb  13, 2009
We develop a theoretical framework to investigate (i) both the determinants and the consequences of auditor conservatism in a capital market setting and (ii) the implications of the Sarbanes-Oxley Act for auditor conservatism and investment efficiency. We derive the following results. First, by varying the mix of audit and nonaudit fees, companies with high business risk induce auditor conservatism while companies with low business risk induce auditor aggressiveness. Second, if auditor conserva

REVISION: Accounting Conservatism and the Efficiency of Debt Contracts
Date Posted: Feb  10, 2009
In this paper we examine how accounting conservatism affects the efficiency of debt contracting. We develop the statistical and informational properties of accounting reports under varying degrees of conditional and unconditional accounting conservatism, consistent with Basu's [1987] description of differential verifiability standards. Optimal debt covenants and interest rates on debt are derived from a natural tension between debt holders and equity claimants. We show how optimal covenants vary

REVISION: Market Pressure, Control Rights, and Innovation
Date Posted: Feb  10, 2009
There has been significant controversy over the desirability of anti-takeover protection devices, such as poison pills and golden parachutes. These devices are usually viewed negatively because they are associated with entrenchment and insider rent extraction. This position, however, is subject to debate. Insider protection, for instance, has the advantage of transferring control to better-informed insiders. In fact, in this paper we show that insider protection can arise endogenously as an

New: Fair Value Accounting and Financial Stability
Date Posted: Sep  30, 2008
Accounting is sometimes seen just as a veil leaving the economic fundamentals unaffected. Indeed, in the context of completely frictionless markets, where assets trade in fully liquid markets and there are no problems of perverse incentives, accounting would be irrelevant since reliable market prices would be readily available to all. Just as accounting is irrelevant in such a world, so would any talk of establishing and enforcing accounting standards. To state the proposition the other way roun

REVISION: Marking to Market: Panacea or Pandora's Box?
Date Posted: Aug  06, 2008
Financial institutions have been at the forefront of the debate on the controversial shift in international standards from historical cost accounting to mark-to-market accounting. We show that the trade-offs at stake in this debate are far from one-sided. While the historical cost regime leads to some inefficiencies, marking to market may lead to other types of inefficiencies by injecting artificial risk that degrades the information value of prices, and induces sub-optimal real decisions. We

REVISION: Do Accounting Measurement Regimes Matter? A Discussion of Mark-to-Market Accounting and Liquidity Pr
Date Posted: Aug  06, 2008
Using a model with banking and insurance sectors, Allen and Carletti show that marking-to-market interacts with liquidity pricing to exacerbate the likelihood of financial contagion between the two sectors. In this discussion, I lay out the main ingredients of their model and explain how they interact with liquidity pricing to generate financial contagion. I then discuss some limitations of their model and propose an interesting extension.

New: Information Management and Valuation: An Experimental Investigation
Date Posted: Jul  30, 2008
We explore the management of information and the response of market prices to such information. Sellers may be uncertain of dividends. We examine whether sellers anticipate buyers' pricing behavior and whether buyers' prices reflect correct inferences of the disclosure strategy of sellers. Buyers' inferences and sellers' anticipation require implicit Bayesian updating in solving for the equilibrium decision strategies of sellers and pricing behavior of buyers. Because of traditional problems in

New: Marking to Market, Liquidity and Financial Stability
Date Posted: Jul  30, 2008
This paper explores the financial stability implications of mark-to-market accounting, in particular its tendency to amplify financial cycles and the "reach for yield". Market prices play a dual role. Not only do they serve as a signal of the underlying fundamentals and the actions taken by market participants, they also serve a certification role and thereby influence these actions. When actions affect prices, and prices affect actions, the loop thus created can generate amplified responses - b

New: Hedge Disclosures, Futures Prices, and Production Distortions
Date Posted: Jul  30, 2008
In this paper, we identify social benefits to hedge accounting disclosures that have not previously been examined. We show that from the perspective of price efficiency in the futures market the key information that is provided by hedge accounting is information about firms' underlying risk exposures. Without this information, the futures price confounds information regarding firms' hedge-motivated trades with their speculative trades, making the futures price inefficient. Our model shows tha

New: Do Mandatory Hedge Disclosures Discourage or Encourage Excessive Speculation?
Date Posted: Jul  30, 2008
In order to shed some light on the desirability of hedge disclosures, I investigate the consequences of hedge disclosures on a firm's risk management strategy. Several major results emerge from this analysis. First, greater transparency about a firm's derivative activities is not necessarily a panacea for imprudent risk management strategies. I show that such transparency actually induces the firm to take excessive speculative positions in the derivative market. Second, I show that the firm may

New: Do Derivatives Disclosures Impede Sound Risk Management?
Date Posted: Jul  17, 2008
We model an environment in which firms disclose only one side of a hedging transaction, namely the gain or loss on the forward. However, the firm cannot credibly disclose the other side of the hedging transaction, namely the underlying exposure that is being hedged. We show that because the firm cannot credibly communicate that the exposure from its underlying project is hedgeable, greater transparency in the firm's derivative activities distorts firms' hedging decisions. The nature of thes