We provide estimates of profit shifting for over 2 million firm-year observations in 100 countries over the period 2009–2020. Employing nonparametric estimation techniques within a mainstay model of profit shifting, we examine how the profits of both parent and subsidiary firms within a multinational group respond to marginal changes in the composite tax indicator. The key advantage of this approach

We study contingencies written in firms' material product market contracts, focusing on the theoretical prediction of uncertainty as an important determinant. We identify contract contingencies from firms’ public regulatory filings and examine the effects of general business uncertainty and specific innovation-related uncertainty. To enhance causal inference, we utilize two major business shocks (i

This paper examines the effect of creditor protection on the choice of government procurement contract types. We use the staggered adoption of anti-recharacterization laws (ARLs) as a quasi-natural experiment to investigate the research question. ARLs strengthen creditors’ rights to repossess collateral in bankruptcy and thus enhance creditor protection. Using a dataset of U.S. government contracts

This paper examines audit offices’ human capital investment in response to client restatement announcements and the resulting effects on audit quality and audit office client base. We find that audit offices attempt to acquire human capital and talent by posting more audit-related job positions just after a client announces a restatement. The increase in job postings follows restatements with more

We examine quantitative investors’ ability to navigate a common and occasionally material change to the financial data generating process: new accounting standards. Returns of quantitative mutual funds temporarily decrease relative to funds that rely more heavily on human discretion following the implementation of a few standards that significantly change key financial statement variables; however

This study explores the relationship between executive compensation and the preference dynamics of managers and shareholders. Our analysis centers on the theoretical prediction that changes in firms' asset value can differentially affect the risk-taking preferences of the two groups, potentially influencing the optimal compensation policy. Utilizing local real estate price changes to identify variations

We study the optimal dynamic contract that provides incentives for an agent (e.g., SPAC sponsor, VC general partner, CTO) to exploit investment opportunities/targets that arrive randomly over time via a costly search process. The agent is privy to the arrival as well as to the quality of the target and can take advantage of this for rent extraction during the search process and the ensuing production

We study the impact of transparency about banks’ costs on loan interest rates. The Indian Central Bank required banks to disclose a cost-based benchmark interest rate instead of the prime rate. The banks could price loans using any spread to the cost-based benchmark. We find that this change, which made banks’ cost structures more transparent, lowers the interest rates charged and leads to increases

We discuss Feng et al. (2024), which studies a dynamic model of delegated investment. The paper provides novel insights into the optimal contract between a principal and an agent who obtains private information about both the timing and profitability of investment opportunities. While the analytical analysis provides interesting findings, we have concerns about the validity of the paper’s empirical

Using a dataset covering 3 million commercial borrower financial statements, we document a substantial, nearly monotonic decline in banks’ use of attested financial statements (AFS) in lending over the past two decades. Two market forces help explain this trend. First, technological advances provide lenders with access to a growing array of borrower information sources that can substitute for AFS.

Glaeser and Lang (2024; GL) reviews the accounting literature on innovation, which has increased substantially in recent years. GL makes an important contribution to accounting research by bringing into the literature the implications of Romer's Nobel Prize winning endogenous growth theory and by explaining how accounting research addresses questions related to innovation. We contribute to accounting

We predict that institutional investors in loan syndicates charge bellwether firms lower loan spreads as compensation for having access to private information that can help identify trading opportunities in other firms' public market securities. Consistent with this prediction, when lending to bellwether firms, institutional investors charge a loan premium that is between 17 and 25 bps lower relative

This study investigates how CEOs' experience of natural disasters and severe disease outbreaks in their formative years influences their firms' responses to the COVID-19 pandemic in the United States. We observe that firms whose CEOs experienced disease outbreaks akin to COVID-19 early in their lives demonstrated more conservative responses to the emergence of the COVID-19 in late February 2020, notably

Li, Watts, and Zhu (2024) provide evidence that retail investors trade in response to financially material ESG news. This evidence is consistent with retail investors trading in response to the financial implications of ESG-related information in much the same way that they trade in response to the financial implications of other information. The authors suggest that their evidence is inconsistent

We survey corporate managers of both guiding and non-guiding firms. We find that managers of firms that provide guidance say that they: (1) primarily provide guidance to satisfy analyst and investor demands and manage analysts’ earnings expectations; (2) are relatively unconcerned about proprietary or litigation costs (managers of firms are more likely to see litigation risk as a concern); (3) predominantly

We review the accounting literature on innovation, focusing on the economic attributes of innovation that collectively differentiate innovation from other assets: novelty, nonrivalry, and partial excludability. These attributes help innovation drive economic growth but create unique information-based challenges that accounting information and researchers are well suited to address. We discuss the definition

An important debate exists around the extent to which retail investors make sustainable investments and, if they do, why. We contribute to this debate by investigating the aggregate trading patterns of retail investors around a comprehensive sample of key environmental, social, and governance (ESG) news events for U.S. firms. We show that ESG news events appear to be an important factor in retail investors’

This study examines whether an increase in the transparency of investment transactions facilitates portfolio mimicking. While there are reported benefits of transparency in enhancing regulatory monitoring and discipline, an increase in the transparency of investment transactions can also facilitate mimicking of peer firms’ investment strategies. I exploit an exogenous increase in the broad dissemination

Guidance is an important and long-studied topic in the accounting literature. Call, Hribar, Skinner, and Volant (this issue) survey managers who provide guidance and those that do not to generate insights on the costs and benefits of providing guidance. For managers who do provide guidance, perceptions regarding guidance characteristics are elicited. Firm responses are connected to archival data sources

This paper examines complexity in CEO compensation contracts. We develop a measure of compensation complexity and provide empirical evidence that complexity has increased substantially over time. We document that complexity results not only from factors reflecting efficient contracting, but also from external pressures from compensation consultants, institutional investors, proxy advisors, and attempts

We find that the adverse impact of bad news on analysts’ valuations is 57% larger when the CEO is Non-White, resulting in more pessimistic valuations for Non-White CEOs relative to their White counterparts. Non-White CEO firms are more likely to surpass analysts’ valuation targets in the subsequent 12 months, suggesting that this racial gap lacks economic justification. To provide further evidence

This study examines the effects of firms' green innovation on their future financial and environmental performance. If pollution is primarily a manifestation of wasted resources, then investments in pollution technologies can both reduce the environmental impact of production and improve financial performance. In contrast, investments in pollution technologies likely reduce the environmental impact

We examine the effect of fair value standards on firms' litigation risk. The discretion required by fair value allows plaintiffs to “second guess” managers' judgments, potentially increasing litigation risk. Alternatively, the complexity of fair value may decrease litigation risk if it's more difficult to demonstrate scienter. Our evidence suggests firms that rely more on fair value standards are relatively

We use staggered enactments of state stakeholder constituency laws as a natural experiment to examine the effect of such laws on corporate pension risk shifting. Our analysis encompasses three components of pension risk shifting: funding risk, investment risk, and benefit risk. We observe a reduction in all three elements of pension risk shifting following the enactment of stakeholder orientation laws

We examine employee responses to CEO activism, the increasingly common practice of CEOs taking public stances on socio-political issues. CEO activism may bolster employees' identification with their organizations and strengthen shared beliefs among employees. Alternatively, CEO activism may alienate employees if CEO stances contrast with employees' ideologies. We find that employee satisfaction is

Using labor supply shocks from the 150-Hour Rule, I find that a reduction in the labor supply of accountants increases audit firms' mergers and acquisitions (M&A) and the audit market concentration. These M&A deals connect audit firms serving clients in the same states and lead to greater industry specialization of the merging firms. Although both small and large auditors generally engage in labor

We study credit access in informal economies where market institutions, such as financial reporting systems, auditing, and courts, are nonexistent or function poorly. Using the setting of a large bazaar in India, we find that community membership plays a vital role in access to credit. Wholesalers are more likely to provide credit and offer greater amounts of credit to within-community retailers, and

Sell-side quantitative equity research analysts (Quants) conduct econometric analyses of stock returns to uncover market anomalies and assist equity analysts and institutional clients with stock selection. We present novel evidence that establishes their role in helping analysts and mutual fund clients discover market anomalies and capital markets evolve toward greater pricing efficiency. Specifically

Previous studies find mixed evidence on whether institutional investors exploit capital market anomalies. Examining a large sample of accounting-based anomalies, we find that institutions trade in the wrong direction of overreaction anomalies, but in the right direction of underreaction anomalies. These heterogenous trading patterns, rather than reflecting institutions' differential anomaly trading

This study examines whether and how financial statement comparability facilitates the dissemination of innovative knowledge between firms and stimulates the creation of new knowledge. Using cross-patent citations to track interfirm knowledge transfers, we find that comparability increases firms' incentives to learn from peers and create new patents that cite their peers' existing patents. The investigation

When firms are forced to publicly disclose financial information, credit rating agencies are generally expected to improve their risk assessments. Theory predicts such an information quality effect but also suggests an adverse reputational concerns effect since credit analysts may become increasingly concerned about alleged rating failures. We empirically examine these predictions using a large-scale

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We combine U.S. Census data with SEC enforcement actions to examine employees' outcomes, such as wages and turnover, before, during, and after periods of fraudulent financial reporting. We find that fraud firms’ employees lose about 50% of cumulative annual wages, compared to a matched sample, and the separation rate is much higher after fraud periods. Yet, employment growth at fraud firms is positive

We study the role of litigation risk in M&A valuations. Specifically, we hypothesize that litigation risk leads to strategic valuations in fairness opinions (FOs) obtained in M&A transactions. Employing a regulatory shock to merger litigation risk and focusing on the most common valuation techniques – peer firm comparables and DCF analysis – we find that target-sought FOs exhibit lower valuations when

We use a proprietary database with detailed, employee-specific compensation contract information for rank-and-file corporate accountants who are directly involved in the financial reporting process to assess their influence on their firms' financial reporting quality. Theory predicts that paying above-market wages can both attract employees with more human capital and subsequently encourage better

This study examines whether the implementation of industry-specific accounting standards helps capital market participants in making decisions about providing capital to firms. We predict and find an, on average, increase in firms’ capital growth in years following implementation of the relevant industry standard. The increase in capital growth arises primarily from equity issuances and is attributable

We develop the concept of auditor industry range as the extent to which an auditor has experiences in auditing clients from different industries, and we link this construct to auditor performance, drawing on prior research in psychology and cognitive science. We find that auditors with a wide range of industry experiences are more likely to require audit adjustments than auditors with a narrow range

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This study presents a model in which behavioral investors shape their current expectations based on statistical analysis of historical non-disclosure events. Investors may hold overly optimistic expectations following a non-disclosure event, thereby disrupting unraveling toward forthcoming disclosures. While a regulator can mandate disclosure, this protective intervention has its drawbacks. Overprotection

This paper explores the effects of public information such as accounting earnings in a competitive lending setting with risk shifting. Debt financing creates incentives for borrowers to take on excessive risks, in particular in bad states of the world. If a privately informed inside creditor bids against outside creditors to extend a loan, public information levels the playing field, which affects

I explore whether big-data sources can crowd out the value of private information acquired through lending relationships. Institutional lenders have been shown to exploit their access to borrowers' private information by trading on it in financial markets. As a shock to this advantage, I use the release of the satellite data of car counts in store parking lots of U.S. retailers. This data provides

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The patent system grants inventors temporary monopoly rights in exchange for a public disclosure detailing their innovation. These disclosures are meant to allow others to recreate and build on the patented innovation. We examine how the quality of these disclosures affects follow-on innovation. We use the plausibly exogenous assignment to patent applications of examiners who differ in their enforcement

This paper summarizes and discusses Cohen et al. (2023), including how their results fit into a larger set of open questions about how sustainability-oriented information gets used in capital markets. Two key messages emerge. The first is that investors are not a monolith. The second message is that the information environment in which investors have been operating has changed dramatically over the

A CEO's short horizon and associated myopic actions are typically viewed as detrimental to the firm. In contrast, studying a voluntary disclosure model wherein capital market and product market strategic considerations are in play, we show that the CEO's myopic behavior can improve a firm's long-term value. In particular, the disclosures of a long-horizon CEO are seen as being entirely focused on the

While Sani, Shroff and White (2023) examine a plausibly exogenous shock to the information acquisition landscape that arguably changes informed traders’ incentives to generate private information without the focal firm changing its disclosure policy, the causal chain underlying their analyses shares the implicit assumptions employed in the extant empirical literature that tests the Learning Hypothesis

We take advantage of a new composite measure of political risk (Hassan et al., 2019) to study the effects of firm-level political risk on private debt markets. First, we use panel data tests and exploit the redrawing of US congressional districts to uncover plausibly exogenous variation in firm-level political risk. We show that borrowers’ political risk is linked to interest rates set by lenders.

This paper examines whether portfolio disclosure requirements for actively managed investment funds affect the investment decisions of the firms they own. We argue that mandatory portfolio disclosures reduce fund managers' incentive to collect and trade on private information, which reduces the stock price informativeness of their portfolio, and thus portfolio firm managers' ability to learn from their

Exploiting the unique features of the CDP, the world-leading platform of corporate climate risk disclosures, we study the relationship between institutional investors' demand for climate-related information (as reflected in their CDP signatory status), firms' decision to disclose this information, and corporate carbon emissions. We provide systematic international evidence that ownership by CDP signatories

Binz, Ferracuti, and Joos (2023) examine whether better internal information systems can mitigate the association between inflation and investment. According to Real Business Cycle models, inflation should not impact real decisions like investment, yet empirically the two are positively related. Lucas (1972) theorizes that imperfect information can cause agents to rationally extrapolate from their