Knowledge that Transforms

Mandatory audits of internal controls over financial reporting (ICFR), intended to strengthen financial reporting processes, may also have implications for broader organizational compliance systems. Increased scrutiny of financial controls could either enhance overall control quality, yielding benefits for nonfinancial controls, or induce firms to reallocate resources away from those areas. We exploit quasi‐exogenous variation in financial control scrutiny arising from (1) the initial implementation of ICFR audits, (2) the subsequent relaxation of ICFR auditing standards, and (3) the introduction of management assessments of financial controls absent concurrent ICFR audits, to examine how changes in external scrutiny affect Food and Drug Administration (FDA) inspection findings, an important form of regulatory noncompliance with direct public health implications. Our results show that the introduction of ICFR audits is associated with a reduction in FDA inspection findings; however, these benefits reverse when ICFR audit scrutiny declines. Mechanism analyses suggest that remediation of control deficiencies, investments in information systems, and expanded internal audit functions facilitate spillovers to compliance controls. Importantly, we find limited evidence that management assessments alone, without concurrent ICFR audits, generate similar spillover effects. Overall, our findings suggest that internal control systems operate as integrated organizational processes rather than isolated financial reporting mechanisms and that external scrutiny plays a critical role in enabling spillovers across control domains. These insights have implications for audit committees, auditors, regulators, and other stakeholders.

This paper provides the first comprehensive global evidence on people’s fairness and efficiency preferences, beliefs about the sources of inequality and the efficiency cost of redistribution, and policy attitudes toward redistribution. Using a globally harmonized consequential experiment with more than 65,000 individuals across 60 countries, we show that the source of inequality plays a substantially larger role for inequality acceptance than the efficiency cost of redistribution. At the global level, implemented inequality increases by 85 percent when inequality is caused by merit rather than luck, compared to a 14 percent increase when redistribution entails a 50 percent efficiency cost. We document substantial heterogeneity in fairness views and beliefs both within and across societies. The meritocratic fairness view is most prominent in many richer Western societies, while libertarian and egalitarian fairness views are widespread in many other parts of the world. Globally, people are more likely to believe that inequality reflects luck rather than merit, while beliefs in large efficiency costs of redistribution are relatively weak. Fairness preferences and beliefs are strongly associated with redistribution attitudes and actual redistribution through taxes and transfers across countries. Our findings illustrate how the interaction between fairness views and beliefs may shape redistribution across societies, highlighting the importance of jointly understanding preferences and beliefs in the political economy of redistribution.

Publisher Copyright: © 2026 The Authors. Published by Elsevier B.V.

We study merger and acquisition (M&A) disclosures made during regularly scheduled earnings calls. These bundled disclosures have been understudied in the literature, which focuses on dedicated M&A calls. Bundled deals represent an economically significant share of merger transactions. Bundling occurs when earnings news is weak. Bundled disclosures produce lower announcement returns by ∼130 basis points and are associated with reduced investor attention relative to dedicated calls. Bundling is more likely when bidders suffer from agency problems, such as powerful CEOs, entrenched boards, and low institutional ownership. In bundled calls, managers discuss the transaction in an optimistic tone that contrasts with the negative tone of the rest of the call. Overall, bundling seems to be an opportunistic attempt to put a positive spin on earnings news, to which analysts respond with skepticism. Our paper contributes to the literature on voluntary disclosure and contains important practical lessons for managers, board members, and market participants.

Hidden fees can distort consumer decision-making. In response, regulators historically have (a) improved disclosure to make fees more salient or (b) standardized products to restrict what fees can be charged. We use Chilean administrative data and a multi-stage natural experiment to separately identify the effects of disclosure and standardization on repayment. We find that disclosure reduces delinquencies by 13.7 percentage points (40%) and default by 1.68 percentage points (98%), whereas standardization has no effect. We find no effect on initial loan terms, suggesting that disclosure’s effects are specific to repayment behavior: specifically, disclosure improves borrowers’ understanding of their credit obligations.

Prior research finds that the textual content of Item 1A risk factor disclosures in 10‐K filings provides valuable information about firm risk. However, less is known about whether the ordering of these disclosures conveys useful information. We examine whether the relative prominence of individual risk factors within Item 1A reflects firms' exposure to the underlying risks and predicts future adverse outcomes. Focusing on credit and goodwill risk disclosures, we find that risk factor prominence is associated with proxies for the underlying risks and predicts credit rating downgrades, bankruptcy filings, and goodwill impairments. We further find that prominence is more informative during periods of high information uncertainty, when the benefits of risk disclosure are predicted to be greater. Overall, our findings suggest that risk factor prominence offers a valuable signal of firm risk that complements the textual disclosures in Item 1A. Accordingly, investors, analysts, lenders, auditors, boards, and regulators should consider both the level of, and changes in, risk factor prominence when evaluating firm risk.

We examine how the prevalence of gossip about peers' performance (peer performance gossip), a form of informal communication, influences employees' performance manipulation. Gossip is often viewed as a mechanism that disciplines behavior and deters misconduct. Yet, it may also serve as a salient cue of social evaluation, heightening employees' concerns about appearing incompetent to others. We predict that the prevalence of peer performance gossip increases employees' fear of negative social evaluation, which in turn leads them to inflate their reported performance to protect their social image. We further predict that this effect is weaker for employees with higher self‐monitoring, as they are more adept at tailoring their behavior to social cues and managing impressions. Data from two field surveys and an experiment support our predictions. Peer performance gossip increases performance manipulation by heightening social image concerns, particularly among employees with lower self‐monitoring. We contribute to the accounting literature by uncovering a social motive for performance manipulation and highlighting how informal social dynamics can shape reporting behavior beyond formal control systems. Accordingly, leaders should explicitly consider gossip when designing compensation systems, training programs, and internal communication practices. If left unaddressed, gossip may encourage performance manipulation and distort performance evaluations.