This paper examines the effect of the All‐Star award on the performance of Chinese financial analysts. Leveraging unique voting data from 2007 to 2016 and a regression discontinuity design (RDD), we find that the All‐Star award significantly enhances recipients' fundamental analysis. Awarded analysts issue more accurate earnings forecasts, and their stock recommendations convey greater information content for firms with higher information asymmetry. RDD results also indicate that award recipients gain increased resources and greater flexibility in reallocating time and effort. Post award, analysts concentrate on fewer industries, cover more firms within each industry, issue forecasts more frequently, expand their teams, and conduct more site visits. Surveys of analysts and institutional investors corroborate these findings, highlighting increases in site visits and roadshows following the award. Overall, the results suggest that the All‐Star award boosts analyst performance by fostering more concentrated coverage and improving access to both internal and external resources.

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This paper develops a theoretical model to understand the role of accounting con- servatism in debt contracts, incorporating the possible renegotiation of debt contracts with accounting-based covenants. I find that the demand for accounting conservatism depends on whether renegotiation occurs and if so, at what cost. When the covenant is not renegotiable or when renegotiation cost is sufficiently high, more conservative accounting actually reduces the efficiency of debt contracts. When renegotiation cost is moderate, more conservative accounting may increase the entrepreneur's welfare under certain conditions, especially for firms with less promising investment opportunities and for firms with higher liquidation values. Both are characteristics of "traditional industries" characterized by low growth and high level of tangible assets in place. When renegotiation is costless, the degree of accounting conservatism becomes irrelevant and the first best liquidation is always achieved. These results call for more cross-sectional examinations on the role of accounting conservatism in debt contracts in empirical studies.

This paper investigates whether client importance affects auditor independence within the local offices of audit firms. Client importance is measured as the proportion of audit fees, non-audit service fees, or total fees that a distressed, public client contributes to the total public-client revenue earned by the individual audit offices. Auditor independence is measured as the auditor's propensity to issue a going-concern opinion. The paper focuses on changes in the relation between fee ratios and auditor reporting decisions from the pre-SOX (2001) to post-SOX (2003) period. In the pre-SOX period, I do not find statistically significant association between any of the fee ratios and the auditor's propensity to issue a going concern opinion. However, in the post-SOX period, I find evidence that higher audit fee and total fee ratios are positively associated with the auditor's propensity to issue a going concern opinion. That is, post-SOX, relatively more important clients are more likely to receive a going concern opinion. These results allay concerns that auditor independence is compromised for significant clients.

In this paper, a service department chooses a fixed/variable cost combination based on the forecasts of two operating departments. The operating departments then make service usage decisions, and the service department provides the level of service demanded. The allocation of fixed and variable service department costs is used to: (1) encourage efficient short term use of the service and (2) encourage accurate forecasting by the operating departments. Three approaches are used to achieve these objectives — incentive compatible allocations, a modified Soviet incentive scheme, and a Groves allocation scheme — and we discuss conditions under which these schemes are successful. Résumé. Dans cet article, un atelier de service retient une combinaison de coûts fixes/ variables fondée sur des prévisions de deux ateliers de fabrication. Par la suite, les ateliers de fabrication prennent des décisions relatives à leurs besoins de services, et l'atelier de service fournit le niveau de service exigé. La répartition des frais fixes et variables de l'atelier de service vise à: (1) favoriser une utilisation efficace de l'atelier de service à court terme et (2) favoriser l'élaboration de prévisions précises de la part des ateliers de fabrication. Trois approches sont utilisées pour atteindre ces objectifs — la compatibilité des répartitions et des mesures incitatives, un système incitatif soviétique modifié et un système de répartition de Groves — et nous examinons les conditions nécessaires au bon fonctionnement de ces systèmes.

A concentrated debt structure can facilitate creditor coordination, which reduces the financial distress cost in a liquidity default but also increases the risk of a strategic default. Debt concentration affects the sensitivity of leverage to tax through these two forces. We show that firms with a more concentrated debt structure are more responsive to state corporate income tax rate increases in increasing financial leverage, suggesting that when the tax rate increases, debt concentration's role in reducing the financial distress cost matters more. The impact of debt concentration on leverage is more pronounced when firms are subject to a high default risk, have low asset redeployability, or have a low liquidation value. Additional debt covenants can facilitate low debt concentration firms to increase leverage after tax rate increases. Our findings suggest that debt concentration is an important factor influencing the tax sensitivity of financial leverage.

We study the influence of perceived auditor quality on investment decisions by bond mutual fund investors. Audits of bond mutual funds require significant auditor expertise. Fund managers estimate daily the fair market values of holdings that are often opaque and illiquid. Managers can use their discretion to manipulate their fund's performance results. While it is known that investment flows into funds that report good past performance, little evidence exists about whether investors' confidence in the reliability of fund financial reports is influenced by auditor quality. Using hand‐collected data from SEC filings, we find that the positive association between reported performance and investment flows is stronger for funds with auditors who are industry specialists and are longer‐tenured, as well as for funds that pay higher audit fees. We do not find that auditor office size strengthens the association. We also find that the presence of industry‐specialist auditors, long‐tenured auditors, and higher audit fees lead to additional disclosure in the form of emphasis‐of‐matter. This study contributes to the streams of research investigating perceived audit quality, fund investment decisions, and auditing for financial services.

We examine the information asymmetry between local and nonlocal investors with a large dataset of stock message board postings. We document that abnormal relative postings of a firm, that is, unusual changes in the volume of postings from local versus nonlocal investors, capture locals' information advantage. This measure positively predicts firms' short‐term stock returns as well as those of peer firms in the same city. Sentiment analysis shows that posting activities primarily reflect good news, potentially due to social transmission bias and short‐sales constraints. We identify the information driving return predictability through content‐based analysis. Abnormal relative postings also lead analysts' forecast revisions. Overall, investors' interactions on social media contain valuable geography‐based private information.