Knowledge that Transforms

I study whether firms that receive targeted U.S. state‐level subsidies are more likely to subsequently engage in corporate misconduct. I find that firms are more likely to engage in misconduct in subsidizing states, but not in other states that they operate in, after receiving state subsidies. Using data on both federal and state enforcement actions, and exploiting the legal principle of dual sovereignty for identification, I show that this finding reflects an increase in the underlying rate of misconduct and that this increase is attributable to lenient state‐level misconduct enforcement. Collectively, my findings present evidence of an important consequence of targeted firm‐specific subsidies: nonfinancial misconduct that potentially could impact the very stakeholders subsidies are ostensibly intended to benefit.

We study the capital market effects of information centralization by exploiting the staggered implementation of digital storage and access platforms for regulated financial information (Officially Appointed Mechanisms, or OAMs) in the European Union. We find that the implementation of OAMs results in significant improvements in capital market liquidity, consistent with the notion that OAMs lower investors' processing costs. The findings are more pronounced when processing costs are high to begin with, that is, when firms (1) are small and receive low business press coverage and (2) have high levels of retail ownership. We then identify a mechanism through which centralization facilitates capital market effects: information spillovers. First, we find that liquidity improvements are larger when OAMs have features that easily allow investors to search for peer firm information. Second, liquidity improvements are larger for firms with a high share of industry peers operating on the same OAM and for firms with a high share of small, low‐coverage peers on that OAM. Third, around the annual report release dates of peer firms, focal‐firm liquidity improves and focal‐peer stock return synchronicity increases. Overall, our evidence suggests that, even in a modern information age, information centralization improves capital market liquidity and facilitates the acquisition and use of peer firm information.

We provide large‐sample evidence on whether U.S. publicly traded corporations use voluntary disclosures about their commitments to employee diversity opportunistically. We document significant discrepancies between companies' external stances on diversity, equity, and inclusion (DEI) and their hiring practices. Firms that discuss DEI excessively relative to their actual employee gender and racial diversity (“diversity washers”) obtain superior scores from environmental, social, and governance (ESG) rating organizations and attract more investment from institutional investors with an ESG focus. These outcomes occur even though diversity‐washing firms are more likely to incur discrimination violations and have negative human‐capital‐related news events. Our study provides evidence consistent with growing allegations of misleading statements from firms about their DEI initiatives and highlights the potential consequences of selective ESG disclosures.

We provide the first evidence that conflicts of interest arising from commercial ties lead to bias in environmental, social, and governance (ESG) ratings. Using the acquisitions of Vigeo Eiris and RobecoSAM by Moody's and S&P as shocks to the commercial ties between ESG rating agencies and their rated firms, we show that, after their acquisitions by the credit rating agencies (CRAs), ESG rating agencies issue higher ratings to existing paying clients of the CRAs. This effect is greater for firms that have more intensive business relationships with the CRAs, but weaker for firms with more transparent ESG disclosures or higher long‐term institutional ownership. The upwardly biased ESG ratings help client firms issue more green bonds and enable the CRAs to maintain credit rating business. Finally, the upwardly biased ESG ratings are less informative of future ESG news. Overall, the business incentives of rating providers appear to engender ESG rating bias.

We use an agency model to address the benefits and costs of transparency in a hierarchical organization in which the principal employs a manager entrusted with contracting authority and several workers, all under conditions of moral hazard. We define the principal's transparency choices as a decision to allow workers to observe their coworkers’ performances ( observability ) and as an investment in monitoring worker performance ( precision ). We find that whereas precision alleviates agency conflicts as expected, observability can exacerbate agency conflicts, especially if the manager's interests are misaligned sufficiently with those of the principal. Our results suggest several testable hypotheses including predictions that opaque performance measurement practices are well suited for small organizational units at lower hierarchical ranks, and in settings where the sensitivity‐precision of the available measures is low, workers’ performances are correlated positively, and managerial productivity is modest.

This paper reports the results of a field experiment investigating how attributes of carbon footprint information affect consumer choice in a large dining facility. Our hypotheses and research methods were preregistered via the Journal of Accounting Research ’s registration‐based editorial process. Manipulating the measurement units and visualizations of carbon footprint information on food labels, we quantify effects on consumers’ food choices. Treated consumers choose less carbon‐intensive dishes, reducing their food‐related carbon footprint by up to 9.2%, depending on the treatment. Effects are strongest for carbon footprint information expressed in monetary units (“environmental costs”) and color‐coded in the familiar traffic‐light scheme. A postexperimental survey shows that these effects obtain although few respondents self‐report concern for the environmental footprint of their meal choices. Our study contributes to the accounting literature by using an information‐processing framework to shed light on the information usage and decision‐making processes of an increasingly important user group of accounting information: consumers.

The Journal of Accounting Research is proud to recognize our top referees of the previous calendar year. The senior editors selected those named below for their “2022 Excellence in Refereeing” based on the quality and the number of reviews they had performed for the journal during the 2022 calendar year. We thank the referees for their invaluable services to the journal. Jannis Bischof, University of Mannheim Matthew Bloomfield, University of Pennsylvania Pietro Bonetti, IESE Business School Thomas Bourveau, Columbia University Mark Bradshaw, Boston College Matthias Breuer, Columbia University Jung Ho Choi, Stanford University Yiwei Dou, New York University Raphael Duguay, Yale University Travis Dyer, Brigham Young University Henry Eyring, Duke University Fabrizio Ferri, University of Miami Henry Friedman, University of California, Los Angeles Stephen Glaeser, University of North Carolina João Granja, University of Chicago Nicholas Guest, Cornell University Steven Kachelmeier, University of Texas, Austin John Kepler, Stanford University Sehwa Kim, Columbia University Ranjani Krishnan, Michigan State University Lian Fen Lee, Boston College Miao Liu, Boston College Yao Lu, Cornell University Daniele Macciocchi, University of Miami Charles McClure, University of Chicago Mihir Mehta, University of Michigan Maximilian Muhn, University of Chicago James Omartian, University of Michigan Gaizka Ormazabal, IESE Business School Hong Qu, Kennesaw State University Thomas Rauter, University of Chicago Delphine Samuels, University of Chicago Timothy Shields, Chapman University Nemit Shroff, MIT Lorien Stice-Lawrence, University of Southern California Stephen Stubben, University of Utah Andrew Sutherland, MIT Sorabh Tomar, Southern Methodist University Rahul Vashishtha, Duke University Felix Vetter, University of Mannheim Dushyantkumar Vyas, University of Toronto Charles Wang, Harvard Business School Clare Wang, University of Colorado, Boulder Edward Watts, Yale University TJ Wong, University of Southern California Gaoqing Zhang, University of Minnesota Frank Zhou, University of Pennsylvania Christina Zhu, University of Pennsylvania Luo Zuo, Cornell University

We study the economic impact of private equity (PE) investments on local governments, which are important corporate stakeholders. Examining over 11,000 deals and private firm data in Europe, we document that target firms' effective tax rates and total tax expenses decrease by 15% and 13% after PE deals. At the same time, target firms expand their capital expenditures and firm boundaries, but do not increase employment. Using administrative data on the public finances of German municipalities and exploiting the geographical and time‐series variation in PE deals, we document that PE activity is negatively associated with local governments' tax revenues and spending. This result is likely driven by reduced tax payments of PE portfolio firms, accompanied by only modest positive spillovers of PE investments on regional economic growth. Collectively, our findings suggest that corporate tax efficiency serves as a cost‐cutting channel in the PE sector and constrains the finances of local governments.

We examine the joint response to political uncertainty along two margins: changes in real activity and voluntary disclosure. We focus on within‐firm variation in exposure to ex ante competitive U.S. gubernatorial elections using data on preelection poll margins and firms’ state exposures. Despite real activity falling in the years leading up to a close election, we find that voluntary disclosure increases both in frequency and content, including mentions of risk in filings that reference states holding elections. Our tests use a decomposition of 8‐K filings into real activity and voluntary disclosure to address the endogenous complementarity between these two responses. These results hold when using alternative ex ante measures of political uncertainty based on term‐limited incumbents, historically competitive offices, or state legislature gridlock. Both effects of political uncertainty are stronger for firms in highly regulated industries and weaker for those least exposed to the local market, linking the real activity and disclosure responses to uncertainty.

We investigate ethnic minority and nonminority sell‐side analysts’ participation in public earnings conference calls. We find that minority analysts are underrepresented in conference call Q&A sessions, and minority analysts who do participate on the calls experience lower levels of prioritization than do nonminority analysts. Minority analysts’ lower participation rates are partially but not fully mediated by characteristics such as experience, work environment, and stock rating favorability. Additionally, firm and conference call fixed effects mediate approximately half the magnitude of lower minority participation rates. Extroverted minority analysts participate at higher rates, but the negative association between minority status and conference call participation is exacerbated when calls are more time constrained, when executive teams are less diverse, and when analysts are from less prestigious brokerage houses. Overall, we document the underrepresentation of minority analysts on earnings conference calls and provide evidence suggesting both analysts’ and managers’ choices influence minority analysts’ participation rates.