Knowledge that Transforms

Despite private access to managers, issuer-paid credit rating agencies (CRAs) are often criticized for failing to promptly reflect material negative private information in their ratings and being ineffective corporate watchdogs. We utilize a novel dataset of private SEC investigations to examine the timeliness and informativeness of CRAs’ rating adjustments in response to material negative private information. Our evidence suggests that CRAs adjust ratings downward within a quarter following the opening of an SEC investigation. Moreover, these adjustments are over three times larger for those investigations that ultimately yield an enforcement action than for those that do not, suggesting that CRAs quickly form sophisticated expectations about the materiality of the private information. Additionally, rating downgrades during the investigations are more informative to the stock market than other rating downgrades. Overall, our evidence suggests that CRAs reduce information asymmetry in the capital markets by timely incorporating material private information in their ratings. Data Availability: All data are available from the sources cited in the text.

Employees’ skill development is key to organizations’ competitiveness in a global, knowledge-based economy. Prior research in accounting, however, has mainly focused on motivating the provision of transitory effort. This study investigates how relative performance information (RPI) as a management control influences employees’ willingness to engage in skill development and whether the effect of RPI depends on whether employees face a tradeoff between training and current work performance. We predict and find that RPI increases the likelihood of taking training when a work-training tradeoff is absent but decreases it when a work-training tradeoff is present. We also predict and find RPI increases employee performance when a work-training tradeoff is absent and the effect is less positive (and directionally negative) when a work-training tradeoff is present. Our paper is an important first step in investigating how management controls interfere with employees’ investment in skill development and its tradeoff with transitory effort provision. Data Availability: Data are available upon request.

We examine the impact of reducing information processing costs on U.S. state regulators who supervise mortgage companies. State regulators traditionally disclosed enforcement actions only on their individual websites. A centralized repository, introduced in 2012, assembled enforcement records across states in one place, reducing a regulator’s cost to learn about enforcements in other states. Using a difference-in-differences design, we find that enforcement records posted on the centralized repository significantly increase the probability of subsequent enforcement actions against the same firm in other states. This suggests that reducing information processing costs helps state regulators identify companies engaging in misconduct. This effect is stronger for records from state websites where information is harder to process and for state regulators with more limited resources. Last, we observe that sanctioned lenders reduce the credit supply in other states after their enforcement records in one state are posted on the centralized repository.

We provide evidence that banks classify fixed-rate debt investment securities as held to maturity (HTM) rather than as available for sale (AFS) when HTM classification provides preferred financial accounting and regulatory capital treatments, not because they have a distinct economically motivated intent and ability to hold the securities to maturity. Specifically, we document predictably divergent security classifications by three categories of banks that differ in whether the regulatory accumulated other comprehensive income (AOCI) filter, which removes AOCI from Tier 1 capital, applies in four subperiods of our 2012–2022 sample period. The boundaries of the subperiods reflect changes in the AOCI filter’s applicability in 2014 and 2019 and the sharp rise in interest rates beginning in late 2021. We further find that the bank categories differ in the interest rate risk of their AFS securities and the extents to which they economically hedge that risk using derivatives and uninsured deposits.

This paper examines lending effects of European banks switching to an expected credit loss (ECL) model under IFRS 9. I find evidence that ECL transition deteriorates the credit landscape for SMEs—as risky, opaque, and bank-dependent borrowers. Post-ECL, affected banks reduced SME lending by over 10 percent, and these effects persisted during the most recent downturn during the COVID-19 pandemic. Banks’ financial reporting objectives and implementation difficulties seem to explain these findings. Additional tests at the borrower and loan-contract levels indicate rising loan rejection rates, interest spreads, and collateral requirements, as well as declining loan amounts, maturities, and subsequent capital investments, for SMEs that do business with affected banks.

The concept of materiality has acquired great significance in sustainability reporting. Through the theoretical bricolage of boundary objects and boundary work and drawing upon 91 interviews, we trace materiality’s evolving role across four interconnected episodes. Our findings show that materiality begins as a multivisionary object that draws the attention of largely unconnected groups. As different actors become more aware of each other, materiality becomes a meeting point object, and then a discursive and bridge-like object for them to talk about their relationships. However, the subsequent escalation of competitive boundary work turns materiality into a divisive institutional object that inhibits cooperation. Moving beyond a view of materiality as a way to distinguish significant information within corporate reports, our analysis fleshes out the visionary and relational roles that materiality has performed in sustainability reporting for a broad range of field-level actors to see themselves and their relationships to others in new lights.

This paper studies the value of a firm’s internal information when the firm faces an adverse selection problem arising from unobservable managerial abilities. Although more precise information allows the firm to make ex post more efficient investment decisions, noisier information has an ex ante screening effect that allows the firm to attract on-average better managers. The tradeoff between more effective screening of managers and more informed investment implies a nonmonotonic relationship between firm value and information quality. A marginal improvement in information quality does not necessarily lead to an overall improvement in firm value.

I study disclosure choices in job postings and the following tradeoff: detailed postings inform and attract optimal job applicants (labor market channel) but could simultaneously inform competitors in labor and product markets (proprietary costs channel). First, I provide evidence consistent with a proprietary costs channel. Conditional on a set of labor demand characteristics, private firms and redacting firms write shorter postings (i.e., less contextual specificity), and postings are more often anonymous in high-secrecy industries. Then, I exploit the implementation of federal trade secrecy protections as a shock to both innovation and opacity incentives to assess the balance between the two channels. After implementation, firms demand higher skill levels for innovative jobs, consistent with protections spurring innovation. However, contextual specificity decreases, in line with the proprietary costs channel, as protections are maximized when firms remain opaque regarding innovation. This decrease is attenuated in tight labor markets, consistent with the proposed tradeoff. Data Availability: Data used in this study are available from sources identified in the manuscript.

We present two experiments on the behavioral effects of prospective relative performance information (RPI) when facing multiple reference groups that differ in their implicit performance standard. In Study 1, employees are exogenously assigned to either a high- or low-standard reference group. Our results suggest that employees generally seek to enhance their sense of belonging by conforming to the standard. However, RPI boosts the performance of high-performers assigned to the low-standard group, whereas low-performers assigned to the high-standard group show decreased performance. This indicates that RPI may reinforce a sense of not belonging. In Study 2, where employees self-select their reference group, our results suggest that they generally sort themselves according to their sense of belonging. Anticipating RPI, however, can induce employees to select the high-standard group as a self-set target, spurring motivation. Overall, our studies shed more light on the costs and benefits of RPI and self-selection options. Data Availability: The full experimental instrument and data are available from the authors upon request.

This paper explores generational shifts in the professional identities of Chinese women accountants outside public accounting, focusing on how these shifts relate to changing gender and accounting norms within China’s evolving social, cultural and economic context. Through 30 in-depth interviews and generational theory, the findings suggest that older generations, beneficiaries of workplace access under communism, tend to ignore or adapt to gendered norms in the workplace, follow informal seniority and hierarchy rules, and embrace a “hard worker” identity. Conversely, younger generations, shaped by the one-child policy and participation in a global profession, appear to recognize and resist gender-related norms, view seniority rules as “redundant and bureaucratic,” and prioritize work-life balance. The study also reveals intergenerational dynamics, highlighting the ongoing struggles between women accountants’ social gender roles and professional identity. These insights offer a nuanced understanding of women in accounting, addressing gender in professional accounting settings in China and beyond.