Cybersecurity risk is a growing concern for public companies as economic activity increasingly relies on technology. Drawing on finance theory, which posits that lenders possess private information about borrowers, I hypothesize that lenders price cybersecurity risks into loan contracts. A priori, this relation is unclear, given the unpredictable nature of cybersecurity risk and the difficulty lenders face in assessing the likelihood and magnitude of associated losses. Using the private debt market, I find a positive association between cybersecurity risk and the cost of debt. This relation is weaker for borrowers with high-quality information technology and stronger in less competitive lending markets. I also find that, following successful cyberattacks, secondary market loan prices decline (increase) for borrowers with high (low) ex ante cybersecurity risk. Overall, these results suggest that, whereas the SEC’s newly adopted cybersecurity disclosures may provide decision-useful information to retail investors, they may be less relevant for certain stakeholders. Data Availability: Data are available from the public sources cited in the text.

The Dodd-Frank Act expands bank managers’ reporting requirements to federal agencies, particularly relating to banks’ financial losses should common market and macroeconomic shocks occur. To comply with this regulation, bank managers have engaged in consulting arrangements (referred to as regulatory consulting). We examine the financial reporting quality implications associated with hiring external auditors for these services. We find banks with auditor-provided regulatory consulting, relative to banks without, have higher financial reporting quality as measured by loan loss provision validity. Consistent with knowledge spillover benefits accruing to financial audit teams, we find more pronounced effects in the fourth versus interim quarters and more frequent income-reducing Y9-C restatements. We also find auditor responsiveness to PCAOB inspections improves the effectiveness of regulatory consulting. Overall, our results suggest regulatory consulting improves the audits of estimates in judgmental financial statement accounts, despite regulatory concerns that these services may impair auditor independence.

Studies find evidence that opportunistic reporting often accompanies fair value measurement. However, research has not determined whether the source of this opportunism is the estimate of fair value. Using detailed information on insurers' investment holdings, we separate the use of fair value measurement discretion from the application of non-measurement-related discretion in accounting for impairments of financial assets. Our evidence contradicts the view that fair value measurement discretion plays a large role in opportunistic avoidance of impairment recognition for investment securities. Instead, managers appear to avoid recording impairment losses by opportunistically applying subjective criteria regarding perceived loss persistence and intent to hold. Data Availability: Data are available from sources identified in the paper.

We examine the relation between the gender composition of audit teams and two important audit outcomes—audit quality and audit fees. We identify gender composition across auditor ranks with novel audit-office level data for 20 large U.S. public accounting firms from 2010 to 2018. We find engagements of audit offices with more female auditors are associated with higher audit quality and lower audit fees. We find the association between gender composition and audit outcomes is strongest at the staff level, and among audit seniors in particular. The results also strengthen in offices with more supportive workplace environments. Overall, our large-scale evidence provides important insights on the role of gender composition of audit teams.

This paper examines investors’ perceptions of auditor involvement in non‐GAAP reporting as captured by non‐GAAP disclosures in 10‐K filings. We find that firm‐years with auditor involvement in non‐GAAP reporting have higher CARs, lower bid–ask spreads, lower stock volatility, and lower abnormal trading volume on 10‐K filing dates. To sharpen identification of auditor involvement, we hand‐collect non‐GAAP measures and reconciliations for S&P 500 firms and identify which exclusions reconcile directly to the audited financial statements. As the percentage of exclusions that reconcile directly to the audited financial statements increases, bid–ask spreads and stock volatility on 10‐K filing dates decrease. We find that the results are not driven by strategic reporting or managers’ responses to perceived litigation risk. This study provides new insights into non‐GAAP disclosures outside of earnings announcements, which have been largely ignored in prior literature. Collectively, our results suggest investors value auditor involvement in non‐GAAP reporting and inform policymakers and standard setters considering the usefulness of assurance over non‐GAAP measures.

This study examines the impact of control systems on corporate innovation. Innovation is key to firm performance and growth, allowing corporations to stay competitive in their industry. We expect control systems to improve information flows within the firm by allowing managers to better identify and patent their most valuable intellectual property. Despite our prediction that control systems positively impact innovation, a priori, this relation is unclear as these same control systems may create an overly restrictive bureaucratic environment that may mitigate the benefits of effective controls for innovation. Using various measures of control system quality, we find evidence that effective control systems are associated with more innovation. Overall, the results of our study suggest effective control systems are associated with the ability of a firm to leverage its innovative projects. Our results suggest that corporations with effective control systems are more likely to be able to react to market and technology changes by ensuring their best ideas are patented.