ABSTRACT The government requires its suppliers to have certain internal information processes to reduce uncertainty about their ability to fulfill their commitments. I argue that these requirements improve suppliers' internal information, which leads to better external reporting. Using a dataset of U.S. government contracts, I find a positive relation between government contract awards and firms' external reporting quality. Consistent with procurement-related requirements driving this relation, I find that firms improve their external reporting when they begin contracting with the government, and that the magnitude of the improvement varies predictably with contract characteristics imposing greater requirements on contractors' internal information processes. Finally, I use the establishment of the Cost Accounting Standards Board in 1970 as a shock to contractors' internal information requirements, and find greater improvements in external reporting among firms subject to the CASB. Overall, these results suggest that the government as a customer contributes to shaping firms' information environments.

A growing literature documents that complex financial statements negatively affect the information environment. In this paper, we examine whether managers use voluntary disclosure to mitigate these negative effects. Employing cross-sectional and within-firm designs, we find a robust positive relation between financial statement complexity and voluntary disclosure. This relation is stronger when liquidity decreases around the filing of the financial statements, is stronger when firms have more outside monitors, and is weaker when firms have poor performance and greater earnings management. We also examine the relation between financial statement complexity and voluntary disclosure using two quasi-natural experiments. Employing a generalized difference-in-differences design, we find firms affected by the adoption of complex accounting standards (e.g., SFAS 133 and SFAS 157) increase their voluntary disclosure to a greater extent than unaffected firms. Collectively, these findings suggest managers use voluntary disclosure to mitigate the negative effects of complex financial statements on the information environment.

ABSTRACT We examine how open procurement data affect the competitiveness of award procedures and the execution of government contracts. The European Union recently made its historical procurement notices available for bulk download in a cohesive and user‐friendly database. Comparing government contracts above and below EU procurement size thresholds, we find that, after the open data initiative, procurement officials are more likely to award treated contracts through open bidding. In cross‐sectional analyses, we document variation in the open bidding effect consistent with two underlying mechanisms: (1) increased scrutiny by NGOs and investigative journalists and (2) learning by national procurement regulators. However, treated contracts are also more likely to experience costly modifications because the shift to open bidding introduces rigidity that limits officials’ discretion in selecting suppliers based on private information. Overall, our evidence indicates that open procurement data promote competitive bidding but lead to contracts with weaker execution performance. These inferences also hold in an alternative open data setting.

This paper examines how the ex ante level of public scrutiny influences a manager's subsequent decision to misreport. The conventional wisdom is that high levels of public scrutiny facilitate monitoring, suggesting a negative relation between scrutiny and misreporting. However, public scrutiny also increases the weight that investors place on earnings in valuing the firm. This in turn increases the benefit of misreporting, suggesting a positive relation. We formalize these two countervailing forces–“monitoring” and “valuation”–in the context of a parsimonious model of misreporting. We show that the combination of these two forces leads to a unimodal relation. Specifically, as the level of public scrutiny increases, misreporting first increases, reaches a peak, and then decreases. We find evidence of such a relation across multiple empirical measures of misreporting, multiple measures of public scrutiny, and multiple research designs.

ABSTRACT This paper examines how credit rating levels affect municipal debt issuers’ disclosure decisions. Using exogenous upgrades in credit rating levels caused by the recalibration of Moody's municipal ratings scale in 2010, we find that upgraded municipalities significantly reduce their disclosure of required continuing financial information, relative to unaffected municipalities. Consistent with a reduction in debtholders’ demand for information driving these results, the reduction in disclosure is greater when municipal bonds are held by investors who relied more on disclosure ex ante. However, we also find that the reduction in disclosure does not manifest when issuers are monitored by underwriters with greater issuer‐specific expertise and when issuers are subject to direct regulatory enforcement through the receipt of federal funding. Overall, our results suggest that higher credit rating levels lower investor demand for disclosure in the municipal market, and highlight the role of underwriters and direct regulatory enforcement in maintaining disclosure levels when investor demand is low.

This paper reviews the empirical methods used in the accounting literature to draw causal inferences. Recent years have seen a burgeoning growth in the use of methods that seek to exploit as-if random variation in observational settings—i.e., “quasi-experiments.” We provide a synthesis of the major assumptions of these methods, discuss several practical considerations relevant to the application of these methods in the accounting literature, and provide a framework for thinking about whether and when quasi-experimental and non-experimental methods are well-suited for addressing causal questions of interest to accounting researchers. While there is growing interest in addressing causal questions within the literature, we caution against the idea that one should restrict attention to only those causal questions for which there are quasi-experiments. We offer a complementary approach for addressing causal questions that does not rely on the availability of a quasi-experiment, but rather relies on a combination of economic theory, developing and falsifying alternative explanations, triangulating results across multiple settings, measures, and research designs, and caveating results where appropriate.

ABSTRACT We examine how the SEC’s 2014 Municipalities Continuing Disclosure Cooperation initiative (MCDC) affects disclosure compliance in the municipal bond market. The MCDC granted favorable settlement terms to municipal debt issuers and underwriters who voluntarily self-reported having violated SEC disclosure requirements. Although underwriters participated widely, most municipal issuers did not participate in the MCDC initiative despite having publicly observable disclosure violations. We find that, after the MCDC, official statements were less likely to contain false claims about past compliance—particularly when underwriters had participated—suggesting improved underwriter oversight of the initial bond offering. However, contrary to the SEC’s intention, we observe a 9 percent post-MCDC decrease in issuers’ compliance with continuing disclosure requirements compared with a control group of voluntarily disclosing issuers. Our findings provide no evidence that the MCDC improved continuing disclosure compliance; rather, the MCDC may have instead exacerbated noncompliance by exposing the weaknesses of the existing regulatory regime. JEL Classifications: G24; G28; H74; M40; M41.