We investigate the economic consequences of the Basel III requirement to include unrealized fair value gains and losses on available-for-sale (AFS) securities in regulatory capital. Using data for U.S. banks we find negative market reactions around news indicating an increased likelihood of this regulatory change being implemented, consistent with increased regulatory costs. We also find that banks affected by this regulation reduce their investment in risky AFS securities relative to unaffected banks. This result suggests that extending the use of fair values for regulatory purposes reduces ex ante risk taking.

We examine the relation between CEO risk taking equity incentives, as captured by CEO vega, and workplace misconduct. Workplace misconduct includes health and safety violations, non-compliance with labor laws, and other violations broadly related to labor exploitation, and it results in significant economic costs. Using regression analysis, matched sample tests, and a quasi-natural experiment, we find a positive relation between CEO vega and workplace misconduct. We identify a reduction in discretionary expenses and increased employee workload as channels through which CEO vega affects workplace misconduct.

Theories on contextual behavior (e.g., social norm, self-identity, and legitimacy theories) suggest that the religiosity of the geographical area in which an organization operates influences its behavior. Using a sample of 91,020 VC investments in the U.S., we study whether religiosity influences VC investment decisions. Based on prior literature that finds a positive relation between religiosity and risk aversion, we posit that VCs located in more religious counties make less risky investments. We find that VCs located in more religious areas are more likely to be involved in staging and syndication and have a greater propensity to invest in later and expansion stages of portfolio companies. Taken together, our results suggest that VCs located in religious counties tend to be more risk averse.

We examine the effect of private firm information dissemination on analysts’ forecast accuracy for public firms, utilizing the mandatory adoption of electronic business registers in EU countries as a (plausibly) exogenous shock. Our findings reveal a significant improvement in analysts’ earnings forecast accuracy following the registers’ implementation that enhanced private firms’ information dissemination, indicating positive information spillovers to public firms. This effect strengthens (i) when private firm disclosures are timelier within the context of the focal public firm’s fiscal year and (ii) when the focal public firm has private firm suppliers, customers, or competitors. However, increased transparency of private firms also reduces analysts’ incentives to cover public firms, as investor attention shifts from public to private firms. This countervailing force negatively impacts analyst forecast accuracy, partially offsetting the positive effects from information spillovers.

Mafia firms introduce distortions in the markets in which they operate, increasing the cost of doing business for peer firms. We investigate whether peers respond by increasing their tax avoidance and thus increasing funds available to compete with the Mafia firms. Using a sample of Italian anti‐Mafia police actions that resulted in the removal of Mafia firms and a difference‐in‐differences approach, we find that peers reduce their tax avoidance following these actions. We further show that, following anti‐Mafia police actions, peer firms improve their performance and increase capital investment while enjoying a reduction in the cost of raw materials. Overall, our results highlight the microlevel channels through which Mafia can affect firm outcomes and local economies.

We predict that a firm's greater accounting comparability with its industry peers facilitates its learning from those peer firms' research and development (R&D) investments, allowing that firm to have greater innovative efficiency. We estimate accounting comparability using pro forma capitalized R&D earnings that link lagged R&D expenditures to future profitability employing the Almon (1965) distributed lag model. We find that greater accounting comparability leads to enhanced ability to predict future cash flows generated by R&D investments of peer firms. In the cross-section, we observe that the relation between accounting comparability and innovative efficiency is stronger if peer firms exhibit higher accounting (accrual) quality and are themselves successful innovators. In sum, this study shows that a shared qualitative characteristic of accounting, namely, accounting comparability, is positively associated with innovative efficiency.