ABSTRACT We investigate how activist short sellers (AShSs) expose publicly listed firms in an increasingly popular form of “research reports” openly denouncing alleged frauds, flawed business models, accounting irregularities, and wrongdoings. We focus on six AShSs that issued research reports that often led to a strong negative market reaction. Our empirical analysis exploits both qualitative and quantitative methods for a comprehensive data set of 383 research reports targeting 171 unique firms, and 3 firsthand interviews with AShSs. Drawing on Aristotle's rhetoric, we first examine how AShSs use narratives in striving to convince other investors that the target firms are overvalued. Specifically, we search the documents produced by AShSs for stylized narratives related to credibility‐based (ethos), emotions‐based (pathos), and logic‐based (logos) rhetorical strategies. To assess the impact of these strategies, we examine the extent to which the AShSs' rhetorical strategies resonate in 3,665 press articles. As expected, the press often refers to logos‐based arguments. Interestingly, the press also frequently brings up pathos‐based and ethos‐based statements. Considering the importance of the press in shaping investors' opinions, our study points to AShSs' narratives playing a major role in policing financial markets. Theoretically, we show that AShSs, as dissenting market participants, produce narratives that go beyond the language of formal rationality—as they strive to reveal new information and frame it persuasively, in order to destabilize the extent of trustworthiness surrounding target firms.

Abstract Using a sample of firms from France, where the law requires the use of two auditors, we study the effect of auditor pair composition on audit quality by examining a specific account, goodwill impairment. We document that firms audited by a Big 4–non‐Big 4 auditor pair ( BS ) are more likely to book an impairment and book a larger impairment than firms audited by a Big 4–Big 4 auditor pair ( BB ) when low‐performance indicators suggest a greater likelihood of impairment. Moreover, firms audited by a BB pair reduce impairment disclosures when they book impairments, while firms audited by a BS pair do not, suggesting lower transparency for firms audited by a BB pair. Our results inform investors and firms in mandatory joint audit regimes, as well as regulators who are considering requiring joint audits.

Abstract Finance theory suggests that the privileged information that traditional banks obtain about borrowers through monitoring creates opportunities for banks to impose informational hold-up costs on such borrowers. Because a surge in borrower risk increases banks’ hold-up power, banks with information monopoly should be able to increase their rates beyond the level explained by borrower risk alone. We test this theory using the setting of activist short sellers’ public allegations—a setting that increases borrower risk and restricts borrower access to public financing sources—and find, on average, that, after controlling for both ex ante and ex post changes in borrower credit risk, banks increase loan pricing following activist short sellers’ allegations. Our loan pricing results not explained by changes in borrower credit risk are consistent with banks extorting borrowers during times of adversity.

In 2021, a social movement rallying retail investors unexpectedly shocked Wall Street, forcing a prominent multi-billion-dollar hedge fund to shut down one year later, after incurring massive financial losses. Social movements in financial markets have significantly developed in the wake of the 2007–09 financial crisis, resulting in the emergence of various collective actions. We analyze one recent example of such action undertaken by the r/WallStreetBets (WSB) community on Reddit, which disrupted the stock prices of several “meme stocks” (e.g., GameStop) by disseminating influential investment narratives. We analyze the 150 most upvoted Due Diligence posts on WSB and interview eight members of its community. We find that a popular expertise in investment narratives emerged, developed, and was propagated on this digital platform. WSB authors' claim to popular expertise is made in a hybrid language combining traditional financial expertise with an accessible and entertaining writing style, complemented by references to pop culture. Our analysis brings out a growing resentment among retail investors about the unfairness of financial markets, and its role in mobilizing them for collective action that challenged the existing order of things. Yet this widespread resentment did not spontaneously translate into a meaningful, sustainable collective action initiative. Our thesis is that the development of popular expertise played an instrumental role in the formation of WSB's collective action initiative targeting several perceived investment opportunities.

ABSTRACT Evidence suggests that society still does not view whistleblowers as wholly legitimate—despite legal protections now offered in some jurisdictions, such as the United States. Drawing on a discourse analysis (i.e., an examination of statements), we investigate the well‐publicized stories of seven whistleblowers from 69 sources, including books, first‐ and second‐hand interviews, websites, and videos. Our focus is to examine how whistleblower discourses can build legitimacy by more tightly defining the whistleblower role and demonstrating its alignment with social norms. Using whistleblower self‐narratives, we identify four narrative patterns: (i) Trigger(s)—the event(s) leading to whistleblowing; (ii) Personality traits—whistleblower's morality, resourcefulness, and determination; (iii) Constraints—barriers requiring regulatory and organizational change; and (iv) Consequences—the longer term positive impact of the whistleblowing act. These patterns rely on symbolic, analogical, and metaphorical framing to allow others to better understand the role of whistleblowers and enlist their support. Exploring a data set of 1,621 press articles, we find indications that these narrative patterns resonate in the media—which provide a form of support and may be instrumental in legitimizing the whistleblower role. Grounded on these results, we develop a legitimacy construction model of the whistleblower role, that is, a representation of how role legitimacy is produced and sustained. From this model, we identify a number of important areas for future research.

ABSTRACT We examine whether the joint provision of corporate social responsibility (CSR) assurance services and financial audit by the same audit firm influences auditors' assessment of going‐concern risk. We predict that the provision of CSR assurance and financial audit by the same audit firm creates CSR‐related knowledge spillovers from the CSR assurance team to the financial audit engagement team, which helps in the auditor's assessment of going‐concern risk. Using more than 28,000 firm‐year observations from 55 countries, we document that, relative to audit firms that provide only the financial audit, audit firms that provide both CSR assurance and financial audit for the same client (i) issue more frequent going‐concern opinions and have lower Type II going‐concern errors, (ii) have clients that book larger environmental and litigation provisions, (iii) report earnings that are more persistent and value‐relevant and are less likely to book income‐decreasing earnings restatements, and (iv) do not charge higher audit fees or total fees. Our results are important especially because of firms' increasing exposure to CSR risks and the growing number of countries that require assurance of CSR reports.