The US Department of Justice's increasing use of deferred prosecution and non‐prosecution agreements (D/NPAs) over the past two decades has sparked debate about their merits compared with traditional plea deals, which often result in criminal convictions. This study examines the factors influencing prosecutors' decisions to use D/NPAs in disciplining firms for corporate misconduct. We analyze whether the likelihood of a firm's future misconduct varies by the type of discipline imposed, comparing the effectiveness of D/NPAs to traditional prosecution. Our findings reveal that prosecutors are more likely to employ D/NPAs with firms when a criminal conviction could cause significant economic harm to stakeholders. However, firms subject to D/NPAs are more likely to commit subsequent violations compared with those entering plea deals. As D/NPAs gain traction in the United States and internationally, our research highlights a trade‐off: while D/NPAs mitigate harm to innocent stakeholders, they are less effective at deterring future misconduct than traditional prosecutions.

We examine whether managerial sentiment is associated with errors in accrual estimates. Using public banks we find (1) managerial sentiment is negatively associated with loan loss provision estimates, (2) future charge-offs per dollar of provision are positively associated with sentiment when the provision is estimated, and (3) the effects of sentiment are greater for firms with more uncertain charge-offs. Results are similar for private banks, suggesting accrual manipulation related to capital market incentives is unlikely to explain the results. Although economic fundamentals explain most of the variation in the provision, we find sentiment has an incremental and economically meaningful effect.

We consider the dynamics of analyst inattention by investigating how analysts allocate their attention when a firm in their portfolio experiences CEO turnover. Our analysis shows that analysts tend to divert their attention toward firms that experience such events, resulting in less attention and a corresponding reduction in forecasting accuracy for nonevent firms. Furthermore, this reduction in accuracy varies with factors related to the costs and benefits of rationally allocating attention to firms that have experienced CEO turnover. Collectively, our analysis responds to the call for research on rational inattention among analysts and illustrates the specific intraportfolio events that alter attention allocation and information.