Broker-dealers traditionally charge their clients for the provision of investment research with a composite fee that bundles payments for research with other variable fees, such as those for trade executions. Due to regulatory changes in Europe, US broker-dealers temporarily allowed some of their clients to pay an explicit fee for the provision of investment research. Drawing on the sunk cost literature, I examine how transaction cost unbundling influences investors’ reliance on investment research. Results from 16 experimental markets indicate that investors place greater weight on costly forecasts under a system of unbundled payments compared to bundled payments, but only if transaction costs are sufficiently high, which is consistent with the dynamics of a sunk cost fallacy. I find marginal evidence that the enhanced focus on the forecast further inhibits investors' learning, as reflected in a slower reduction of price errors over time. These results are important since investors worldwide are increasingly paying explicit charges for investment research, a trend reinforced by a recent SEC policy change.

Abstract This study investigates the joint effects of investor status and locus of attribution on investors' judgments of management credibility. We study these effects in the context of an adverse event disclosure. Building on social identity and ultimate attribution error theory, we predict and find that under external attribution, current investors perceive management as more credible than prospective investors do. In contrast, we predict and find that investor status does not affect perceived management credibility under internal attribution. We provide evidence supporting our theory that company identification explains these findings. In addition, we document that the differences in credibility are mainly driven by perceptions of management's trustworthiness, rather than competence. Moreover, our results indicate that these differences in credibility judgments affect earnings expectations, thus inducing disagreement among investors. Our findings have important practical implications, including that company identification can be an asset to companies and that communicating adverse events with an external attribution reduces perceived management credibility for prospective investors.

ABSTRACT The digital evolution in auditing has triggered a rapid shift in auditors' required skill sets, with audit firms heavily investing in and extolling advanced data analytics and artificial intelligence (AI) capabilities. However, this strong emphasis on newly required digital skills can lead many experienced auditors, who perceive these competencies as their weaker areas, to feel disaffirmed in their abilities. We predict and find, across two experiments, that auditors who feel disaffirmed in their digital skills more defensively discount specialist advice that places higher versus lower reliance on AI, but that an intervention in which auditors affirm their traditional audit skills mitigates this defensive reaction. Absent self‐affirmation, higher specialist reliance on AI results in auditors denigrating the competence and quality of advice that specialists provide. These findings suggest that disaffirmation escalates AI aversion, offering important insights into how audit firms can foster less defensive decision‐making in the rapidly evolving audit environment.