We examine whether external assurance improves the quality of firms’ carbon accounting. We develop a measure of carbon accounting quality based on the deviation of reported emissions from a model-based expected level and supplement it with two survey-based measures. We show that assurance is associated with higher carbon accounting quality. This association is stronger when firms have weaker pre-existing carbon accounting systems and when assurance is more thorough. Consistent with assurance enhancing quality, assurance relates to the identification of issues in a firm’s carbon accounting system, along with fewer omissions and more revisions of prior disclosures. Exploiting mandated assurance for non-financial reporting in three E.U. countries, we show that firms experience post-regulation increases in carbon accounting quality. Together, the findings highlight the importance of assurance for reporting firms that are improving their carbon accounting quality.

We provide the first large-sample evidence on third-party verification of firms’ environmental and social metrics in ESG reports (ESG assurance) in the United States. Focusing on the S&P 500 from 2010–2020, we document a striking increase in not only the number of firms with ESG assurance—in 2020 (2010), 76% (38%) of the S&P 500 had an ESG report and 46% (16%) involved assurance—but also the number of metrics assured. Unlike financial audits, ESG assurance varies widely in form and substance, including the choice of metrics assured, the level of assurance, and assuror identity. We show that firms’ decision to obtain ESG assurance is primarily driven by their adoption of ESG reporting frameworks and peer effects, with firm characteristics documented in prior literature playing only a minor role. Assurance is associated with improvements in ESG disclosure, ESG ratings, and the number of institutional investors holding the firm’s stock.

Early empirical evidence showed a lack of relative performance evaluation (RPE) for executive pay, a surprise given its theoretical appeal. We hypothesize that executive pay transparency can enhance the monitoring of pay practices and increase RPE use. We examine RPE over the two decades centered on the 2006 executive pay disclosure reforms in the United States, which stakeholders—including shareholders, proxy advisors, and compensation consultants—could use to monitor pay plans. Firms that increase disclosures exhibit a significant increase in RPE after the reforms. To understand why, we examine and document that (i) stakeholder attention to pay practices increases after the reform, (ii) stakeholder attention positively relates to increases in RPE, and (iii) say-on-pay voting confirms shareholders’ preference for RPE. Overall, our findings are consistent with executive pay transparency increasing RPE due to enhanced pay monitoring across stakeholders.

We study how global changes in information acquisition costs through disclosure technologies affect price informativeness. To explore this issue, we examine worldwide adoptions of centralized electronic disclosure systems, which significantly reduce the cost of and broaden access to financial disclosures. Consistent with theory, we show a significant reduction in private information acquisition around earnings announcements as a result of these adoptions. These effects are most pronounced in countries with the most substantial reductions in information acquisition costs and where we find more significant decreases in informed trade. Overall, we highlight an important, unintended cost of broadening access to financial disclosures through technology adoptions.

We use a proprietary database with detailed, employee-specific compensation contract information for rank-and-file corporate accountants who are directly involved in the financial reporting process to assess their influence on their firms' financial reporting quality. Theory predicts that paying above-market wages can both attract employees with more human capital and subsequently encourage better performance. Consistent with audit committees structuring accountants' compensation to mitigate financial misreporting that might otherwise occur, we find that firms with relatively well-paid accountants tend to issue higher-quality financial reports. Moreover, this relationship is more pronounced when firms’ senior executives have stronger contractual incentives to misreport and when the audit committee is more independent from management.