Knowledge that Transforms

We find that banking relationships built through institutional cross‐ownership influence the granting of loans as well as loan contract terms. Firms that are newly added to institutional cross‐owners' portfolios are more likely to borrow from banks that previously issued loans to other firms within the same portfolio. These related banks charge lower loan interest spreads and offer greater loan amounts than other banks issuing loans to the same borrower. However, such loans also are more likely to include capital covenants in the presence of high shareholder–debtholder conflicts. Thus, lenders appear to value the benefits of common institutional ownership while still protecting themselves against potential risk shifting. The interest spread effect is stronger for borrowers with high information asymmetry, low accounting quality, more financial distress risk, and dedicated institutional common owners. These results are consistent with either direct information flows or indirect signaling effects and are robust to different fixed effects specifications as well as to an identification strategy that exploits common ownership stemming from financial institution mergers. Overall, our study provides evidence that investor networks play a beneficial role in the production and dissemination of contracting‐relevant information and highlights cross‐ownership as a favorable determinant for contracting efficiency beyond traditional accounting measures.

Whereas prior studies primarily examine how environmental shocks affect manufacturing, distribution, and supply chains, we examine a distinct and understudied channel: the effect of wildfire smoke on human capital operating from firm headquarters. Using satellite‐based smoke plume measures, we show that wildfire smoke exposure in a firm's headquarters county is associated with lower operating income, with effects strengthening as smoke becomes more frequent and severe. Exposure is associated with increased employee health concerns, higher employee turnover, and shorter tenure. The negative association is stronger for firms that rely more heavily on skilled employees, and it is concentrated in higher operating costs. Collectively, these findings are consistent with wildfire smoke impairing workforce stability and productivity. Our study points to the need for enhanced climate‐risk and human‐capital disclosures. It also informs HR managers' planning for absenteeism and employee well‐being, and helps investors, audit committees, and auditors better assess smoke‐related operating risks.

We examine the adoption of expanded audit reports that include key audit matters (KAMs) in Hong Kong (2016) and mainland China (2017). These jurisdictions are highly integrated and together constitute one of the largest economies to adopt the IAASB's reporting standards in a staggered fashion, while also differing in investor protection and legal enforcement. Using matched samples, pre‐post tests, and staggered difference‐in‐differences analyses with company fixed effects, we do not find compelling evidence that expanded audit reports affect market reactions or audit quality. These findings suggest a substantial gap between regulatory intent and implementation—on average, in these markets, KAMs do not appear to meet investors' demand for incremental information or to improve audit quality substantially. At the same time, our cross‐sectional evidence on KAM characteristics is more nuanced. A higher number of KAMs and the presence of novel or transaction‐specific KAMs are associated with stronger pricing of fundamentals, consistent with investors perceiving the related financial statements as better vetted. Yet a higher number of KAMs and novel KAMs are also associated with lower profitability persistence, consistent with these disclosures reflecting company risk and volatility. In contrast, industry‐common KAMs appear less relevant for valuation, consistent with investors discounting routine disclosures, even though they are associated with more persistent performance likely reflecting more stable industry conditions. Overall, our evidence suggests that mandating expanded audit reports alone may be of limited value, whereas better tailored KAM disclosures may still serve as signals of firm fundamentals and future performance.

We examine the impact of abortion restrictions on the geographic mobility of college‐educated skilled women. Exploiting the staggered adoption of Targeted Regulation of Abortion Providers (TRAP) laws across US states that restrict women's access to abortion, we find that skilled women who relocate exhibit a greater propensity to move to states without TRAP laws (non‐TRAP states) than they did prior to the TRAP law adoption. This pattern is stronger among women in more liberal and less religious areas than among women in more conservative and more religious areas. These findings are consistent with the view that relocation decisions are often driven by the alignment between personal values and the local policy environment. We use the audit industry as a specific setting to address the implications for employer performance. We find that TRAP law adoption increases female auditor turnover at local offices relative to same‐firm offices in non‐TRAP states, and the resulting loss of human capital lowers audit quality.

This study evaluates the auditing profession's diversity outcomes by comparing diversity along the university to job pipeline for auditing and other comparison disciplines. My tests show consistently anomalous outcomes for Black people in the audit labor pipeline, and therefore, I focus the study on them. I find that, among college freshmen planning to major in accounting, Black college freshmen are significantly overrepresented relative to freshmen planning to major in other business disciplines or nonbusiness disciplines. I find evidence of Black underrepresentation in the audit labor pipeline at every subsequent point: among accounting bachelor's and master's degree recipients, in the audit firm recruiting process, and among young professional auditors. My evidence of especially sharp Black attrition from accounting degree programs is, to my knowledge, novel. Although I lack sufficient data to pinpoint the mechanisms causing this sharp Black attrition from accounting degree programs, my findings are inconsistent with the popular theory that Black college students are distinctively uninterested in pursuing accounting education. It is not yet possible to make well‐targeted and data‐driven policy prescriptions to counter Black attrition from accounting degree programs because its causes are not well understood. Universities could contribute to the diagnosis process by systematically collecting and distributing data characterizing when and why students select away from accounting. My findings on audit firm recruiting are inconsistent with popular theories that Black underrepresentation in audit firms is attributable to overtly racially biased recruiters or lower interest among Black accounting graduates in pursuing careers in audit firms. Rather, my findings conform best with unintentionally biased recruiting by audit firms, which appear to make recruiting investments using outdated definitions of school quality. My evidence suggests that campus‐recruiting leaders within audit firms have the opportunity to hire more Black auditors without reducing the quality of the schools from which they recruit.

RÉSUMÉ L'étude publiée par Ball et Brown en 1968 (ci‐après « BB68 ») est principalement reconnue pour son affirmation selon laquelle la comptabilité de l'époque était utile pour les investisseurs, s'inscrivant alors en contradiction avec la littérature comptable normative faisant office d'autorité. Or, une telle affirmation n'allait pas de soi. Notre manuscrit vise à mieux comprendre comment l'affirmation initialement proposée dans BB68 en est venue à s'imposer au sein d'une branche importante de la littérature académique en comptabilité, à savoir la recherche comptable « empirique » en économie financière. Ainsi, nous réalisons une étude historique mobilisant certains concepts issus de la « sociologie de la traduction » pour examiner l'envolée de la recherche comptable en économie financière qui s'est déployée au fil des différentes réinterprétations de la notion d'utilité, où l'on est passé de l'évaluation boursière à l'encadrement de clauses contractuelles, en passant par la découverte des anomalies de marché. Nos analyses mettent en exergue, d'une part, le processus social entourant la naissance et le développement de la recherche comptable en économie financière et, d'autre part, la fragilité et le flou des prémisses sur lesquelles ce type de recherche s'est construit. Contrairement à la prétention selon laquelle la recherche comptable en économie financière s'est naturellement imposée en raison de sa supériorité sur le plan des connaissances, nous proposons que cette fragilité et ce flou, plutôt que de miner la crédibilité de ladite perspective, ont pu favoriser l'établissement d'un climat d'ambiguïté conceptuelle propice à sa prolifération. Cette ambiguïté s'articule sur deux plans : la mobilisation ambiguë de l'hypothèse de l'efficience des marchés et l'ambiguïté sémantique quant à la conception de l'utilité de l'information comptable. De façon plus générale, notre manuscrit alimente la discussion sur le cheminement des idées et le contrôle des frontières entourant certaines idées établies.

We empirically investigate the impact of financial analysts' integrity on their information outputs and career success. Using analysts' off‐the‐job behavior, specifically their legal records, to proxy for analyst integrity, we predict and find that weak‐integrity analysts engage more in opportunistic behaviors, including “speaking in two tongues” and earnings forecast walk‐down. These analysts obtain favorable management access and make more accurate earnings forecasts. Further analyses indicate that while the market as a whole does not distinguish weak‐integrity analysts from others, sophisticated investors discount their information outputs. Weak‐integrity analysts also experience less favorable career outcomes. Our results have important implications for investors, professional bodies, employers, and regulators.

With the widespread use of narrative feedback in companies, understanding how such feedback can be valuable for employee performance improvement is important. Drawing on proprietary data from an e‐commerce company, we investigate the role of specificity and causality—two key language characteristics for self‐regulation and learning. Our findings suggest that neither specificity nor causality is always beneficial; instead, their effects depend on whether the feedback refers to strengths or weaknesses. Specifically, employees are more likely to improve when they receive more specific narrative feedback on their strengths, consistent with employees engaging in more systematic exploration when feedback provides concrete references to desirable behaviors. In contrast, we find that increases in the specificity of narrative feedback on weaknesses can have negative performance consequences, as employees who are confronted with many specific examples of undesirable behaviors may attempt too many behavioral changes at once, undermining learning and improvement. Furthermore, employees are more likely to improve when feedback on their weaknesses uses more causal language, suggesting that explanations of why certain behaviors were ineffective help employees understand and correct those behaviors. Our study informs HR leaders, supervisors, and experts responsible for designing management control systems by showing that narrative feedback should be specific when describing strengths, but more selective and richer in causal explanations when addressing weaknesses.

Accounting standards require firms to distinguish recurring revenues and expenses from nonrecurring gains and losses, which are often referred to as special items. However, not all special items are genuinely nonrecurring. Exploiting the setting of earnings conference calls, we explore whether analysts can identify opportunistic special items, as evidenced by asking for more information about them. We find evidence that managers' discussions of special items more often relate to predicted special items, whereas analysts have more questions about potentially opportunistic special items. Managers adopt a relatively more negative tone and use more words when answering questions about potentially opportunistic special items. Finally, we find that analysts who question potentially opportunistic special items have fewer opportunities to speak in the subsequent call, consistent with managerial retaliation.

This study investigates the adoption and implications of Accounting Standards Codification (ASC) 842 lease accounting standards in private loan contracts. Analyzing a comprehensive sample of material loan contracts from 2011 to 2023, we document a pervasive reluctance to adopt ASC 842. Specifically, we find that for loans issued prior to, but maturing after, the standard effective date, only 41% of loans adopt the standard. For loans issued after the standard effective date, only 46% of loans adopt the standard. Our determinants analyses reveal that for loans issued prior to the effective date, the reluctance to adopt ASC 842 is associated with (1) a preference for using consistent lease classifications over time, (2) concerns about borrower opportunism, and (3) the costs of negotiating or renegotiating lease‐related loan terms within lending syndicates. In contrast, for loans issued after the effective date, only negotiation costs are associated with the reluctance to adopt. Our findings suggest that the costs of adopting ASC 842 in private loan contracts often outweigh the benefits and that contracting parties prefer a stable accounting standard environment.