Knowledge that Transforms

Racial covenants in housing deeds were widely used in the United States during the early 20th century to segregate neighborhoods. In 1948, the Supreme Court decision in Shelley v. Kraemer made racial covenants unenforceable in court, stopping short of prohibiting them entirely. We surmise that even after losing their judicial enforceability, such covenants could have shaped segregation if they served as a focal point for coordination on an initial equilibrium in neighborhood formation, a context characterized by investment durability and path dependency. To test this hypothesis, we assemble novel parcel-level data on racial covenants and develop a quasi-experimental design that exploits delays between covenant execution and housing construction to isolate exposure to enforceable covenants at the time neighborhoods were built. Covenant enforceability indeed affected early-stage neighborhood formation in terms of housing characteristics, public infrastructure placement, and the composition of initial residents. These early differences proved durable: Enforceable covenants account for 6–24% of the observed neighborhood racial segregation from 1980 to 2020 and 3.1–4.4% of housing price differentials in the 21st century. We conclude that by coordinating beliefs and decisions during neighborhood formation, the law generated spatial inequality that has long outlived racial covenants themselves.

This paper contributes to a long-standing debate in the audit literature about the place of professional judgement within the constraints of the formal audit process. Responding to recent calls for deeper exploration, we examine how auditors exercise judgement when facing a practical challenge they perceive as novel, for which they are unable to easily deploy prior understandings and judgement scripts. Drawing on semi-structured interviews with practicing auditors and the Routine Dynamics (RD) perspective, emphasising patterns of routine action as having internal dynamics, we provide a nuanced account of how auditors progress from the position of relative epistemic obscurity to being comfortable enough to form a conclusion. Our findings show how auditors performed routines to establish social , temporal, and spatial relationalities within and beyond the present audit context, enabling them to nuance their interpretations and grow confident in their judgements. We reveal how auditor judgement is continuously present but fluctuates in intensity, depending on the auditors’ reflexive intent during individual routine performances, resulting in the augmentation or curtailment of opportunities for inference. We also show how auditors accrue comfort in their judgements in a progressive manner along a continuum, spanning from largely ritualistic performances to the more effortful, inferentially intensive ones that together shape how auditors grapple with novelty.

Companies increasingly disclose human capital initiatives, such as diversity, equity, and inclusion (DEI) and non-DEI initiatives. Yet, DEI initiatives have become a focal point of debate, raising questions about whether investors view them as appropriate uses of company resources. Across two experiments, we examine how nonprofessional investors perceive DEI versus non-DEI initiatives. Drawing on equity theory, we propose that investors' fairness-based perceptions of an initiative's appropriateness depend on their underlying preferences for what companies should prioritize, and that these perceptions influence their investment willingness. Experiment 1 finds that investors perceive DEI (versus non-DEI) initiatives as less appropriate, and this difference is exacerbated when investors are more shareholder-oriented than stakeholder-oriented. Furthermore, the mediating effect of perceived appropriateness on investment willingness is stronger when company financial performance is unfavorable than when it is favorable. Building on these findings, Experiment 2 tests a boundary condition of our theory by examining whether explicitly stating merit-based selection criteria attenuates shareholder-oriented investors' stronger negative perceptions of DEI initiatives. We find that when DEI initiatives are explicitly presented as merit-based, investors' negative perceptions of appropriateness of DEI (versus non-DEI) initiatives are attenuated, and the exacerbating moderating effect of shareholder (versus stakeholder) investor orientation also diminishes. Our findings demonstrate how investors' fairness-based perceptions of appropriateness can explain divergent responses to DEI disclosures, offering timely implications for companies and regulators concerned with human capital reporting.