Knowledge that Transforms

We develop a framework for quantifying barriers to labor force participation (LFP) and entrepreneurship faced by women in India. We find substantial barriers to LFP, and higher costs of expanding businesses through hiring workers for women entrepreneurs. However, there is one area where female entrepreneurs have an advantage: the hiring of female workers. We show that this is not driven by the sectoral composition of female employment. Consistent with this pattern, policies promoting female entrepreneurship can significantly increase female LFP even without explicitly targeting female LFP. Counterfactual simulations indicate that removing all excess barriers faced by women entrepreneurs would substantially increase the fraction of female‐owned firms, female LFP, earnings, and generate substantial gains for the economy. These gains are due to higher LFP, higher real wages and profits, and reallocation: low productivity male‐owned firms previously sheltered from female competition are replaced by higher productivity female‐owned firms previously excluded from the economy.

In this paper, we investigate whether federal judge ideology, ceteris paribus, affects auditor litigation risk and auditor behavior. We find that auditors whose client firms are in jurisdictions dominated by liberal judges are more likely to be sued and make higher payouts to plaintiffs when sued. Furthermore, these client firms are more likely to receive going‐concern opinions and pay higher audit fees. Finally, we find no evidence that the quality of audited financial statements is affected by judge ideology. The evidence documented in this paper indicates that federal judge ideology affects auditor litigation risk and some aspects of auditor behavior.

This paper studies voluntary disclosures that firms have suspended, resumed, or completed their open market repurchase programs. Voluntary disclosures of repurchase status updates are common and value‐relevant. They also inform subsequent repurchase activities: voluntary disclosers are more likely to complete their repurchase programs and to initiate new repurchase programs than firms with undisclosed repurchase status changes. Moreover, firms that disclose repurchase suspensions experience larger returns to subsequent repurchase authorizations, consistent with a reward for establishing a reputation for transparency via voluntary bad news disclosure. Finally, exploiting a change in repurchase reporting requirements, we document that voluntary updates are less frequent when mandatory disclosure increases. An important exception, however, is when macroeconomic uncertainty is high, such as during the Great Recession and the COVID‐19 pandemic.

We study the role of segment disaggregation in equity‐based pay contracts in diversified firms. Disaggregated segment disclosures can improve the observability of managerial actions in internal capital markets and thus increase implicit incentives for managers to allocate resources as desired by shareholders, substituting for explicit incentives provided to CEOs. We use the adoption of Statement of Financial Accounting Standards No. 131 as an identification strategy and find that firms affected by this segment reporting mandate significantly decreased the provision of equity‐based incentives in the post‐adoption period, especially for firms with higher operating volatilities. This effect is also more pronounced for firms with weaker board monitoring in the pre‐adoption period but with stronger external monitoring in the post‐adoption period. Overall, our results suggest that disaggregated segment disclosures reduce the use of equity‐based pay contracts in diversified firms by enhancing the monitoring of managers.

This study investigates how using technologies that increase the perceived ease of information access, such as search engines, can affect investors' judgments. Relying on the “Google effect” theory, I predict that using a search engine to access financial information will lead to shallower processing of that information, causing earnings fixation. The results of three experiments support this prediction and the theoretical process. Specifically, investors who access financials via a search engine are less likely to react to the information in the income statement other than earnings compared to those who do not use a search engine. In addition, search condition investors are more likely to mention earnings in their investment reasoning and find earnings more influential than the control condition investors. Furthermore, search condition investors believe that information is more likely to be available in the future and are more likely to reopen the income statement. A second experiment shows that the knowledge that the information will be easily reaccessed increases investors' earnings fixation. Finally, a third experiment provides evidence that using a search engine reduces the depth of information processing. This study extends accounting research by showing that using technologies that increase the perceived ease of information access can reduce investors' processing depth and information acquisition.

Credit information sharing allows creditors to obtain borrowers' relevant credit information, and it can improve borrowers' investment outcomes that are funded by debt. Using reforms to European countries' public credit registries (PCRs) to capture mandated information sharing among creditors, we examine the impact of such sharing on firms' investment efficiency. We find that information sharing enhances firms' investment efficiency, which we measure by their investment‐ q sensitivity. This finding is consistent with credit information sharing enabling creditors to better screen borrowers to mitigate adverse selection and enhancing borrower discipline to avoid a bad credit record, which leads to the borrower making more efficient investments. We also document that the information sharing effect is more pronounced when firms rely more on debt financing, when the shared credit information is more accessible, when firms' information environment is more opaque, and when there is a greater information monopoly in the banking system. We offer supplementary evidence that the effect is also more salient when PCRs have characteristics that suggest more effective credit information sharing. Overall, our paper offers new insight into whether and how information sharing in credit markets enhances firms' investment efficiency. More broadly, it highlights how making more borrower information available to creditors can have important economic spillover effects on firm outcomes.

We analyze how bank sentiment affects bank liquidity hoarding, distinguishing unexplained beliefs of bank managers from fundamental‐based beliefs. We build a bank management sentiment measure from textual analysis of 10‐Ks and utilize a comprehensive bank liquidity hoarding measure. We find that negative bank sentiment increases liquidity hoarding not warranted by a bank's fundamental conditions or external circumstances. Further analysis confirms that our findings reflect bank volition rather than being driven solely by borrowers or depositors. We address endogeneity concerns using exogenous weather conditions as instruments. Overall, our findings suggest that bank sentiment can influence how much liquidity banks provide to the economy and financial system.

Classic disclosure theory suggests that investor uncertainty increases the probability of discretionary disclosure, while managerial uncertainty decreases this disclosure. Because R&D projects are inherently risky, R&D‐intensive firms face high managerial uncertainty as well as high investor uncertainty. This paper empirically examines how R&D intensity impacts the provision, horizon, and content of management earnings guidance. To address endogeneity concerns, state‐level R&D tax credits serve as an instrumental variable for R&D intensity. I find that high R&D firms do not provide less earnings guidance than low R&D firms. However, they issue more quarterly guidance but less annual guidance. This substitution strengthens when there is high managerial uncertainty about the success of R&D projects. Consistent with litigation risk leading to asymmetric disclosure incentives, the decrease in annual earnings guidance is concentrated in positive guidance. Overall, the results imply that firms modify the horizon and content of their earnings guidance by substituting long‐term positive guidance with short‐term guidance when managerial uncertainty discourages the issuance of the former.

Penalty contracts are commonly utilized in developing countries. Such contracts may be perceived as unfair, potentially reducing employee motivation and performance. We predict that adding a second‐chance provision , an opportunity to reverse a penalty for poor performance if subsequent performance improves, could improve the effectiveness of penalty contracts. In a quasi field experiment at a company with two manufacturing facilities in Taiwan, we treated one facility with a traditional‐penalty contract without a second‐chance provision and the other with a penalty contract with a second‐chance provision. We observe a significant difference in the two treatment effects, with employee performance decreasing significantly after the traditional‐penalty treatment but showing no decrease when a second‐chance provision was included. Further analysis reveals that this difference is mediated by employees' fairness perceptions. These results provide valuable insights to governments, nongovernmental organizations, and multinationals as they work together to improve the fairness of global compensation practices.

The firm‐level bullwhip effect is the amplification of demand uncertainty along a supply chain—that is, fluctuations in production (for manufacturing firms) or purchases from suppliers (for retailers or wholesalers) in a firm tend to be greater than its demand fluctuations. We predict that the bullwhip ratio (a proxy for the bullwhip effect) amplifies the relation between demand uncertainty and cost structure. We expect this amplifying effect because the bullwhip ratio determines the extent to which demand uncertainty translates into uncertainty in production or purchases, which, in turn, affects cost structure. Using data from public US firms over the 1990–2020 period, we find results consistent with our prediction. Specifically, we find that both the negative relation between demand uncertainty and cost elasticity in the manufacturing sector and the positive relation between the two in the retail/wholesale sectors are stronger for firms with higher bullwhip ratios. We contribute to the literature on cost structure by highlighting the important role of the bullwhip effect in cost structure decisions.