ABSTRACT This paper presents a costly voluntary disclosure model in which the information quality of a signal about a firm’s future cash flow is unknown, where the information quality, also called signal quality, refers to signal precision. Disclosure plays a dual role in firm valuation, providing information about both the cash flow and signal quality. We identify a necessary and sufficient condition under which the firm price under disclosure is a nonmonotonic and bounded function of the signal. Under this condition, as the disclosure cost increases, the equilibrium changes from an intermediate pool of undisclosed signals to a low-end pool of undisclosed signals, to two disjoint pools of undisclosed signals, and finally to no disclosure. Our results remain qualitatively unchanged when the firm may or may not have private information. Overall, this study offers alternative explanations for the empirical findings of why some firms disclose (withhold) seemingly bad (good) news. JEL Classifications: D61; G14; M41.

Conventional wisdom suggests that audit engagement partner name disclosure benefits investors by informing them about the partners' performance. However, such public disclosure of the identity of the audit partners may also intensify competition for audit talent in the labor market. To examine the economic consequences of audit partner identification, we build a two‐period model in which an audit firm matches partners to clients. The audit partner identification broadens a partner's outside options in the labor market, making talent retention more costly. If the talent‐retention cost is substantial, audit partner identification may cause an audit firm to adjust its partners' compensation packages and mismatch the partners and clients, which may lead to lower audit quality. Overall, we identify unintended consequences of audit partner identification by examining its impact on the audit labor market, and we provide economic reasons for the mixed empirical findings.

ABSTRACT Technological advances are reshaping the business landscape, yet their use in financial reporting has been slow. We develop a model in which auditors and companies make technology investment decisions and examine their impact on audit fees and outcomes. Our analysis shows that auditors and companies may fail to invest in mutually beneficial technology that would enhance audit quality, resulting in coordination failure. We also demonstrate how legal liability, client business risk, and auditor pricing power affect the conditions under which such coordination failure occurs. Furthermore, technology investments can either increase or decrease audit fees. When companies can choose among projects with varying risk levels, technology investments can increase audit failure risk while improving welfare by enabling them to pursue riskier but more profitable projects. Our results provide a rationale for regulatory intervention to facilitate technology investments in the financial reporting environment and offer empirical predictions. JEL Classifications: M41; M42; M48.