ABSTRACT What incentives drive managers to disclose immediately when they have an option to delay disclosures? I examine this question in a two‐period setting in which public news that is positively correlated with firm value arrives periodically. I show that, when the manager's likelihood of receiving information is independent of the public news, an informed manager is more likely to disclose immediately when the public news is good. This happens even as the disclosure threshold itself increases in the public news. My model provides a potential explanation for why managers have a higher propensity to provide earnings forecasts when current earnings are high. I also show that, even when disclosures are credible, the average price reaction to a voluntary disclosure is (i) decreasing in the magnitude of the public news and (ii) lower when the manager is more myopic. These results have potential implications for studies that use stock returns to measure the news contained in management disclosures.

ABSTRACT This article studies how the mandatory disclosure of audit risk and targeted regulatory inspections influence audit quality. We develop a model in which the auditor tests a firm's internal control over financial reporting before auditing the financial report and must issue an opinion on both. Due to higher regulatory scrutiny received by audits with weak internal control opinions, we show that targeted inspections generate countervailing effects: they reduce the auditor's internal control audit effort while increasing substantive testing effort. We show that a positive level of targeted inspections can improve audit quality when the level of random inspections is high. Furthermore, we show that targeted inspections are not always consistent with risk‐based inspections, due to the auditor's strategic response to the oversight measures. Nevertheless, such targeting can still result in higher audit quality. Our results suggest the need to exercise caution when using audit risk disclosures as a basis for enforcement.

ABSTRACT This study advances our understanding of firms’ incentives to disclose aggregate information. In standard product and supply market settings, firms prefer to either provide detailed information or make no disclosure at all. However, this paper shows that the confluence of product market competition and supply market investments creates a distinct ex ante preference for aggregate disclosures. Firm disclosures encourage supply market investments. Supply market decisions are made at the firm level rather than at the product level, implying that aggregate disclosures are sufficient for the supplier’s decisions while simultaneously obfuscating information from rivals. The results highlight how the divergent informational needs of external parties shape firms’ disclosure decisions. Specifically, our analysis shows that when supplier investments are critical and information is industry-specific, firms prefer aggregate disclosures. This preference persists even in industries characterized by private communication between firms and suppliers: aggregation emerges in both public disclosures and private communications. JEL Classifications: D43; D82; L13; M41.

ABSTRACT This paper develops an economic model of how subjectivity in accounting estimates affects a manager's reporting behavior and auditors' subsequent information aggregation decision. In our model, the auditor receives a potentially manipulated report from the manager and uses an additional, albeit less precise, estimate to verify the report. We show, perhaps surprisingly, that as subjectivity increases, the auditor puts more weight on the manager's report, but the manager manipulates her report less. The overall effect of subjectivity on audit precision and the expected bias in the audited report is nonmonotonic. We further analyze how subjectivity affects the manager's investment behavior and optimal compensation structure. By introducing the notion of subjectivity, our model provides novel insight and empirical implications on managerial reporting behavior, audit quality, and investment efficiency when involving accounting estimates.