Knowledge that Transforms

A significant challenge firms face is providing performance feedback that effectively motivates low‐performing employees. In our field experiment, we examine the impact of an often‐overlooked form of relative performance feedback (RPF) that emphasizes comparing employees based on their inputs. Our results indicate that input‐based RPF enhances the input performance of low performers without adversely affecting high performers. Furthermore, our field experiment demonstrates that selecting the right input—specifically, actions that employees can control and that are linked to outputs—can significantly boost low performers' contributions to a firm's overall output. Together, our findings support our prediction that input‐based RPF provides a viable strategy for low performers to narrow the performance gap with high performers by guiding them toward the crucial inputs that high performers use to generate output. Our study adds an important refinement to our understanding of how RPF promotes upward social comparison and facilitates social learning, offering insights for firms aiming to motivate low performers in their workforce.

Using industry restatement contagion as an external negative shock, we study the effectiveness of enterprise risk management (ERM) in mitigating downside risk and enhancing investor confidence. We find that ERM curbs overinvestment and earnings misstatement among firms when other firms in their industry engage in undisclosed misstatements that are subsequently restated. Following the announcements of these industry restatements, peers with ERM experience a smaller increase in implied volatility skewness. These effects are driven by peers with young CEOs, complex segment structures, low prior earnings performance, and in competitive industries. Overall, our findings highlight ERM's role in bolstering investor confidence by effectively managing firms' underlying risks.

In this study, we examine whether environmental, social, and governance (ESG) funds' investment decisions are sensitive to the existence and extent of firms' voluntary environmental disclosures. We create our measures of voluntary environmental disclosure using bigrams extracted from the Global Reporting Initiative standards. We provide robust evidence that voluntary environmental disclosure in conference calls is associated with greater ESG fund ownership in the subsequent period, incremental to firms' ESG ratings. We also provide evidence that fund managers' reliance on environmental disclosure is concentrated in water, waste, emissions, and compliance disclosures. ESG fund ownership increases with environmental disclosure that is more positive and specific. Our primary finding persists both when we rely on the sustainability report as an alternative proxy for environmental disclosure and when we use fund‐level tests. Overall, our evidence is consistent with ESG funds relying on firms' disclosures when making investing decisions and inconsistent with recent regulatory concerns that ESG fund managers are not following through on their stated investing strategies.

In this paper, I examine the effects of failed mergers and acquisitions (M&A) deals on firms' disclosure decisions. As a firm's detailed proprietary information is shared with the counterparty during an M&A deal, the value of the information is expected to decrease if the deal fails. As a result, it may become less costly for the firm to publicly disclose the information. Consistent with this reasoning, I find increased disclosure of proprietary information in the year after firms experience failed deals. Evidence from cross‐sectional tests and a quasi‐natural experiment strengthens this inference. I also show that investor information demand contributes to the increased disclosure of proprietary information after failed deals. In addition, consistent with an increase in proprietary information provided to investors, I find reduced information asymmetry after failed deals. Finally, I document diminished future performance among firms that increase the disclosure of proprietary information after failed deals. Overall, my study sheds light on how failed deals impact firms' disclosure decisions, information environment, and future performance.

This paper extends a familiar model of competition and disclosure to incorporate the practical feature that firms may not only hold private information about consumer demand, but they can also influence demand by the investments they make in improving product quality. Such investments can reflect installing new product features, improving durability, adding design enhancements, and the like. This paper demonstrates that investments stand to significantly influence the firm's preference for disclosures and, in fact, become a determining feature of disclosure choice. In particular, under Cournot competition, a firm prefers disclosure when the industry‐wide effects of information and investments are concordant. That is, if both product quality and demand information have large positive industry spillovers, disclosure is desirable because it promotes implicit cooperation in investments; if both have low spillover, disclosure permits a firm to convey strength to a rival and then use quantity and quality in concert to dominate the market precisely when the firm's demand is at its peak.

Academic research investigating the economic consequences of tax avoidance is almost always interested in the consequences of intentional, deliberate actions undertaken to reduce taxes relative to income. Therefore, it is crucial that such research distinguishes between intentional and incidental tax avoidance, since failure to do so can create endogeneity concerns and lead to incomplete and incorrect economic inferences. In this paper, we first develop a framework that conceptually defines and distinguishes between intentional and incidental tax avoidance. We highlight that the endogeneity problem arises because intentional tax avoidance is not directly observable. We consider two approaches to mitigating endogeneity concerns and apply these approaches by reexamining two influential studies that investigate the economic consequences of tax avoidance. We show how controlling for past accounting losses eliminates the effect of tax avoidance on credit spreads (Hasan et al. 2014, Journal of Financial Economics, 113 (1), 109–130) and how using an instrumental variables approach changes the sign of the relation between tax sheltering and stock price crash risk (Kim et al., 2011, Journal of Financial Economics, 100 (3), 639–662). Overall, our paper punctuates the importance of both (1) conceptually distinguishing between incidental and intentional tax avoidance and (2) econometrically addressing the challenges that arise when empirical differentiation between incidental and intentional tax avoidance is important to the research question.

The Sarbanes‐Oxley Act of 2002 mandates the PCAOB to enforce compliance with its audit standards fairly. However, the enforcement process is not sufficiently transparent for public evaluation of its fairness, prompting a call by a former Board member for transparency of the process and for improvement suggestions from the public. Further, academic evidence on the PCAOB enforcement is limited. We address this call and the gap in the literature by interviewing 33 difficult‐to‐access participants about the enforcement process: 20 sanctioned auditors and 13 former PCAOB enforcement staff members. Using procedural justice theory as a lens in evaluating our data, we conclude the enforcement process lacks fairness in key components. Both auditors and former enforcement staff express concerns that staff use overly damning one‐sided language in public orders, do not assess investor harm, and face incentives to sanction auditors, particularly small firms that cannot afford costly defense. We contribute to the literature on PCAOB enforcement by offering new insights into the enforcement process from firsthand perspectives of sanctioned auditors and former enforcement staff, deepening understanding of how enforcement practices align with the PCAOB's mandate for fair procedures. We also discuss process improvement suggestions from our participants and important future research opportunities.

Recent research into the uses of accounting as a technology of government has used Foucault's notion of “counter‐conduct” to shed light on various ways in which the governed can seek to alter the regimes to which they are subjected. This paper unpacks the notion of counter‐conduct further in order to develop a clearer conceptualization of how regimes of government can change over time, with or without clearly identifiable attempts by the governed to influence such changes. We develop our argument based on a longitudinal field study of sustainable waste management practices in a municipality in the English East Midlands. We track the municipality's attempts to become more sustainable in the context of an evolving central government performance management regime that went through a series of legislative and administrative iterations—namely, Best Value, Comprehensive Performance Assessment, and Comprehensive Area Assessment. We conceptualize these iterations of central performance management and the related changes in local government practices and technologies of governing as a series of overlapping “modes of governing” (Bulkeley et al., 2007, Environment and Planning A , 39 (11), 2733–2753). We suggest that accounting research can benefit from the notion of modes of governing because it sheds light on the theoretically expected, but empirically underresearched, copresence of multiple rationales, programs, and technologies of governing, all operating at the same time.

Many CEOs engage in activism by publicly expressing their views on social, environmental, and political issues, while other CEOs refrain from doing so—a behavior we term CEO inactivism. We use two experiments to examine how CEO (in)activism impacts investor decisions. Our results are consistent with our theoretical predictions. When a CEO expresses an activist position that is consistent versus inconsistent with investors' views, investors invest more in the CEO's firm because they perceive the CEO more positively. We also find that CEO inactivism can lead to investment decisions that are as favorable as when the CEO expresses a position consistent with investors' views; our process evidence suggests that this may occur because CEO inactivism increases the likelihood that investors believe the CEO shares their position on a social issue. Finally, we do not find evidence that investor decisions are influenced by whether CEO (in)activism is in response to an external prompt. This study contributes to the emerging literature on CEO activism, a unique form of voluntary disclosure, by providing evidence about how CEO (in)activism influences investors. We also contribute to the literature examining the impact of social media disclosure on investor decisions. Finally, our findings have practical implications for CEOs, who increasingly face external pressures to engage in activism.