Knowledge that Transforms

We examine the relation between mandatory environmental disclosure and corporate green innovation. Adopting a difference-in-differences research design, we find that the adoption of state-level greenhouse gas emissions disclosure mandates is associated with an increase in the quantity of patents related to climate change mitigation/adaptation technologies (i.e., “green innovations”). This increase is stronger among firms with more environmental investors, suggesting investor preferences influence this relation. We also document a positive association between these mandates and firms’ future environmental performance ratings, suggesting a positive externality. However, we find that these mandates are associated with a reduction in future financial performance for some firms, suggesting a potential negative effect on shareholder welfare. Collectively, our results provide new evidence on the real effects of mandatory environmental disclosure and the determinants of green innovation and contribute to the literature on the motivations for green innovation and the literature on corporate disclosure and investment decisions.

We examine the impact of auditors’ reputation impairments on their private-client market share to explore how conducting low-quality audits affects auditors’ broader client portfolios. Prior evidence implies that an audit office loses public-client market share after a client announces a restatement. However, auditors’ private clients may be less concerned about auditor reputation and quality, given that they have lower agency costs and their financial statement users are often creditors that can rely on direct monitoring to narrow information asymmetry. Also, differences between public and private company audits cast doubt on whether public-client restatements are relevant to private clients. We find that the private-client market share of a Big Four audit office falls by, on average, 5 percent the year after a public client announces a restatement. This evidence suggests that Big Four offices cannot simply replace lost public-client revenue with private-client revenue after suffering reputation damage.

Calls for greater transparency in PCAOB inspections have intensified amid persistent concerns about opacity and inconsistency. We integrate prior academic research with in-depth interviews from 29 former PCAOB inspectors to construct a detailed, phase-based account of the inspection process over global network firms. We organize insights into four sequential phases—hiring, training, and performance assessment; planning; execution; and resolution—and present structured taxonomies that combine the literature with novel, practice-based observations. The paper’s primary contribution lies in organizing fragmented research and insider perspectives into a framework that clarifies how inspections operate in practice and where further research is critical. This synthesis provides a structured foundation for researchers, practitioners, and regulators seeking to evaluate and strengthen audit oversight—at a time when the structure and independence of the PCAOB itself faces renewed political scrutiny.

Companies’ strategic alternatives announcements lead to negative future stock returns. First, we investigate whether this anomaly exists. We demonstrate that it is significant and pervasive across years, industries, firm size, and information environments and that it is not driven by confounding variables nor risk. We then investigate why the market misprices the announcements and find that investors appear overly optimistic about a potential merger or acquisition and do not fully incorporate the negative fundamental news conveyed by the announcement. Meanwhile, short sellers exploit the mispricing. We also evaluate market frictions as limits to arbitrage. This study’s contributions are (i) evaluating behavioral and risk explanations for an event that causes extreme stock returns, (ii) challenging investors’ widely held belief that such announcements reflect good news, and (iii) warning investors and analysts about a behavioral bias they might unknowingly adopt.

Recent years have witnessed significant growth in corporate sustainability reporting. Yet existing research provides mixed evidence on the information content of these reports for investors. We examine the stock market reaction to the announcement of a sample of US corporate sustainability reports incorporating Sustainability Accounting Standards Board metrics that are intended to provide financially material information to investors. Using standard measures of information content, we cannot find compelling evidence that these reports provide a significant amount of new information to investors. Further analysis of a subset of common metrics indicates that they are either financially immaterial or preempted by traditional financial disclosures. Finally, we show that most firms target their sustainability reports at a broad set of sustainability-oriented stakeholders rather than a narrow set of financially oriented investors.

U sing lenders who become members of the Task Force on Climate-Related Financial Disclosures (TCFD) as an exogenous shock, we examine whether and how lenders’ commitment to transparent climate-related disclosures affects borrowers’ environmental performance. We find that borrowers of TCFD-member lenders, relative to control firms, significantly improve their environmental performance after the TCFD launch. Lenders’ disclosure commitments influence borrowers through credit rationing and monitoring. Specifically, polluting borrowers face higher borrowing costs, reduced access to credit, and greater incorporation of environmental action covenants in loan agreements. Additionally, polluting borrowers of TCFD-member lenders experience heightened financial constraints. Finally, borrowers of TCFD-member lenders are more likely to adopt the TCFD framework for climate-related disclosure after the TCFD establishment. Together, these findings illuminate the role of lenders in driving corporate environmental performance improvement through their commitment to transparent climate-related disclosures.