Knowledge that Transforms

Key audit matters (KAMs) increase the salience of uncertainty surrounding the underlying accounts. We examine KAMs related to uncertain tax positions (UTPs), which highlight potential concerns to external stakeholders about uncertain tax planning activities such as multinational income shifting. Increased scrutiny may reduce the expected benefits of these strategies and discourage firms from pursuing them. Using KAM disclosures in the expanded audit reports, we find that group-level KAM disclosures are associated with a decline in multinational income shifting when the KAMs relate to UTPs. This relation is stronger when firms are financially unconstrained, when the institutional environment features strong tax enforcement, and when KAMs highlight specific risk statements and auditors provide explicit assurance. Overall, our findings reveal a novel and potentially unintended real effect of expanded audit reports: the salience of tax-related KAM disclosures influences multinational tax planning, highlighting broader consequences of this regulatory intervention. Data Availability: Data are available from the public sources cited in the text.

The Global Intangible Low-Taxed Income (GILTI) provision, enacted under the 2017 U.S. tax reform, aimed to deter profit shifting by U.S. multinational corporations (MNCs) but has raised concerns about unintended incentives to shift tangible investments abroad. Using an ex ante identification strategy based on public financial statements, we document that an average MNC increases foreign tangible investment by approximately $256.2 million relative to 2017 levels to minimize GILTI tax. Although this finding could raise concerns that firms are reducing domestic tangible investment for foreign expansion, we find no significant decline in domestic tangible investment. Furthermore, we find GILTI firms increase both foreign and domestic innovation, including capital-intensive technologies. The positive domestic innovation spillovers support the intended effect of the U.S. tax reform in boosting domestic economic growth. Our evidence reveals how international tax provisions, though aimed at curbing profit shifting, can simultaneously create unintended incentives.

Do commercial property taxes affect business microlocation decisions? Using precise geolocations for 2.8 million U.S. establishments, we employ a spatial discontinuity density design, comparing for-profit establishments to nonprofits, which are generally exempt from property taxes. Relative to nonprofit establishments, for-profit establishments disproportionately locate on the low-tax side of county borders. This effect strengthens with the size of the tax differential. At borders with differentials in the top decile (quartile), we estimate a 6–7 (5–6) percent shift in establishment location toward the low-tax side over a 10-km band. Businesses move from as far as 10 km away on the high-tax side but concentrate within 1 km on the low-tax side. Firms trade off tax savings with customer access: low-foot-traffic establishments respond more to tax differentials than high-foot-traffic ones. A survey of U.S. mayors finds that perceptions of property taxes’ importance for business location rise with cross-border tax differentials. Data Availability: Survey data are available upon request. All other data were obtained from publicly and commercially available sources described in the manuscript.

We examine the impact of loan officer changes on debt contract design. Loan officers face pressure to originate new loans, incentivizing them to offer loan terms that are more favorable than warranted by borrowers’ creditworthiness. Because a loan officer who replaces the originating loan officer is not subject to this loan prospecting pressure, we predict that she reverses the favorable discretion exercised at loan origination. Consistent with this prediction, we find that the first renegotiation following the replacement of the originating loan officer is associated with more unfavorable renegotiation outcomes. This effect is more pronounced when loan prospecting pressure at loan origination is greater—when the originating loan officer is less experienced, when the lead arranger faces tight performance benchmarks or lower income growth, and when credit market competition is more intense. Overall, we provide novel insights into how loan officer changes restore contracting efficiency through renegotiations. Data Availability: Syndicated loan data are from DealScan; borrower financial data are from Compustat and CRSP; bank financial data are from the Call Report and Compustat; loan agreements are from Morningstar, FactSet, and SEC filings; analyst data are from I/B/E/S; credit rating data are from S&P Global Ratings and the Mergent Fixed Income Securities Database (FISD); media coverage data are from RavenPack; covenant violation data are from Nini, Smith, and Sufi (2012); and loan officer employment histories were hand collected from LinkedIn.

We study how CEOs’ personal tax incentives shape their share pledging decisions and firms’ restrictions on the practice. Pledging shares entails using company stock as collateral for personal loans, enabling executives to obtain liquidity without making a taxable sale of appreciated shares. Using pledging data from 2006 to 2024, we find a robust positive relation between CEOs’ unrealized capital gains tax liabilities, or tax burdens, and share pledging. This relation is weaker when interest rates are high, consistent with CEOs’ trading off tax benefits against borrowing costs. After Institutional Shareholder Services discouraged share pledging in 2012, firms with high-tax-burden CEOs were slower to adopt antipledging policies and, when they did adopt, chose less restrictive policies. Firms that adopted strong antipledging policies subsequently increased CEO cash pay and stock awards. Our evidence suggests that share pledging helps executives manage personal tax lock-in and that firms consider this benefit when restricting pledging. Data Availability: Data are available from the public and subscription sources identified in the text, subject to applicable data-use restrictions.

Academic freedom is often equated with protection from political and economic interference. Authoritative definitions are broader. They combine protection from external interference, peer-based evaluation, and institutional arrangements for scholarly self-governance. Drawing on Honneth’s (2014) theory of democratic institutions, this paper develops the second and third elements and integrates all three within a recognition-theoretical framework that reconceptualizes academic freedom as social freedom. Using accounting as a case, we reconstruct two transformations that shape the discipline today: the theory revolution of the 1960s, which consolidated peer-based epistemic recognition, and the journal ranking revolution of the 1990s, which reorganized recognition around performance metrics and publication hierarchies. We show that academic freedom can be hollowed out from within without being formally revoked and argue that a discipline weakened from within is less able to resist external threats. Defending academic freedom requires attention to architectures of recognition through which scholarly worth and truth are organized.

This study explores the relation between a firm’s employment of managerial accountants and the efficiency of its investment decisions. To investigate this, we track the yearly employment levels of managerial accountants within firms and find a positive association with investment efficiency. This positive association persists after controlling for financial accountants and multiple measures of financial reporting quality, suggesting the effect operates through improved internal information. Cross-sectional tests show that the relation is concentrated in firms with greater internal information asymmetry and more complex overhead cost allocation. A staggered difference-in-differences (DiD) design exploiting state implementation of the 150 credit hour CPA rule further alleviates endogeneity concerns. Our study contributes to the investment efficiency literature and highlights an important benefit of employing managerial accountants. The findings are particularly relevant, given the recent shortage of accounting professionals. Data Availability: Data are available from public sources and third-party data providers.

We examine how the Big 4 responded to evolving partner qualification requirements in China. By 2017, at least 80 percent of the Big 4 partners were required to hold CICPA qualifications, a requirement that did not apply to local firms. Using data from a 14-year window around the reform, we document that the Big 4 expanded their partnership and primarily complied through internal promotion of locally licensed auditors, often into junior signing roles and serving new clients. Our analyses of audit outcomes yield mixed and time-varying evidence: although we observe relative increases in restatements in selected periods, the triangulated evidence does not suggest a pervasive deterioration in audit quality. However, we find a decline in the Big 4’s market share and audit fee premium. Overall, our findings shed light on how regulatory interventions targeting auditor qualifications reshape audit firms and market competition. Data Availability: Data are available from the public sources cited in the text.

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.

I examine how mandatory ESG disclosure regulations transmit to unregulated firms through ESG rating agencies’ peer benchmarking. Using the United Kingdom’s 2017 gender pay gap (GPG) disclosure mandate with its expected positive rating consequences for regulated U.K. firms, I show that unregulated firms with similar Refinitiv ESG ratings are significantly more likely to voluntarily disclose GPG information after the mandate. The effect is more pronounced when peers are defined by ESG rating similarity rather than market capitalization and is not driven by industry affiliation alone. Consistent with ESG ratings creating competitive pressures, spillovers are strongest when U.K. peers were initially lower ranked and when unregulated firms can report relatively better GPG performance. Further analyses show that these spillovers extend to other social disclosures and generalize to the European Union’s Non-Financial Reporting Directive. Overall, the paper highlights how ESG rating structures extend the reach of disclosure regulations beyond their formal scope. Data Availability: Data are available from the public sources cited in the text.