Knowledge that Transforms

The U.S. Supreme Court's 2010 decision in Citizens United v. Federal Election Commission deregulated campaign finance, enabling the rise of a new political action committee (the Super PAC) with broad freedom to raise and spend money. This led to an unprecedented surge in spending in primary and general elections. To evaluate the impact of Super PACs, I estimate a multistage model of political competition using data from U.S. Congressional elections between 2010 and 2020. I find that Super PAC spending by both sides prompts offsetting responses, resulting in limited net equilibrium effects. However, by amplifying the role of donors, Super PACs still have the potential to reshape the electoral landscape.

This paper explores the impact of information design on the auctioneer's revenue in the U.S. offshore oil/gas lease auctions where, post‐auction, the winner decides whether to explore the auctioned tract and must pay the government a royalty on its production value. I first document that there is a positive correlation between the exploration rate and publicly observed losing bids. This suggests that the winning bidder uses the rivals' bids to infer their private information about the tract's potential. I then characterize the equilibrium bidding strategy when the auctioneer designs and commits to how to reveal information on losing bids to the winning bidder. Counterfactual exercises reveal that alternative bid disclosure policies significantly improve auctioneer revenue.

Evidence from the laboratory and the field has uncovered both underreaction and overreaction to new information. We provide new experimental evidence on the underlying mechanisms of under‐ and overreaction by comparing how people make inferences and revise forecasts in the same information environment. Participants underreact to signals when inferring about underlying states, but overreact to the same signals when revising forecasts about future outcomes—a phenomenon we term “the inference‐forecast gap.” We show that this gap is largely driven by different simplifying heuristics used in the two tasks. Additional treatments suggest that the choice of heuristics is affected by the similarity between statistics in the information environment and the statistic elicited by the belief‐updating problem.

Despite the growing use of subjective performance incentives used in executive bonuses, empirical evidence on their effectiveness remains inconclusive. This study explores three aspects of subjective metrics in bonus plan design: their prevalence, the goals they target, and their impact on managerial behavior and firm outcomes. First, I document 53.8 percent of CEO bonus plans include at least one subjective performance measure, and among these plans, an average of 38.9 percent of total bonus weight is allocated to these measures. Using machine learning, I show subjective metrics target incentives related to employees, firm culture, and executive performance. Second, using the Tax Cuts and Jobs Act as a quasi-exogenous shock to contract design, I find firms increase the number and weight of subjective metrics by 22.9 percent and 10.4 percent, respectively. Finally, I find the increasing prevalence of subjective performance measures positively influences CEO effort, corporate culture, and innovation. Data Availability: The data used in this study are from public sources and available upon request.

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.

Addressing income inequality is crucial for ensuring equitable and prosperous societies. This study examines the impact of the local press on intrafirm pay disparity. By using recently mandated disclosures of CEO-worker pay ratios and analyzing the staggered shutdown of local newspapers, we find that within-firm pay disparity increases by 8.2 percent following local newspaper closures. Further analysis suggests that this post-closure increase in pay disparity ratio is unlikely to be driven by either CEO compensation or worker pay alone or underlying economic conditions but instead reflects reduced concerns over reputational damage. Overall, our findings are consistent with local newspapers’ playing an important role in disseminating CEO-worker pay ratios and amplifying their reputational effects, thereby shaping and monitoring within-firm pay disparity. Data Availability: Data used in this study are available from public sources identified in the paper.

We examine whether the adoption of the current expected credit losses (CECL) model, which incorporates forward-looking information in loan loss provisions (LLPs), enhances banks’ information production. Consistent with better information production, we document significant changes in both financial reporting and operational outcomes following CECL adoption. First, CECL banks’ LLPs become timelier and better reflect future local economic conditions. Second, CECL banks experience lower rates of loan defaults. These improvements are more pronounced among banks that invest more in CECL-related information systems and human capital, and are especially salient for larger banks. Our findings suggest that forward-looking accounting standards can enhance banks’ information environments.

Women continue to be underrepresented in corporate leadership positions. This article studies the role of social connections in women’s career advancement. We investigate whether access to a larger share of female peers in business school affects the gender gap in senior managerial positions. Merging administrative data from a top 10 U.S. business school with public LinkedIn profiles, we first document that female MBAs are 24% less likely than male MBAs to enter senior management within 15 years of graduation. Next we use the exogenous assignment of students into sections to show that a larger proportion of female MBA section peers increases the likelihood of entering senior management for women but not for men. This effect is driven by female-friendly firms, such as those with more generous maternity leave policies and greater work-schedule flexibility. A larger proportion of female MBA peers induces women to transition to these firms where they attain senior management roles. A survey of female MBA alumnae reveals three key mechanisms: (i) information sharing, especially related to gender-specific advice, (ii) higher ambitions and self-confidence, and (iii) increasing support from male MBA peers. These findings highlight the role of social connections in reducing the gender gap in senior management positions.