Knowledge that Transforms

This qualitative inquiry investigates how tax professionals understand aggressiveness in tax planning and how they position themselves on the spectrum of aggressiveness. Based on semi-structured interviews with 33 experienced Canadian tax professionals from top-10 accounting and law firms, we find that tax professionals understand aggressiveness through a web of inter-related considerations. These include creativity, complexity, legal ambiguity, and lucrativeness, associated with risks of tax audits , technical errors, disputes with tax authorities over legal interpretations, and reputational damage for the client, the tax professional, and their firm. These considerations and related risks are often a source of anxiety for tax professionals. Drawing on contemporary philosopher Charlie Kurth's distinction between “punishment anxiety” and “practical anxiety,” we identify an intricate interplay between these two forms of anxiety and a collective deliberation process involving clients and colleagues, each bringing their own risk-reward preferences, which shapes professionals' decisions of how aggressive they should be. The socio-affective conceptualization of aggressiveness that we propose in this study contributes to the tax literature by deepening our understanding of the elusive concept of tax aggressiveness. It also enriches the broader literature on accounting and finance professionals' emotions at work by documenting the analytical value of a nuanced understanding of anxiety. Furthermore, it advances the professional ethics literature by highlighting the moral significance of practical anxiety in professional judgment about risky, ethically sensitive issues.

Extreme work hours in professional service firms (PSFs) are often attributed to organizational control mechanisms such as time sheets, utilization targets, and performance evaluations. This paper introduces the concept of the entrainment cycle to explore how these controls foster professionals' compliance with extreme work patterns. The entrainment cycle explains how individuals become continuously synchronized with the collective rhythm of the organization. Drawing on 159 interviews with 81 professionals across two PSFs, the study explores how formal and normative controls synchronize individuals with the fast-paced organizational tempo. The findings reveal how bureaucratic and cultural entrainment mechanisms contribute to synchronization. Moreover, emotions and bodily responses play a critical role in making professionals internalize the organization's rhythms. Periods of synchronization trigger positive feedback loops in which heightened emotions and bodily responses reinforce individuals' attachment to work. These synchronized periods contrast with moments of desynchronization in which professionals experience negative feedback loops characterized by guilt, anxiety, and physical withdrawal symptoms. The bodily and emotional mechanisms this study reveals reinforce professionals' synchronization with collective rhythms, locking them into an entrainment cycle that perpetuates long hours and ever-intensifying work. This study offers new insights into how controls affect individuals and organizations in significant, far-reaching, and often unobtrusive ways.

In 2021, a social movement rallying retail investors unexpectedly shocked Wall Street, forcing a prominent multi-billion-dollar hedge fund to shut down one year later, after incurring massive financial losses. Social movements in financial markets have significantly developed in the wake of the 2007–09 financial crisis, resulting in the emergence of various collective actions. We analyze one recent example of such action undertaken by the r/WallStreetBets (WSB) community on Reddit, which disrupted the stock prices of several “meme stocks” (e.g., GameStop) by disseminating influential investment narratives. We analyze the 150 most upvoted Due Diligence posts on WSB and interview eight members of its community. We find that a popular expertise in investment narratives emerged, developed, and was propagated on this digital platform. WSB authors' claim to popular expertise is made in a hybrid language combining traditional financial expertise with an accessible and entertaining writing style, complemented by references to pop culture. Our analysis brings out a growing resentment among retail investors about the unfairness of financial markets, and its role in mobilizing them for collective action that challenged the existing order of things. Yet this widespread resentment did not spontaneously translate into a meaningful, sustainable collective action initiative. Our thesis is that the development of popular expertise played an instrumental role in the formation of WSB's collective action initiative targeting several perceived investment opportunities.

Auditors at all ranks should be skeptical when searching for information throughout audits. However, we lever domain learning theory from educational psychology to posit that their skepticism unlikely develops evenly across ranks, but rather depends on a supportive learning culture, a construct from the management literature. To test that perceived learning culture moderates the association between auditor rank and skeptical information search, we use a laboratory study with 166 Dutch auditors at a Big 4 firm and follow-up interviews with seven top leaders of that firm. A more supportive perceived learning culture is associated with more skeptical information search, but only in audit managers and partners - not in associates and seniors. Interviewees attribute this pattern to values acquired over time through socialization, role expectations, knowledge development, and wider task characteristics.

We collect a novel dataset on images in Environmental, Social, and Governance (ESG) reports using deep learning and artificial intelligence (AI), to test hypotheses arising from experimental literature that visual impression management enhances audience perception. We further combine AI and manual methods to contrast images that lack information content (“generic images” evoking broad ESG themes) against images with information content (“specific images” depicting firm-specific ESG activities). We hypothesize and find that firms (1) operating in socially problematic industries (e.g., “sinful”, polluting, or controversial industries), (2) issuing less extensive textual ESG disclosures, and (3) experiencing poor ESG performance tend to use more images, especially generic images, consistent with strategic motivations. We then examine the impact of image usage on stakeholders, observing unduly enhanced perception in retail traders but seldom in institutional investors. We observe that ESG award committees reward specific images and penalize generic images. Our results show that ESG report visual impression management affects stakeholders in the real world, though its impact can be overcome by attention and expertise.

Many organizations have professional employees on fixed-term and ongoing employment contracts. While hiring employees on fixed-term contracts offers organizations operational flexibility and other benefits, it also brings about challenges in the form of relatively lower goal alignment and ability of these employees, thus creating the need for management controls. At the same time, given the costs and constraints of designing and implementing a control system, we expect that the planned use of fixed-term workers would be affected by the type of control environment that organizations are willing or able to create. Hence, this study investigates whether an organization's choice of its control environment and its use of fixed-term professional employees are interdependent (i.e., made jointly). Using surveys from different sources and archival data from the education sector, we find that some types of controls (i.e., action controls and organizational culture) and the organization's choice of using fixed-term employees are interdependent, while other controls (i.e., employee selection practices and results control) are independent of this choice. We also find that the interdependence between the choice of using fixed-term employees and the control environment is generally weaker when organizations use fixed-term contracts as an implicit screening mechanism for ongoing employment. Finally, in additional analysis, we find evidence that the interdependence between controls and the use of fixed-term employees is primarily due to concerns related to goal alignment rather than ability.

Broker-dealers traditionally charge their clients for the provision of investment research with a composite fee that bundles payments for research with other variable fees, such as those for trade executions. Due to regulatory changes in Europe, US broker-dealers temporarily allowed some of their clients to pay an explicit fee for the provision of investment research. Drawing on the sunk cost literature, I examine how transaction cost unbundling influences investors’ reliance on investment research. Results from 16 experimental markets indicate that investors place greater weight on costly forecasts under a system of unbundled payments compared to bundled payments, but only if transaction costs are sufficiently high, which is consistent with the dynamics of a sunk cost fallacy. I find marginal evidence that the enhanced focus on the forecast further inhibits investors' learning, as reflected in a slower reduction of price errors over time. These results are important since investors worldwide are increasingly paying explicit charges for investment research, a trend reinforced by a recent SEC policy change.