Knowledge that Transforms

This study examines whether and how media coverage improves price discovery before earnings announcements. Given the broad reach and timeliness of media coverage, understanding its role in forming earnings expectations is important. I posit that the media specialize in searching for and screening news, while institutional investors and financial analysts specialize in interpreting and integrating information. I expect these coordinated efforts to improve earnings expectations and preempt upcoming earnings announcements. Consistent with this prediction, I find (i) preannouncement media coverage is negatively associated with price revaluations during earnings announcements, (ii) preannouncement media coverage is positively associated with institutional investors' information acquisition and financial analysts' forecast frequency, and (iii) institutional information acquisition and analyst forecast activity are two mechanisms by which media coverage preempts upcoming earnings. My main results are robust to short‐window tests and identification concerns. Overall, my findings suggest that media coverage coordinates information efforts and accelerates the incorporation of information in prices, facilitating preannouncement price discovery.

We examine how executive equity incentives are associated with firms' conforming tax avoidance. Conforming tax avoidance is unique compared to nonconforming tax avoidance in that it decreases tax liabilities by reducing pretax income. Thus, conforming tax avoidance presents a unique set of consequences with important links to both risk and value‐creation incentives. Consistent with risk‐taking incentives increasing conforming tax avoidance, we find that linking executive wealth to stock price volatility (i.e., vega) is positively associated with conforming tax avoidance. We also find that linking executive wealth to stock price (i.e., delta) is negatively associated with conforming tax avoidance. The results of our cross‐sectional tests suggest that the negative association between delta and conforming tax avoidance is predominantly driven by a risk aversion effect rather than a value‐creation effect. Our findings add to the literature on the relation between tax avoidance and executive compensation, as well as the trade‐off between book and taxable income.

Social network analysis (SNA) examines whether interactions between individuals, teams, and organizations result in network structures and patterns that can explain important outcomes, including firm performance, management reporting behaviors, investor beliefs, and audit outcomes. This paper reviews the growing body of work on SNA in accounting and finance research, focusing on 162 articles published between 2000 and 2021, and offers a roadmap that may help move this literature forward. Our survey summarizes the elements of SNA, organizes this literature within a theoretical framework, and provides a thematic discussion of the context and contribution of the selected studies. We also discuss opportunities and challenges for future research. Finally, we include an empirical illustration of the key concepts and tools of SNA. We believe that SNA will continue to offer an interesting avenue for conducting high‐impact and cross‐disciplinary research in accounting and finance.

The Sarbanes‐Oxley Act charges management with the primary responsibility for internal control over financial reporting (ICFR). However, prior research tells us little about the ICFR process from management's perspective. We develop a theoretical model of the ICFR process from management's perspective and examine that model by surveying 145 and interviewing 35 accounting executives at large US public companies. Our primary finding is that executives feel constrained in their ability to direct ICFR and hold perspectives that reflect these constraints. Specifically, most executives feel compelled by auditors to follow the PCAOB's preferences even though executives believe these preferences often tend to distract management and auditors from riskier areas. Executives also believe that audit committees' involvement in ICFR is too passive and that auditors' assessments are sometimes too severe, prompting executives to push back on auditors. Overall, executives strive to make decisions that are optimal for their ICFR, but limited resources and other business conditions, such as restructuring events and lack of qualified personnel, limit the effectiveness of their ICFR efforts. We discuss the implications of our results for practitioners, regulators, and researchers.

While managers' career concerns have been shown to be influential in shaping their decisions, there is little evidence of the impact such concerns may have on managers' tax avoidance incentives. This study examines the causal effect of managers' career concerns on tax avoidance using the staggered recognition by state courts of the inevitable disclosure doctrine (IDD), a trade secret protection doctrine that places greater restrictions on managers from joining or forming a rival company. We argue that the IDD recognition increases the cost of job loss for managers whose current jobs may be in jeopardy, thereby increasing their incentive to avoid taxes in order to positively change their current employer's evaluation of their ability. The IDD recognition also reduces outside opportunities for high‐ability managers, and thereby reduces their incentive to avoid taxes in order to positively change external employers' evaluation of their ability. Using a difference‐in‐differences design, we provide evidence consistent with these predictions. We further show these effects are stronger for CEOs in their early years of service in the focal firms when the market is more uncertain about their ability. Our findings suggest that managers take into account the impact of tax avoidance on their career outcomes when making tax avoidance decisions.

We investigate whether short interest affects supply chain partners' investments. This investigation is important for understanding the real effect of short sellers in facilitating stakeholders' investment decisions. Prior research suggests that short interest conveys negative news in a timely manner, which predicts future deterioration in firm fundamentals. We predict and find that a supplier's future investments decrease with its major customers' short interest. Consistent with predictions, this result is more pronounced when customers' short interest is more informative about their future performance, when customers have a more opaque information environment, and when suppliers incur lower customer switching costs. The results are robust when we use various approaches to address endogeneity concerns and establish causality. Our findings suggest that short sellers provide valuable information to supply chain partners when making investment decisions.