Knowledge that Transforms

This study examines whether a simple measure of internet search intensity for publicly traded retail firms can enhance the capital market's firm‐level revenue expectations and provide insights into economy‐wide retail sales. At the firm level, the search index is predictive of analyst nowcast and forecast errors after controlling for past sales, deferred revenue, firm characteristics, and firm and time fixed effects. An implementable trading strategy generates abnormal returns of roughly 2% to 3% from the fiscal quarter end through the earnings announcement, well above transaction costs. We also find that approximately two‐thirds of the abnormal returns occur around earnings announcements, with an even greater fraction for firms with coarser information environments. At the macro level, we find that the permanent, seasonal, and transitory components of our search intensity index align with those of the Census Bureau's retail sales data and US real gross domestic product, suggesting our measure is a leading indicator of personal consumption expenditures, a key driver of aggregate output. The aggregated search index nowcasts aggregated publicly traded retail firm sales both within and out‐of‐sample after controlling for past sales.

We present a case illustrating the pitfalls of insufficient disclosure of commercial databases' coding policies. We replicate the finding in the literature that a nontrivial percentage of firms mandated to adopt IFRS ignore this obligation. Specifically, Pownall and Wieczynska (2018, Contemporary Accounting Research , 35 (2), 1029–1066) report more than 3,000 cases, or 10% of all mandated firms in the European Union. When using primary data sources (applicable local regulations and firms' annual reports), we find that noncompliance with IFRS adoption is nonexistent in the one‐to‐one replication using the same firm‐year observations. We attribute the prior misperception to the commercial database's insufficient disclosure of a misleading coding policy of the consolidation item. We also show that no other data provider correctly captures consolidation status, which determines whether firms must report under IFRS. In response to this gap, we showcase the application of bidirectional encoder representations from transformers (BERT) models for extracting the consolidation status and offer guidance for coding IFRS‐mandated firms. Our article underscores the need to exercise caution when using secondary data sources.

We hypothesize that managers use their hierarchical role as reviewers of accounting judgments and estimates to manage earnings, which we call indirect earnings management (IEM). Across a series of experiments using highly experienced financial executives as participants, we provide evidence that IEM (1) is likely used by managers to achieve current and future earnings targets, (2) reduces both cognitive dissonance associated with managing earnings and the extent to which managers think that their behaviors constitute earnings management, and (3) is more likely to be used when corporate governance is strong than when corporate governance is weak. The results of this study suggest new directions for future research on earnings management and highlight the important role of the hierarchical structure of the accounting function in efforts to understand how earnings are managed.

This article examines the role of accounting in the recursive processes of continuous adjustment to programs that emerge when programs are imposed by central government on local government. Focusing on the Italian context and adopting the conceptual lens of governmentality, our study contributes to the extant literature by highlighting the role of accounting in the power dynamics and transactional realities at the intersection between the governors and the governed. In doing so, it considers how accounting can shape plural local government conducts and counter‐conducts and how this, in turn, affects programs imposed centrally. It also sheds light on the transactional realities inherent in multiple, layered forms of central disciplining power and how this plays out to recursively redefine central discipline and local autonomy. The study highlights the importance of considering the different ways in which power is enacted and resisted through accounting in governmentality studies. By taking a pluralist and dynamic view of the ways in which programs are implemented, the study reveals multiple local translations and outcomes, as well as the underlying power dynamics at play.

We examine the extent to which the distribution of corporate shareholdings affects seasonality in realized returns and the resulting implications for the conditions under which information asymmetry (IA) appears to be priced. Earlier studies have found that IA attracts a return premium only for firms with low competition for their stock, as proxied by the number of common shareholders or the number and concentration of institutional holdings. However, we demonstrate that the association between these proxies for competition and the pricing of IA is restricted to the month of January, is increasing in the potential for tax‐loss selling, concentrates in the first days of the tax year, and exists regardless of firms' fiscal year‐end dates. Overall, our evidence suggests that the association between the distribution of shareholdings and the pricing of IA reflects variation in mispricing arising from tax‐loss selling rather than compensation for the risk of trading at an information disadvantage.

While prior studies have examined whether financial analysts affect corporate innovation, there is little research on the mechanism through which this occurs. In this paper, we examine whether and how analysts' questions about innovation during site visits affect corporate innovation. Using a sample of corporate site visits in China, we find that when analysts ask questions about innovation during site visits, firms invest more in R&D in the future. Consistent with knowledge diffusion across firms, this association is stronger when analysts cover more firms in the same industry, when firms share similar technologies as industry peers, and when an innovation‐expert analyst is present at site visits. We also find that analysts' questions about innovation during site visits are positively associated with the quantity and quality of firms' patent applications in the future. Overall, we provide evidence that analysts can affect corporate innovation through their questions about firms' innovation activities.

Researchers have studied the entry of professionals into the public accounting field, their careers at an organization, and their exit from the field. However, they have largely overlooked the mobility of these professionals, whose careers involve firm transfers. Drawing on Bourdieu's sociology and interviews with 31 transferees and 7 non–Big 4 legacy partners, we examine the move of Big 4 professionals to non–Big 4 firms. Our findings show that transferees have an ingrained belief that a Big 4 career is the ideal professional trajectory. But they experience points of disjuncture at these firms, prompting them to reevaluate this organizational illusio and their career aspirations and ultimately reinforcing their transfer decision. After moving, transferees learn by trial and error how to valorize and layer their habitus and different forms of capital in order to adjust to the non–Big 4 firms. Our findings challenge prior assumptions about the superiority of Big 4 professionals and the distinctive forms of their capital by showing that the capital needed to obtain powerful positions at Big 4 and non–Big 4 firms are similar, but that its nature and relative value varies. Our findings reveal a paradoxical dynamic in which transferees' Big 4 habitus and capital undergo a complex, iterative process of valorization and layering when these professionals move within the public accounting field. This contrasts with a materialization of professional domination that occurs when former Big 4 employees move outside the public accounting field. For most of our transferees, dissonance also develops between the Big 4 and non–Big 4 layers of their habitus, and they never completely deconstruct their organizational illusio. These findings reveal that the reflexivity of transferees is both shaped and limited by their Big 4 habitus and illusio. Overall, our results contribute to the understanding of professional mobility within the public accounting field.

Short interest is currently required to be disclosed twice per month, but regulators have sought to increase this frequency. Meanwhile, short interest information from private third‐party vendors has emerged to meet investor demand on a daily basis. We find that daily private‐sector data strongly predict bimonthly regulatory disclosure. Furthermore, private‐sector data help price discovery, albeit with modest economic magnitude. Investors tend to underreact to the information content of private‐sector data mainly due to limits to arbitrage rather than market inattention. Despite the costly access to private‐sector data, we find no evidence that retail investors are harmed in their trades. Overall, our findings highlight the interplay between private‐sector and regulatory solutions in enhancing financial market transparency.

This study investigates the joint effects of investor status and locus of attribution on investors' judgments of management credibility. We study these effects in the context of an adverse event disclosure. Building on social identity and ultimate attribution error theory, we predict and find that under external attribution, current investors perceive management as more credible than prospective investors do. In contrast, we predict and find that investor status does not affect perceived management credibility under internal attribution. We provide evidence supporting our theory that company identification explains these findings. In addition, we document that the differences in credibility are mainly driven by perceptions of management's trustworthiness, rather than competence. Moreover, our results indicate that these differences in credibility judgments affect earnings expectations, thus inducing disagreement among investors. Our findings have important practical implications, including that company identification can be an asset to companies and that communicating adverse events with an external attribution reduces perceived management credibility for prospective investors.

We examine changes in bank loan contracts after borrowers experience a nearby local newspaper closure. Compared to a sample of control firms, we find that the closure of a local newspaper leads to higher interest spreads for borrowers. This effect is more pronounced when there are fewer related lenders in the syndicate, when lenders have less prior lending experience in the local area, when the closed local newspapers are associated with increases in misconduct cases, and for institutional lenders who rely more heavily on others for monitoring. In addition, we observe that loan contract amendments become less frequent, while covenant strictness increases following newspaper closures. Our main findings are robust to various research design specifications and are not driven by deteriorating local economic conditions. Our findings suggest that local media still plays a significant role in the debt markets, even as society moves deeper into the internet era.