Knowledge that Transforms

ABSTRACT We document that firms held by mutual fund managers who have public accounting experience earlier in their careers exhibit higher‐quality financial reporting, as evidenced by a lower likelihood of financial statement restatements. Additional evidence shows that fund managers with public accounting experience are more likely to conduct site visits to their portfolio firms and discuss accounting policy–related topics during those visits. Moreover, the restatement likelihood falls after fund managers' site visits, particularly when they raise accounting policy–related issues during their visits. In cross‐sectional results consistent with expectations, we find that the role that fund manager public accounting experience plays is amplified when the firm suffers more severe agency problems, firm information asymmetry is worse, fund managers are more risk averse, fund managers have prior work experience at larger accounting firms, fund managers hold a larger proportion of the firm's shares, or there is coordination among mutual funds. Collectively, our evidence suggests that fund managers with public accounting experience impose stricter external monitoring on their portfolio firms' financial reporting choices.

ABSTRACT Path analysis has become increasingly popular, but many studies do not show a deep understanding of how path analysis works or the assumptions on which it relies. In this paper, we explain that path analysis is statistically equivalent to either OLS when the researcher assumes uncorrelated errors, or instrumental variable (IV) estimation when the researcher allows correlated errors and obtains identification using exclusion restrictions. We then identify two problems with the way path analysis is used. First, studies claim that they use path analysis to provide evidence on the causal process, but they assume away endogeneity by imposing the unrealistic assumption of uncorrelated errors. Second, many studies do not explicitly disclose their key assumptions, including the assumptions of uncorrelated errors or exclusion restrictions. This nondisclosure makes it difficult for a reader to determine whether endogeneity is assumed away or whether the study is attempting to address endogeneity. We conclude with detailed guidance for researchers who are considering whether to use path analysis in their research.

ABSTRACT We conduct two experiments to examine whether and how the framing (bonus vs. penalty) of a target‐based incentive contract affects knowledge sharing and knowledge seeking. In the first experiment, we predict and find that penalty‐framed contracts increase employees' stress due to the fear of potential loss, which in turn reduces their willingness to share knowledge. Additionally, consistent with loss aversion, employees under penalty‐framed contracts are more likely to seek knowledge than those under bonus‐framed contracts. The second experiment corroborates our theoretical arguments by demonstrating the crucial role of stress in reducing knowledge‐sharing behavior. The results show that, when stress is alleviated through an informal control mechanism, penalty‐framed contracts no longer reduce knowledge sharing. The implications of our findings for research and practice are discussed.

ABSTRACT This paper examines private meetings between company managers and institutional investors as part of the broader financial reporting environment. Using direct observations of 39 such meetings across four large, listed companies—complemented with the study of preparatory work and internal documents—the paper investigates how these meetings help build and maintain relationships between companies and investors. The analysis shows that the importance of these meetings lies not primarily in the exchange of new information but in the creation of familiarity, focused engagement, and exclusivity, which strengthen social ties and reinforce participants' positions in the capital market. Drawing on interaction ritual theory, the paper identifies three forms of ritual work through which these outcomes are produced: assembly work, conversational work, and bodily work. The study contributes to research on the social embeddedness of capital markets and suggests that private reporting meetings should be understood not only as informational events but also as relational mechanisms that shape access, trust, and network persistence.

Abstract This mixed‐methods study investigates whether individual auditors' career advancements to more prestigious audit firms can predict their audit quality. Using hand‐collected data on more than 2,000 audit partners from professional networking website profiles, I identify audit partners with advancements from less to more prestigious audit firms and empirically test whether these upward trajectories predict audit partner quality. I find that these audit partners provide higher‐quality audits, as evidenced by discretionary accruals and going‐concern opinions. These results are robust to audit partner changes, entropy balancing, and other sensitivity analyses. Moreover, clients of these partners report more conservative financial statements. The qualitative results from 10 semistructured audit partner interviews indicate that audit partners enter the auditing labor market at less prestigious firms due to both internal factors (e.g., late entry into the job market, location preferences) and external factors (e.g., poor market conditions/recessions or lack of Big N recruitment). In fact, their choice to make upward advancements results from both work considerations, such as limited growth opportunities, feeling unchallenged in their previous roles, and the desire to specialize, alongside nonwork considerations, such as audit firm culture and reducing commute/travel time for client work. Taken together, the evidence suggests that these significant upward career transitions represent market corrections of initial auditing labor markets and that such transitions may be of interest to investors, regulators, audit committees, and academics.

ABSTRACT Accounting is often thought of in terms of numbers and abstract models, yet it is sustained in practice by a host of ordinary objects. This paper demonstrates how seemingly mundane items—blackboards, cue cards, flipcharts, sticky notes, envelopes, and boxes—can play quiet yet decisive roles in extending and connecting accounting into new settings. Borrowing from literature on everyday surface aesthetics, we introduce the notion of geometric mediation to denote how certain arrangements of mundane objects can draw us in, appearing so compelling that they invite us to connect the abstract logics associated with them. We illustrate this process through a study of the Logical Framework, a performance tool for nongovernmental organizations, and its transformation when adopted by a German development agency in the 1970s. Although the tool initially met resistance from an agency whose logics conflicted with the use of managerial devices, the simple materials used to operationalize the tool helped these differences feel less stark. Their shapes and arrangements made the framework look naturally compatible with other approaches, leading to a new version of the tool, known as ZOPP. Our study contributes in two ways. First, it shows how everyday aesthetics can quietly help accounting spread and adapt. Second, it offers a new view of how accounting brings together competing aspirations, not only through explicit negotiation or compromise, but also through subtle, often unnoticed material connections that make things feel “right” before they are fully thought about.

ABSTRACT This article explores how accounting ideas travel to unfamiliar environments and instigate new modes of calculation therein. The empirical focus is on the food balance sheet, a key calculative technology in the realm of food security. Drawing on Said's four‐stage schema for analyzing the movement of theories and ideas, this investigation traces the journeying of the balance sheet to the field of food security from the First World War, culminating in the institutionalization of the food balance sheet as a standardized and universal practice from the late 1940s. The study reveals the conditions that facilitated acceptance of the balance sheet idea in a new field—specifically, its alignment to the problem of managing the national and global supply of food, as well as the presence of individual actants who recognized its utility for communicating and addressing the problem of food insecurity during periods of global conflict and humanitarian crisis. These key individuals emanated from the United States, the dominant power in an age of internationalism. It is shown that conceptual traveling involved the jettisoning of core elements of the accounting construction of the balance sheet, but also their selective reimportation once the balance sheet became domesticated in its new location. The article offers original insights to the forces that generate calculative innovations in epistemic communities beyond accounting.

ABSTRACT This paper examines how accounting and control practices constitute and distribute agency and responsibility for sustainability in global supply chains. Drawing on a field study in the fashion industry, we describe the sustainability control practices used by a major buyer firm vis‐à‐vis its suppliers and trace their evolution from a “compliance‐based” to a more “collaborative” regime. We find that these controls did not simply guide, monitor, or assess supplier firms; they responsibilized them in a more fundamental sense, namely by virtue of scripting the suppliers' actorhood . We show how such scripting evolved in ways that enabled the buyer to progressively distance itself from certain sustainability and control problems, as emergent controls produced the legitimate supplier as an actor who can, and should, address sustainability in an increasingly autonomous and entrepreneurial manner. A key argument that we therefore develop is that sustainability control practices operate as technologies of actorhood that not only address sustainability problems but also redistribute locales of moral authority and responsibility in interorganizational settings—not only among actors but also into the invisible hand of the market. We further show how such constitution of organizational actorhood relies on, and triggers, processes of subjectivation at the individual level, as members come to embody their organization's imagined actorhood.

ABSTRACT Research has long recognized that institutional investors possess significant information processing advantages. Yet even these investors face limited‐attention constraints, implying that periods of distraction may attenuate their advantage. We examine the effects of a plausibly exogenous shock to institutional attention arising from the annual buy‐side‐focused Equity Research and Valuation (ERV) conference for Chartered Financial Analysts on institutions' information processing at earnings announcements. Validation tests using conference call data indicate that fewer buy‐side analysts are present on earnings calls during ERV conferences and that questions are shorter, consistent with the presence of substitute or backup analysts. In our main analyses, we find that buy‐side analyst inattention reduces information asymmetry among investors and improves liquidity at these earnings announcements, consistent with theory, and observe similar results for non–earnings announcement events. In additional tests, we document slower price formation, but also more profitable retail trading, during these periods. Collectively, we provide novel evidence on the market consequences of institutional inattention during key information events.

ABSTRACT This study examines whether common ownership by institutional investors is associated with auditor sharing among their investee companies. Auditor sharing can enhance audit quality through facilitated monitoring and improve financial reporting comparability—two benefits that enable common owners to internalize externalities across their portfolio firms (i.e., to reduce negative spillovers from audit failures and to capture positive spillovers from improved comparability across commonly owned peer investees). Using same‐industry company pairs in the United States, I find that common ownership is positively associated with the likelihood of sharing the same audit firm, and this association is stronger when co‐owners have longer investment horizons or more aligned incentives. A quasi‐experimental test leveraging BlackRock's acquisition of Barclays provides consistent evidence. Additional analyses indicate that shared board members serve as a potential channel through which auditor sharing arises. Finally, commonly owned, auditor‐sharing companies exhibit higher audit quality and are more likely to collectively dismiss auditors following revealed failures, consistent with improved oversight. These findings contribute to the literature on shared auditors, auditor choice, and common ownership by showing how a noncontractual relationship induced by common ownership shapes auditor sharing across companies and influences the shared auditor's incentives.