Staggered boards (SBs) are one of the most potent common entrenchment devices, and their value effects are considerably debated. We study SBs' effects on firm value, managerial behavior, and investor composition using a quasi‐experimental setting: a 1990 law that imposed SBs on all Massachusetts‐incorporated firms. We find that relative to a matched control group of companies, for treated companies the law led to an increase in Tobin's Q, investment in capital expenditures and R&D, patents, and higher‐quality patented innovations, resulting in higher profitability. These effects are concentrated in innovating firms, especially those facing greater Wall Street scrutiny. An increase in institutional and dedicated investors also accompanied the imposition of SBs, facilitating a longer‐term orientation. The evidence suggests that SBs can benefit early‐life‐cycle firms facing high information asymmetries by allowing their managers to focus on long‐term investments and innovations.

Prior research finds that women receive lower salaries than men. Similarly, we show that female audit partners in Belgium receive significantly lower compensation than male partners. However, there are alternative explanations for the pay gap other than gender discrimination. For example, the gap in compensation could reflect that men are paid more because they have higher levels of productivity. We provide new predictions and tests of gender discrimination by comparing the fees generated by audit partners (a measure of partner productivity) and the types of clients assigned to partners. Consistent with our prediction of female partners having to meet higher performance thresholds than male partners, we show that female partners generate larger fee premiums, but they are less likely to be assigned to prestigious clients. To test whether these patterns are attributable to gender discrimination, we examine whether the results are stronger in male‐dominated offices, because this is where we would expect to find the most discrimination against women. We find the fee premiums generated by female partners are larger in male‐dominated offices, while the negative association between prestigious clients and female partners is stronger in male‐dominated offices. Collectively, our combined predictions and tests are consistent with female partners facing gender discrimination in audit offices that are dominated by male partners.

We investigate the effect of mandatory IFRS adoption on trade credit. We document that firms in countries that adopt IFRS receive more trade credit from their suppliers, consistent with improved financial reporting quality and comparability playing a role in facilitating informal financing. This increase is larger for countries with a low level of societal trust, a poor pre‐IFRS‐adoption information environment, and stronger legal enforcement. These cross‐sectional results suggest that the conditions under which higher‐quality information is made publicly available affect suppliers' decisions to provide trade credit. This increase is also larger for firms with greater exposure to foreign markets, a finding that highlights the importance of more comparable international financial reporting standards in facilitating cross‐country trade credit. We also find that IFRS adoption has a stronger positive effect on trade credit for firms with greater liquidity needs. Finally, we find that firms in countries that adopt IFRS also extend more trade credit to their customers. Overall, our results support the notion that financial reporting can have a causal effect on trade credit.

We use a hand‐collected sample of 1,628 S&P 1500 firms and more than 12,000 executives to examine how family firms compensate nonfamily executives. Family firms comprise a large percentage of firms around the world, and most of their executives are not members of the founding family. Moreover, the founding family's engagement in the firm alters agency conflicts, which in turn should influence the design of incentive compensation. However, there is no empirical evidence on whether and how the incentive compensation of nonfamily executives differs between family and nonfamily firms. Our study intends to fill this gap in the literature. Consistent with our predictions, nonfamily executives in family firms receive significantly less performance‐based pay and equity‐based pay. Family monitoring, risk aversion, and a reluctance to dilute family ownership all contribute to the pay differences. Although incentive pay and total pay are lower in family firms, nonfamily executives receive safer pay and enjoy greater job stability. An analysis of executives' moves across firms suggests that ownership structure, not executives' preferences, is more likely the driver of pay differences between family and nonfamily firms. Our findings suggest that researchers should consider founding family's engagement to avoid misleading inferences with regard to the determinants of incentive compensation, and our findings should help compensation consultants better understand and implement pay packages for family firms and nonfamily firms. The results also imply that uniform compensation regulations intended to improve the monitoring of executives in widely held firms may not be as effective in family firms.

Over the past three decades, academic research has sought to understand how cash shortfalls impact a firm's ability to take all available value‐increasing investment projects. We investigate whether firms facing greater financing constraints turn to tax strategies that generate lower cash effective tax rates (ETRs) to mitigate the adverse effect of these financing constraints. We use the Pension Protection Act of 2006 (PPA 2006) as an exogenous shock to financing constraints for pension firms, but not for other firms. Using a difference‐in‐differences research design, we predict and find that pension firms experience a decrease in their cash ETRs by 1.8%–2.4% after the PPA 2006, relative to other firms. These cash tax savings mitigate the investment shortfall brought about by financing constraints by 19%. We also predict and find that the decline in cash ETRs is greater among firms more adversely affected by the PPA 2006. Our paper sheds light on the direction, causality, and economic magnitude of the association between financing constraints and tax planning activities. We also provide insight into the role of tax planning activities within firms' broader corporate business strategies in responding to financing constraints.

We exploit the staggered introduction of the PCAOB's international inspection program to examine the role that the stringency of public audit oversight plays in shaping US institutional investors' home bias. Analyzing a sample of foreign firms listed in the United States, we evaluate whether US institutional investors hold larger equity stakes in these firms—a longstanding issue that reflects investor portfolio decisions—if their auditors are exposed to the threat of a PCAOB inspection. In a differences‐in‐differences framework, we find that US‐listed foreign firms enjoy an increase in US institutional investors' equity positions after their auditors become subject to PCAOB inspection access. Cross‐sectional analysis implies that the benefit of the PCAOB inspection threat in mitigating US institutional investors' home bias is concentrated in foreign countries without a strict local audit oversight system; active US institutional investors that are known to value accounting transparency; and firms from countries that grant PCAOB access later (after the onset of its international inspection program in 2005). Our evidence suggests that foreign firms become better known in the capital markets under the PCAOB inspection program, which induces US institutional investors to acquire larger equity stakes in US‐listed foreign firms given the lower information asymmetry that ensues under the PCAOB inspection threat.

We examine whether the strength of internal control over financial reporting (internal control) reduces the expropriation of resources from the firm by managers and controlling shareholders. Although we have ample evidence from prior literature that internal controls reduce errors in financial reports, it is less clear that they can curb resource extraction, because management may fail to enforce these controls. Exploiting the setting of China, where we have a rich internal control data set and established measures of resource extraction, we provide evidence consistent with internal controls curbing resource extraction on average. In particular, we document a negative association between internal control strength and resource extraction. We also find that the association between internal control strength and resource extraction is weaker in settings where we expect management to have fewer incentives to enforce these controls: within state‐owned firms and within non‐state‐owned firms that have a powerful controlling shareholder. We interpret these results as suggesting that internal controls must both exist and be enforced by management for the controls to safeguard assets. Although the analyses are conducted using Chinese data, we expect the spirit of our findings to generalize to other settings—management can “window dress” internal control procedures while still engaging in undesirable behavior.

This study adopts a two‐step approach to highlight the disclosure quality channel that drives economic consequences of IFRS adoption. This approach helps address the identification challenge noted by prior research and offers direct evidence on the role of disclosure quality. In the first step, we document the impact of the IFRS mandate on changes in disclosure quality proxied by the granularity of line item disclosure in financial statements. We find that IFRS‐adopting firms provide more disaggregated information upon IFRS adoption, such as more granular disclosure of intangible assets and long‐term investments on the balance sheet and greater disaggregation of depreciation, amortization, and nonoperating income items on the income statement. In the second step, we link the observed disclosure changes to the benefits and costs of IFRS adoption. We show that greater disaggregated information due to IFRS adoption enhances market liquidity and decreases information asymmetry, but does not affect audit fees differentially. Our evidence has implications for standard setters as they evaluate cost‐benefit trade‐offs when considering disclosure changes in the future.

We hypothesize and find that financial reporting quality at the foreign subsidiaries of US multinational companies (MNCs) is higher when the MNC's principal auditor engages a component auditor to audit the foreign subsidiary on its behalf. An important innovation of this study is that we focus on comparing the financial reporting quality of equivalent subsidiaries with and without component auditor work. Our approach contrasts with extant studies that examine the consequences of variation in the total amount of component auditor work at the MNC level. Our results are important for two reasons. First, we provide an alternative view on the consequences of component auditor use compared to the emerging literature in this area, which typically finds a negative association between the extent of component auditor use and financial reporting quality at the MNC level. Thus, we show that a different research design, conducted at the level at which component auditors actually perform their work, yields different inferences. Second, we demonstrate that using component auditors on US MNC group audits is an avenue through which US auditing institutions can affect financial reporting quality in foreign locations. We also reconcile our subsidiary‐level results to the MNC level by introducing a new MNC‐level component auditor “coverage” variable. Overall, we highlight that the best way to audit a foreign subsidiary is likely to be with a component auditor in the local country, which informs the debate surrounding recently proposed PCAOB guidance.