Discretionary income smoothing has been argued to increase bank opacity and degrade financial system stability by making banks more difficult to monitor. However, no direct empirical association between discretionary smoothing and opacity has been established to date. We argue that smoothing could reflect either the opportunistic exercise of discretion that disconnects loan loss provisions (LLPs) from changes in underlying credit quality, consistent with smoothing increasing opacity, or an informative exercise of discretion to communicate forward‐looking information about loan losses. We examine the association between discretionary smoothing and the informativeness of LLPs for a sample of banks from 1994 to 2019 and find that discretionary smoothing is, on average, associated with more informative LLPs. However, this association is nuanced, with cross‐sectional differences and changes over time. We find evidence that an intervention by the SEC into bank LLP practices in the late 1990s curbed opportunistic smoothing via provisioning for homogeneous loans. Subsequently, smoothing is associated with more informative provisions, including for banks with both more homogeneous and more heterogeneous loan portfolios. Our findings are inconsistent with the notion that smoothing may be associated with greater opacity.

Prior literature on the relationship between financial reporting and investment efficiency generally overlooks the connection between firms' financial and managerial reporting systems. As a result, it is difficult to determine whether increases in the quality of firms' internal information environments (IIQ) and/or the quality of their external information environments (EIQ) explain improvements in investment efficiency following financial reporting changes. Leveraging the transition window to the new lease standard (Accounting Standards Codification [ASC] 842), we use a difference‐in‐differences design and find that firms that materially change their internal controls due to ASC 842 (treatment firms) significantly improve their investment efficiency in the final year of the transition window. Multiple falsification tests rule out that contemporaneous improvements in treatment firms' EIQ explain our finding. Additional channel analyses suggest the increases in IIQ for treatment firms predominantly alleviate moral hazard risk between central and divisional managers within the firm, leading to a reduction in empire building. Our findings extend the literature on the relationship between financial reporting and investment efficiency. They also contribute to the literature on the consequences of ASC 842 by answering the FASB's call for research on how ASC 842 affects firms' asset utilizations.

Fatigue and burnout are root causes of audit quality issues and turnover. Leveraging the job demands‐resources theory, we investigate whether two mechanisms can reduce accountants' fatigue and, in turn, improve audit quality. We conduct a field study of public accountants during both normal and busy season work periods, collecting bi‐daily logs to examine whether the use of microbreaks (i.e., brief respite activities) as a job crafting mechanism and/or the receipt of supervisory support as a job resource lessen end‐of‐day fatigue. We posit and find that engaging in microbreaks is associated with reduced end‐of‐day fatigue within busy season. Similarly, we posit and find that higher levels of daily supervisory support during busy season are associated with lower end‐of‐day fatigue. However, neither of these mechanisms is associated with lower end‐of‐day fatigue during normal work periods. Our results also indicate that these two mechanisms function as complements during busy season, with either one significantly reducing end‐of‐day fatigue, but both together having an interactive effect. Further, end‐of‐day fatigue during busy season reduces sleep quality, which increases accountants' fatigue the following morning. In a follow‐up experiment, we consistently find evidence that a 1‐min microbreak reduces fatigue and that this reduction directly translates into improved error detection.

Academic research investigating the economic consequences of tax avoidance is almost always interested in the consequences of intentional, deliberate actions undertaken to reduce taxes relative to income. Therefore, it is crucial that such research distinguishes between intentional and incidental tax avoidance, since failure to do so can create endogeneity concerns and lead to incomplete and incorrect economic inferences. In this paper, we first develop a framework that conceptually defines and distinguishes between intentional and incidental tax avoidance. We highlight that the endogeneity problem arises because intentional tax avoidance is not directly observable. We consider two approaches to mitigating endogeneity concerns and apply these approaches by reexamining two influential studies that investigate the economic consequences of tax avoidance. We show how controlling for past accounting losses eliminates the effect of tax avoidance on credit spreads (Hasan et al. 2014, Journal of Financial Economics, 113 (1), 109–130) and how using an instrumental variables approach changes the sign of the relation between tax sheltering and stock price crash risk (Kim et al., 2011, Journal of Financial Economics, 100 (3), 639–662). Overall, our paper punctuates the importance of both (1) conceptually distinguishing between incidental and intentional tax avoidance and (2) econometrically addressing the challenges that arise when empirical differentiation between incidental and intentional tax avoidance is important to the research question.