Knowledge that Transforms

Many firms use relative stock performance to evaluate and incentivize their CEOs. We document that such firms routinely disclose information that harms their peers' stock prices, and sometimes explicitly mention the harmed peers, by name, in these disclosures. Consistent with deliberate sabotage, peer‐harming disclosures appear to be aimed at peers whose stock price depressions are most likely to benefit the disclosing firms' CEOs. The pricing effect of these disclosures does not reverse, suggesting that the disclosures contain legitimate information regarding peers' prospects. In sum, our results suggest that relative performance evaluation in CEO pay motivates CEOs to internalize the externalities of their disclosures, and strategically disclose information that harms peers' stock prices, in order to improve their firms' relative standing within their peer group.

We show that information complementarities play an important role in the spillover of transparency shocks. We exploit the revelation of financial misconduct by S&P 500 firms, and in a “Stacked Difference‐in‐Differences” design, find that the implied cost of capital increases for “close” industry peers of the fraudulent firms relative to “distant” industry peers. The spillover effect is particularly strong when the close peers and the fraudulent firm share common analyst coverage and common institutional ownership, which have been shown to be powerful proxies for fundamental linkages and information complementarities. We provide evidence that increase in the cost of capital of peer firms is due, at least in part, to “beta shocks.” Disclosure by close peers—especially those with co‐coverage and co‐ownership links—also increases following fraud revelation. Although disclosure remains high in the following years, the cost of equity starts to decrease.

We explore how a supervisor's hierarchical rank affects the extent to which employees’ targets reflect their past performance. Literature documents that supervisors do not fully ratchet targets for past performance, arguably because the commitment not to penalize successful employees with more difficult targets alleviates the severity of the ratchet effect. We argue that commitment is less credible in organizational hierarchies where a middle manager sets employees’ targets. Using data from an organization comprised of three hierarchical layers, we consistently find that a middle manager's exposure to performance pressure is positively associated with the ratcheting of the employees’ targets. Moreover, we show that management at headquarters reduces a middle manager's performance pressure when most of her employees missed their targets in the previous period. Overall, the results imply that the hierarchical rank is an important determinant of the credibility of a supervisor's commitment to deemphasize past performance in target setting.

During the revelation of the Harvey Weinstein scandal and the reemergence of the #MeToo movement, firms with a nonsexist corporate culture, proxied by having women among the five highest‐paid executives, earn excess returns of 1.3% relative to firms without female top executives. These returns are driven by changes in investor preferences toward firms with a nonsexist culture. Institutional ownership increases in firms with a nonsexist culture after the Weinstein/#MeToo events, particularly for investors with larger holdings and investors with a lower ESG focus ex ante. Firms without female top executives improve gender diversity after these events, particularly in more sexist states and in industries with few women executives. Our evidence attests to the value of having a nonsexist corporate culture and indicates that changes in societal norms toward women are permeating into capital markets and corporations.

I study whether firms that receive targeted U.S. state‐level subsidies are more likely to subsequently engage in corporate misconduct. I find that firms are more likely to engage in misconduct in subsidizing states, but not in other states that they operate in, after receiving state subsidies. Using data on both federal and state enforcement actions, and exploiting the legal principle of dual sovereignty for identification, I show that this finding reflects an increase in the underlying rate of misconduct and that this increase is attributable to lenient state‐level misconduct enforcement. Collectively, my findings present evidence of an important consequence of targeted firm‐specific subsidies: nonfinancial misconduct that potentially could impact the very stakeholders subsidies are ostensibly intended to benefit.

We provide large‐sample evidence on whether U.S. publicly traded corporations use voluntary disclosures about their commitments to employee diversity opportunistically. We document significant discrepancies between companies' external stances on diversity, equity, and inclusion (DEI) and their hiring practices. Firms that discuss DEI excessively relative to their actual employee gender and racial diversity (“diversity washers”) obtain superior scores from environmental, social, and governance (ESG) rating organizations and attract more investment from institutional investors with an ESG focus. These outcomes occur even though diversity‐washing firms are more likely to incur discrimination violations and have negative human‐capital‐related news events. Our study provides evidence consistent with growing allegations of misleading statements from firms about their DEI initiatives and highlights the potential consequences of selective ESG disclosures.

We provide the first evidence that conflicts of interest arising from commercial ties lead to bias in environmental, social, and governance (ESG) ratings. Using the acquisitions of Vigeo Eiris and RobecoSAM by Moody's and S&P as shocks to the commercial ties between ESG rating agencies and their rated firms, we show that, after their acquisitions by the credit rating agencies (CRAs), ESG rating agencies issue higher ratings to existing paying clients of the CRAs. This effect is greater for firms that have more intensive business relationships with the CRAs, but weaker for firms with more transparent ESG disclosures or higher long‐term institutional ownership. The upwardly biased ESG ratings help client firms issue more green bonds and enable the CRAs to maintain credit rating business. Finally, the upwardly biased ESG ratings are less informative of future ESG news. Overall, the business incentives of rating providers appear to engender ESG rating bias.

We use an agency model to address the benefits and costs of transparency in a hierarchical organization in which the principal employs a manager entrusted with contracting authority and several workers, all under conditions of moral hazard. We define the principal's transparency choices as a decision to allow workers to observe their coworkers’ performances ( observability ) and as an investment in monitoring worker performance ( precision ). We find that whereas precision alleviates agency conflicts as expected, observability can exacerbate agency conflicts, especially if the manager's interests are misaligned sufficiently with those of the principal. Our results suggest several testable hypotheses including predictions that opaque performance measurement practices are well suited for small organizational units at lower hierarchical ranks, and in settings where the sensitivity‐precision of the available measures is low, workers’ performances are correlated positively, and managerial productivity is modest.

This paper reports the results of a field experiment investigating how attributes of carbon footprint information affect consumer choice in a large dining facility. Our hypotheses and research methods were preregistered via the Journal of Accounting Research ’s registration‐based editorial process. Manipulating the measurement units and visualizations of carbon footprint information on food labels, we quantify effects on consumers’ food choices. Treated consumers choose less carbon‐intensive dishes, reducing their food‐related carbon footprint by up to 9.2%, depending on the treatment. Effects are strongest for carbon footprint information expressed in monetary units (“environmental costs”) and color‐coded in the familiar traffic‐light scheme. A postexperimental survey shows that these effects obtain although few respondents self‐report concern for the environmental footprint of their meal choices. Our study contributes to the accounting literature by using an information‐processing framework to shed light on the information usage and decision‐making processes of an increasingly important user group of accounting information: consumers.

The Journal of Accounting Research is proud to recognize our top referees of the previous calendar year. The senior editors selected those named below for their “2022 Excellence in Refereeing” based on the quality and the number of reviews they had performed for the journal during the 2022 calendar year. We thank the referees for their invaluable services to the journal. Jannis Bischof, University of Mannheim Matthew Bloomfield, University of Pennsylvania Pietro Bonetti, IESE Business School Thomas Bourveau, Columbia University Mark Bradshaw, Boston College Matthias Breuer, Columbia University Jung Ho Choi, Stanford University Yiwei Dou, New York University Raphael Duguay, Yale University Travis Dyer, Brigham Young University Henry Eyring, Duke University Fabrizio Ferri, University of Miami Henry Friedman, University of California, Los Angeles Stephen Glaeser, University of North Carolina João Granja, University of Chicago Nicholas Guest, Cornell University Steven Kachelmeier, University of Texas, Austin John Kepler, Stanford University Sehwa Kim, Columbia University Ranjani Krishnan, Michigan State University Lian Fen Lee, Boston College Miao Liu, Boston College Yao Lu, Cornell University Daniele Macciocchi, University of Miami Charles McClure, University of Chicago Mihir Mehta, University of Michigan Maximilian Muhn, University of Chicago James Omartian, University of Michigan Gaizka Ormazabal, IESE Business School Hong Qu, Kennesaw State University Thomas Rauter, University of Chicago Delphine Samuels, University of Chicago Timothy Shields, Chapman University Nemit Shroff, MIT Lorien Stice-Lawrence, University of Southern California Stephen Stubben, University of Utah Andrew Sutherland, MIT Sorabh Tomar, Southern Methodist University Rahul Vashishtha, Duke University Felix Vetter, University of Mannheim Dushyantkumar Vyas, University of Toronto Charles Wang, Harvard Business School Clare Wang, University of Colorado, Boulder Edward Watts, Yale University TJ Wong, University of Southern California Gaoqing Zhang, University of Minnesota Frank Zhou, University of Pennsylvania Christina Zhu, University of Pennsylvania Luo Zuo, Cornell University