Knowledge that Transforms

ABSTRACT In this paper, we develop novel measures of managerial labor market classification and competition by constructing networks of compensation benchmarking peers disclosed in proxy statements. These networks represent firms’ relative positions within the managerial labor market. Our classifications strongly predict executive moves across firms, outperforming a comprehensive set of predictors in the literature. Subsequent tests further demonstrate the strength of our methodology in capturing the multidimensional and dynamic features of the managerial labor market. We also validate our competition measures by showing that they are associated with retention tools, such as higher equity pay and longer pay duration. Finally, we apply our measures to test two theoretical predictions. First, we find that labor market competition could explain controversial pay practices. Second, we demonstrate that the labor market provides managers with tournament incentives to deliver superior future performance.

ABSTRACT I use the setting of generative AI (GenAI) to examine how processing tool interactivity affects investors’ self‐assessments of ability and willingness to invest. Although GenAI can help investors process financial information, I theorize that the interactive nature of GenAI blurs the boundaries between investors’ own abilities and those of GenAI, prompting investors to discount their reliance on GenAI and misattribute its abilities to themselves. I rely on the advantages of a laboratory setting to disentangle the interactive element of GenAI from the mere presence of GenAI assistance. Across three experiments, I find that the interactivity underpinning GenAI heightens investors’ self‐assessments of their own abilities and increases their willingness to invest, despite this interactivity not improving, and in fact hindering, their actual processing of information provided by GenAI. My study thus highlights one potential cost of using GenAI and other highly interactive processing tools.

ABSTRACT Recent SEC regulations require that qualified hedge fund advisers provide their investors with narrative disclosures of their business and operations. We find that 40% of these disclosures omit or de‐emphasize information regarding advisers' operational and investment risks when compared to other sources of public information. Funds with such “inconsistencies” are associated with predictably lower fund performance but do not differ in their fund flows, flow‐performance relation, ownership structure, or management fees. These results are consistent with investors being subject to limited strategic thinking, which prevents them from fully unraveling the implications of strategic omissions. This, in turn, contributes to advisers' successful use of discretion to de‐emphasize information with adverse performance implications. Our findings suggest that information processing frictions can facilitate nondisclosure, even in markets with sophisticated investors.

ABSTRACT This paper provides descriptive evidence on how stock market participants use Generative Artificial Intelligence (GenAI) to process investment‐related information. Using a data set of 1.7 million stock‐related queries from one of China's largest GenAI platforms during the first half of 2024, we document that user queries address a wide range of topics and tasks and vary systematically with usage intensity and financial sophistication. Query activity increases around corporate disclosure events, but these increases largely track contemporaneous media coverage. We also find evidence consistent with a substitution between the informativeness of voluntary managerial disclosures and investors' reliance on GenAI. Continued platform engagement more likely follows answers that are concise and contain directionally accurate trading signals. Over time, users' subsequent queries increasingly reflect the specificity and financial terminology present in earlier GenAI answers. At the market level, GenAI usage is associated with higher measures of informed trading and lower liquidity, while aggregated sentiment in GenAI‐generated answers correlates with same‐day abnormal returns, particularly when user feedback is positive. Overall, our findings offer insights into early‐stage GenAI adoption by retail investors and inform discussions on how GenAI shapes information processing in financial markets.

ABSTRACT Combining hedge funds’ quarterly position information with their access records on the SEC's EDGAR server, we explore whether hedge funds proactively gather and analyze textual information in 10‐K filings related to their stock holdings, and how these behaviors affect their positions. We find that hedge funds adjust their positions according to the textual information in the annual reports they download. Meanwhile, analyzing these reports helps them to generate excess returns. Overall, our evidence suggests that the textual content of annual reports contains crucial company insights, prompting a subset of hedge funds that engage in bulk downloads from the SEC's website to trade based on diligent analysis of 10‐K filings.

ABSTRACT Labor unions in the United States are subject to financial reporting mandates. This study examines how these mandates affect unions and their members. Using several regulation‐based empirical designs, we document that more granular reporting requirements adversely affect unions' election outcomes. Supplemental analyses suggest that these findings are consistent with the strategic use of unions' disclosed information by parties such as employers and their consultants. We find mixed evidence on whether the mandates materially improve oversight of unions. Lastly, we find that the mandate reduces employees' average pay without clear benefits for employers, aside from reallocating investment from labor to capital. Collectively, our results suggest that more fine‐grained financial reporting requirements impose costs on unions and weaken their ability to represent employees, resulting in worse employment outcomes.

ABSTRACT Prior research has pointed to differences in organizational capital as a reason for the persistent performance discrepancies among otherwise similar firms. In this paper, we develop and validate a new measure of organizational capital. Based on over a million crowd‐sourced employee reviews scraped from Glassdoor, we construct the measure of organizational capital at the firm‐year level using the word embedding model and ChatGPT‐generated synthetic reviews. Our measure varies over time in accordance with macro trends, and differs both across and within firms, reflecting firm heterogeneity and major internal changes. We validate our measure by testing empirical predictions of the properties of organizational capital discussed in prior literature. Our findings suggest that this measure captures a slowly evolving intangible asset that is significantly associated with firm performance and top management's influence, aligning with the conceptualization of organizational capital by Dessein and Prat. We further showcase applications of our measure in accounting, economics, finance, and management literature. Taken together, the paper provides implications for various stakeholders who are interested in assessing and managing firms' organizational capital.

ABSTRACT We study the economic consequences of anti‐loss trafficking rules, which disallow the use of loss carryforwards as a tax shield after a substantial ownership change. We use staggered changes to these rules in the EU27 Member States, Norway, and the United Kingdom from 1998 to 2019 and find that limiting the transfer of tax losses is related to the number of mergers and acquisitions (M&A) declining by 18%, driven by loss‐making targets. Turning to broader industry dynamics, we find decreases in survival rates of young companies after tighter regulations. Loosening of regulation is associated with increased firm survival. Tightening (loosening) anti‐loss trafficking rules is related to decreased (increased) industry productivity, especially in R&D‐intensive industries that are more prone to loss‐making. Finally, tighter anti‐loss trafficking rules are associated with lower deal synergies and risk‐taking. All effects concentrate in strict regimes.

ABSTRACT We compare the earnings information produced by the five largest forecast data providers (FDPs)—Bloomberg, Capital IQ, FactSet, I/B/E/S, and Zacks—and observe substantial differences across FDPs in both forecasted and actual street earnings values, and thus the earnings surprise, for the same firm‐quarter. We provide evidence that differences in the earnings surprise across FDPs for the same firm‐quarter (i.e., “FDP differences”) have economically meaningful implications for price responsiveness and liquidity around earnings announcements. We also find that, for announcements where FDPs disagree about whether the announcing firm missed or beat earnings expectations, investors are more likely to side with higher‐quality FDPs but may not fully impound the implications of FDP quality differences during the announcement window. On average, relative to the other FDPs, I/B/E/S ranks highly in our measure of FDP quality, such that investor reactions are likely to align with I/B/E/S earnings information, validating its use as a representative FDP in academic research. Taken together, our results are consistent with FDPs pursuing differentiated information production strategies that generate capital market frictions when these strategies lead to material FDP differences.

ABSTRACT We study how the assignment of intellectual property rights between inventors and their employers affects innovation. Incomplete contracting theories predict that stronger employer property rights reduce the threat that employee inventors hold up their employers, thereby affecting inventor and invention outcomes. We test these predictions using a U.S. appellate court ruling that shifted the assignment of property rights from inventors to their employers. Within‐employer‐year analyses demonstrate that affected inventors are less likely to retain patent rights, assign patents to new employers, or leave their current employer, all consistent with reduced inventor ability to hold up their employers. Due to the reduced possibility of hold‐up, affected inventors’ innovations are revealed more promptly when disclosed, draw from a broader set of prior patents, and spread more to subsequent patents. If affected inventors do leave their employer, they are more likely to relocate to unaffected states. Furthermore, employers affected by the ruling are more likely to locate their inventors in agglomeration economies and alter their innovation strategy by reallocating activity across states and expanding their innovation portfolios. Our collective evidence suggests that shifting intellectual property rights to employers affects inventor and invention outcomes by reducing the threat of employee hold‐up from the employer's perspective.