We empirically study how collusion in product markets affects firms' financial disclosure strategies. We find that after a rise in cartel enforcement, U.S. firms start sharing more detailed information in their financial disclosure about their customers, contracts, and products. This new information potentially benefits peers by helping to tacitly coordinate actions in product markets. Indeed, changes in disclosure are associated with higher future profitability. Our results highlight the potential conflict between securities and antitrust regulations

Politicians frequently intervene in the regulation of financial accounting. Evidence from the accounting literature shows that regulatory capture by special interests helps explain these interventions. However, many accounting rules have broad economic or social consequences, such as their effects on income distribution or private sector subsidies. The perception of these consequences varies with a politician's ideology. Therefore, if accounting rules produce those consequences, ideology plausibly spills over and explains a politician's stance on the technical accounting issue, beyond special interest pressure. We use two prominent U.S. political debates about fair value accounting and the expensing of employee stock options to disentangle the role of ideology from special interest pressure. In both debates, ideology explains politicians’ involvement at exactly those points when the debate focuses on the economic consequences of accounting regulation (i.e., bank bailouts and top management compensation). Once the debates focus on more technical issues, connections to special interests remain the dominant force

Michael A. Firth, An Empirical Examination of the Applicability of Adopting the AICPA and NYSE Regulations on Free Share Distributions in the U.K., Journal of Accounting Research, Vol. 11, No. 1 (Spring, 1973), pp. 16-24

This paper provides evidence about the unintended consequences arising when small companies are exempted from costly regulations—these firms have incentives to stay small. Between 2003 and 2008, the SEC postponed compliance with Section 404 of the Sarbanes‐Oxley Act of 2002 (SOX) for “non‐accelerated filers” (firms with public float less than $75 million). We hypothesize and find that some of these firms had an incentive to remain below this bright line threshold. Moreover, we document that these firms remained small by undertaking less investment, making more cash payouts to shareholders, reducing the number of shares held by non‐affiliates, making more bad news disclosures, and reporting lower earnings than control firms. Finally, there is no evidence that firms remaining small are doing so to maintain insiders' private control benefits. These findings have implications beyond SOX because numerous federal and state regulations exempt small firms via bright line size thresholds

We examine whether a shock to the enforceability of Regulation Fair Disclosure (Reg FD) limited its ability to restrict the flow of private information between managers and investors. Although prior work provides evidence that Reg FD reduced managers’ selective disclosure of material information immediately following its promulgation, we posit that private information flows returned as a result of the Securities and Exchange Commission's (SEC's) public enforcement failure in SEC v. Siebel Systems, Inc . Using multiple settings, we find consistent evidence suggesting that Siebel changed the cost–benefit tradeoff for Reg FD compliance and effectively reversed the initial effects of the regulation. We also find that Siebel disrupted the equilibrium of selective disclosure activity, resulting in an unleveling effect among investors with respect to private information advantages. Finally, we find that Siebel also had real effects by altering managers’ capital structure decisions. Our findings run counter to the prevailing “mosaic theory” and gradual learning explanations for private information advantages in the extended post–Reg FD period and highlight the importance of enforcement in achieving intended regulatory outcomes

The Occupational Safety and Health Administration (OSHA) is decentralized, wherein field offices coordinated at the state level undertake inspections. We study whether this structure can lead to interstate frictions in sharing information and how this impacts firms’ compliance with workplace safety laws. We find that firms caught violating in one state subsequently violate less in that state but violate more in other states. Despite this pattern, and in keeping with information frictions, violations in one state do not trigger proactive OSHA inspections in other states. Moreover, firms face lower monetary penalties when subsequent violations occur across state lines, likely due to the lack of documentation necessary to assess severe penalties. Finally, firms are more likely to shift violating behavior into states with greater information frictions. Our findings suggest that internal information within regulators impacts the likelihood and location of corporate misconduct

I provide evidence on the effects of financial audit mandates in the charitable sector, in particular their influence on donor behavior. My empirical strategy relies on variation in size‐based exemption thresholds across states and differences in size driven by the nature of charities’ activities. Consistent with audit mandates reducing donors’ reliance on charity reputation, I find audit mandates are associated with a lower concentration of donations on the largest, most well‐known charities. I show this reallocation of resources allows the charitable sector to serve more diverse geographic areas and social needs. In terms of the effect on willingness to give, I document that audit mandates are associated with a higher proportion of taxpayers who donate. However, I only observe a sizable impact on total contributions in dollars for charities with high inherent information asymmetry. Collectively, these results suggest financial audit regulation reduces information frictions and thereby affects resource allocation in the market for charitable giving

We study the capital market effects of information centralization by exploiting the staggered implementation of digital storage and access platforms for regulated financial information (Officially Appointed Mechanisms, or OAMs) in the European Union. We find that the implementation of OAMs results in significant improvements in capital market liquidity, consistent with the notion that OAMs lower investors' processing costs. The findings are more pronounced when processing costs are high to begin with, that is, when firms (1) are small and receive low business press coverage and (2) have high levels of retail ownership. We then identify a mechanism through which centralization facilitates capital market effects: information spillovers. First, we find that liquidity improvements are larger when OAMs have features that easily allow investors to search for peer firm information. Second, liquidity improvements are larger for firms with a high share of industry peers operating on the same OAM and for firms with a high share of small, low‐coverage peers on that OAM. Third, around the annual report release dates of peer firms, focal‐firm liquidity improves and focal‐peer stock return synchronicity increases. Overall, our evidence suggests that, even in a modern information age, information centralization improves capital market liquidity and facilitates the acquisition and use of peer firm information

We assess the impact of Regulation Fair Disclosure (Reg FD) on the trading behavior of transient institutional investors in the quarter prior to a bad news break in a string of consecutive earnings increases. Bad news breaks are defined as breaks that are by growth firms, preceded by longer strings of consecutive earnings increases, followed by longer strings of consecutive earnings decreases, and associated with larger declines in earnings. Pre–Reg FD transient institutions have abnormal selling of stocks in the quarter immediately preceding a bad news break. This abnormal selling is confined to firms that hold conference calls in the pre–Reg FD period. However, in the post–Reg FD period transient institutions do not exhibit similar abnormal selling of stocks in the quarter before a bad news break. Furthermore, after Reg FD transient institutions allocate less of their stock portfolios to conference call firms relative to non–conference call firms in the quarters prior to a bad news break. These results demonstrate that Reg FD has had an impact on management's selective disclosure behavior and significantly changed the trading behavior of transient institutions

Incentive problems arise in the electric utilities industry as a consequence of the institutional and legal arrangements of the cost-plus pricing regime under which natural and statutory monopolies operate. In the United States, such monopolies operate under a cost recovery system that gives the firm a mechanism by which it can shift all or part of the cost of moral hazard risk to consumers, who then become the residual claimants (Sherman [1980]). In this setting, expense accruals have a more direct link to the firm's cash flows than is the case in unregulated industries. In particular, pricing a monopolist's output at cost-plus means that accruing expenses generates sales revenues for utilities. Consequently, agency cost can be included in the allowable cost passed on to consumers. The result is that the residual loss is shared between the consumers and shareholders with two competing consequences: (1) it would be in the best interest of shareholders to provide managers with incentives to shift all costs to the consumer; and, by the same token, (2) it would be in the consumers' interest to persuade regulators to challenge the cost assumptions underlying the firms' requests for revenue requirements