ABSTRACT We study determinants of internal control reporting decisions under Section 404 of the Sarbanes‐Oxley Act (SOX 404) using a sample of restating firms whose original misstatements are linked to underlying control weaknesses. We find that only a minority of these firms acknowledge their existing control weaknesses during their misstatement periods, and that this proportion has declined over time. Further, the probability of reporting existing weaknesses is negatively associated with external capital needs, firm size, non‐audit fees, and the presence of a large audit firm; it is positively associated with financial distress, auditor effort, previously reported control weaknesses and restatements, and recent auditor and management changes. These results provide evidence that detection and disclosure incentives play a role in whether existing material weaknesses are reported, which has implications for the effectiveness of SOX 404 in providing investors with advance warning of potential accounting problems.

ABSTRACT In deciding how much information about their firms’ customers to disclose, managers face a trade off between the benefits of reducing information asymmetry with capital market participants and the costs of aiding competitors by revealing proprietary information. This paper investigates the determinants of managers’ choices to disclose information about their firms’ customers using a comprehensive data set of customer‐information disclosures over the period 1976–2006. We find robust evidence in support of the hypothesis that proprietary costs are an important factor in firms’ disclosure choices regarding information about large customers.

ABSTRACT Using a comprehensive data set of all U.S. investment in foreign equities, we find that the single most important determinant of the amount of U.S. investment a foreign firm receives is whether the firm cross‐lists on a U.S. exchange. Correcting for selection biases, cross‐listing leads to a doubling (or more) in U.S. investment, an impact greater than all other factors combined. Much of this increased U.S. investment is purchased in the foreign market, implying that the cross‐listing effect reflects something more fundamental about a firm than easier acquisition of its securities. We also demonstrate that cross‐listing is an important determinant of U.S. international investment at the country level and describe easy‐to‐implement methods for including a cross‐listing variable as an endogenous control.

ABSTRACT We examine the influence of investor sentiment on managers’ discretionary disclosure of “pro forma” (adjusted) earnings metrics in earnings press releases. We find that managers’ propensity to disclose an adjusted earnings metric (especially one that exceeds the GAAP earnings number) increases with the level of investor sentiment. Furthermore, our analyses suggest that, as investor sentiment increases, managers: (1) exclude higher levels of both recurring and nonrecurring expenses in calculating the pro forma earnings number and (2) emphasize the pro forma figure by placing it more prominently within the earnings press release. Additional analyses indicate that the association between investor sentiment and managers’ pro forma disclosure decisions at least partly reflects opportunistic motives. Finally, we find that managers’ own sentiment‐driven expectations also play a role in their pro forma disclosure decisions.