I study how private communication among competitors affects their public disclosures. Theory suggests that competing firms can use public disclosure to coordinate, and predicts less public disclosure when there is more private communication. Using data on strategic alliances, I predict and find that firms that enter strategic alliances with competitors reduce their public disclosure, and that the reduction is more pronounced for alliances that allow for more private communication.

Ferri, Zheng, and Zou test Fischer and Verrecchia's (2000) prediction that a reduction in investors’ uncertainty about managers’ financial reporting objectives leads to an increase in the valuation-relevance of earnings reports. They use mandatory CD&A disclosures as an arguably exogenous “shock” that provided investors with more precise information about managers’ contractual incentives and find that these enhanced disclosures increased the relation between firms’ unexpected earnings and stock returns. Using Ferri et al. as a backdrop, we discuss the implicit assumptions invoked in natural experimental research designs and the fundamental role of theory in drawing causal inferences from empirical evidence.

We examine how firms' accounting quality affects their reaction to monetary policy. The balance sheet channel of monetary policy predicts that the quality of firms' accounting reports plays a role in transmitting monetary policy by affecting information asymmetries between firms and capital providers. Consistent with this prediction, we find that accounting quality moderates firms' equity market response and future investment sensitivity to unexpected changes in monetary policy. Moreover, the former relation is amplified for firms with more growth opportunities and more financial constraints, further consistent with accounting quality moderating the transmission of monetary policy.

We find that firms’ tax planning exhibits strategic reactions: firms respond to changes in their industry-competitors’ tax planning by changing their own tax planning in the same direction. We document evidence of these strategic reactions in two distinct research settings that entail an exogenous increase and decrease in competitors’ tax planning. We also find evidence that strategic reactions stem from concerns about appearing more tax aggressive than industry competitors, some evidence that they stem from firms learning from the tax planning of their industry competitors, and no consistent evidence that they stem from leader-follower dynamics.

This paper reviews the empirical methods used in the accounting literature to draw causal inferences. Recent years have seen a burgeoning growth in the use of methods that seek to exploit as-if random variation in observational settings—i.e., “quasi-experiments.” We provide a synthesis of the major assumptions of these methods, discuss several practical considerations relevant to the application of these methods in the accounting literature, and provide a framework for thinking about whether and when quasi-experimental and non-experimental methods are well-suited for addressing causal questions of interest to accounting researchers. While there is growing interest in addressing causal questions within the literature, we caution against the idea that one should restrict attention to only those causal questions for which there are quasi-experiments. We offer a complementary approach for addressing causal questions that does not rely on the availability of a quasi-experiment, but rather relies on a combination of economic theory, developing and falsifying alternative explanations, triangulating results across multiple settings, measures, and research designs, and caveating results where appropriate.

Executive bonus plans often incorporate performance measures that exclude particular costs—a practice we refer to as “cost shielding.” We predict that boards use cost shielding to mitigate underinvestment and insulate new managers from the costs of prior executives’ decisions. We find evidence that boards use cost shielding to deter underinvestment in intangibles and encourage managers to take advantage of growth opportunities. We also find that cost shielding tends to be elevated for newly-hired executives, and decreases over tenure. Collectively, our results suggest that boards deliberately choose performance metrics that alleviate agency conflicts.

We use a proprietary database with detailed, employee-specific compensation contract information for rank-and-file corporate accountants who are directly involved in the financial reporting process to assess their influence on their firms' financial reporting quality. Theory predicts that paying above-market wages can both attract employees with more human capital and subsequently encourage better performance. Consistent with audit committees structuring accountants' compensation to mitigate financial misreporting that might otherwise occur, we find that firms with relatively well-paid accountants tend to issue higher-quality financial reports. Moreover, this relationship is more pronounced when firms’ senior executives have stronger contractual incentives to misreport and when the audit committee is more independent from management.