Why do seemingly similar firms show such different productivity? We argue that unresolved measurement problems, i.e., the persistent incongruity between economic transactions and their accounting representation, affect resource allocation. Our metric quantifies technical accounting terminology in firm disclosures to capture these unresolved measurement problems, UMPs, using over 90,000 10-Ks. A one standard deviation increase in UMP is associated with lower capital investment (6 percent), R&D (5 percent), and hiring growth (30 percent). We also find a reduction in total factor productivity (5 percent) and Tobin’s q (4 percent). Further, CEO compensation sensitivity to accounting performance decreases with UMP, whereas stock-based sensitivity remains unaffected. Our inferences continue to hold when we use a Bartik instrument, which exploits differential exposure to GAAP changes to isolate accounting-driven variation from the firm’s underlying economics. The results suggest unresolved measurement problems are a significant friction in resource allocation. Data Availability: The UMP dataset is available upon request. Please contact the first author.

Although audit regulators worldwide concur that the rigor of audit firms’ internal engagement quality reviews (EQRs) is paramount to an audit firm’s audit quality, they are concerned that relationships between audit engagement partner (AEP) and engagement review partner (ERP) working in the same firm can undermine these reviews. We utilize confidential proprietary ERP and audit adjustment data to investigate how school alma mater ties between AEPs and ERPs affect audit adjustments in China. Our results reveal that audit adjustments are significantly lower when an AEP and ERP share school ties. This effect is more pronounced when the ERP is less competent than and lacks authority over the AEP, when the ERP and AEP perform mutual reviews or previously coaudited a client, and when the AEP’s work is flawed. Finally, semistructured partner interviews corroborate our empirical findings and strengthen our practical and policy implications. Data Availability: These proprietary data were provided to us with the understanding that it would be used only for independent academic research. Our research team is obligated under nondisclosure and confidentiality conditions to not disclose or share the confidential information which includes all of the data received from the data providers of the Chinese government and not to report information in any article or presentation that would inadvertently reveal (including any potential link) the identity of the partners, firms, their characteristics, and the audit adjustment data. No other restrictions were imposed by the data providers regarding the use of the data purely for academic research purposes and in communicating the research findings. Other data not subject to this confidentiality nondisclosure are available from sources identified in the text

This paper examines how incumbent firms adjust their disclosure behavior in response to heightened labor market competition. Using announcements of large employer entries into local labor markets, I find that incumbent firms located in the affected counties increase the disclosure of positive, forward-looking information. This response is concentrated among incumbent firms that compete more directly with entrant firms for similar workers and is strongest in local labor markets where employee retention pressures are likely to be more severe. Additional analyses show that the response extends to qualitative disclosure, particularly job-related and reputation-enhancing press releases, is associated with more favorable subsequent employment outcomes, and is unlikely to be explained by alternative motives related to productivity spillovers, supply-chain linkages, product market competition, or capital market considerations. Overall, the evidence supports the view that firms use public disclosure to shape employee perceptions and mitigate turnover risk when competition for talent intensifies. Data Availability: Data are available from the public and commercial sources cited in the paper

Recruiting talent is a major issue for the accounting profession and is especially salient for small firms with limited resources and brand recognition. In this study, we examine the challenges small accounting firms face when recruiting from universities and the strategies they use to overcome them. Drawing on interviews with 34 stakeholders (primarily recruiting specialists and human resource managers), we develop a process model of small-firm recruiting and present evidence related to each phase: (1) targeting certain universities and students, (2) engaging in university recruiting activities, (3) extending offers, and (4) aiming to evaluate recruiting outcomes. Guided by theory, our findings reveal that small accounting firms develop organizational familiarity and image with students while navigating fatalism and balancing imitation and differentiation in their recruiting strategies. We conclude with a call to reconsider the “biggest is best” assumptions that dominate mainstream accounting research and provide suggestions for future research. Data Availability: Data were obtained from interviews.

In April 2016, the European Union adopted the General Data Protection Regulation (GDPR), significantly expanding privacy protections for personal data handled by firms. I examine the regulation’s impact on U.S. firms’ internal information quality (IIQ) and operational efficiency. Although privacy regulations target one subset of firms’ information assets (i.e., personal data), they may spur broad improvements in firms’ information governance practices and systems, resulting in higher quality information available for decision-making and, by extension, more efficient operations. Using a difference-in-differences design, I find that U.S. firms with European operations (i.e., treated firms) exhibit improvements in IIQ around the adoption of the GDPR. Furthermore, although the GDPR’s regulatory burden is overall costly to firms, GDPR-induced improvements in IIQ contribute positively to operational efficiency. These findings highlight that privacy regulation can act as a catalyst for firms to improve IIQ, yielding operational benefits that may partially offset the regulation’s costs. Data Availability: All data are available from public sources discussed in the text.

We conduct two experiments to investigate the effects of giving subordinates the possibility to return budget surplus on capital budgeting processes. We predict and find that when subordinates face low uncertainty when submitting their budget request, the possibility to return budget surplus increases budget requests compared to not having this possibility but that this effect is mitigated under high uncertainty. We also predict and find that subordinates return more budget surplus under high than low uncertainty. Together, these results imply that the possibility to return budget surplus can be particularly beneficial for firms operating under high uncertainty. We contribute to the literature by integrating an important feature of budgeting practice into research, i.e., subordinates’ possibility to return budget surplus and by showing that the effects of implementing such an option may strongly depend on the level of uncertainty a subordinate faces. Data Availability: The data and research instrument are available from the authors upon request.

Facing pressure to meet short-term earnings expectations, corporate managers often take actions that are perceived as value-destroying. Our study provides empirical evidence supporting an alternative view: earnings pressure can discipline managers to undertake value-enhancing actions by refocusing on the firm’s core products. Consistent with this product refocus hypothesis, we find that firms under earnings pressure reduce investment in non-core products, leading to the subsequent underperformance of these non-core products, whereas the performance of core products remains unaffected. As predicted, product refocus is stronger when managers exhibit ex ante high-level agency problems. To strengthen identification, we exploit shocks arising from analyst brokerage mergers and closures. Our study suggests a bright side of earnings pressure—it helps reduce agency-motivated product diversification.

Financial reporting standard-setting bodies are expected to include academic research in their decision-making processes. However, little is known about whether, why, and how they engage with research. We interview staff from two major accounting standard-setting bodies and, using the information seeking and communication model as a theoretical lens, identify factors shaping their research engagement. These factors include perceptions of academic research, search difficulties, and challenges with assessing the credibility and utility of academic research. Our findings reveal an unstructured, idiosyncratic approach to information seeking, a reliance on academic papers over direct researcher interaction, a significant lack of two-way communication, and concerns relating to incentive differences between academics and standard setters. These structural issues limit the extent to which academic research can inform standard setting. We provide insights on improving the inclusion of academic research in the standard-setting decision-making process and contribute to broader discussions on research relevance

The recent influx of deals between accounting and private equity (PE) firms has raised concerns regarding potential implications for the attest profession. We interview 20 attest partners from PE-backed accounting firms, along with four experienced professionals, to examine how these partnerships affect the attest practice. Using Freidson’s (2001) theory of professional autonomy as a theoretical lens, we find that despite independence requirements mandating PE-backed firms separate from their attest function, firms largely retain a one-firm mentality. Moreover, although attest firms retain responsibility for audit execution, PE firms influence attests’ strategic priorities through ROI targets, increased strategic acquisitions, evolved compensation structures, and reevaluated client portfolios. These dynamics underscore a PE-driven shift toward commercialism, potentially eroding—although not eliminating—the attest profession’s professional ideals of public service. This stifling of professionalism raises ethical concerns about PE-driven commercialism amid the growing uncertainty raised by respondents around the future of PE-backed firms. Data Availability: Available upon request.

I examine whether contracts that require customers to privately share with suppliers forecasts of their future demand for the supplier’s products (“demand forecast contracts,” or “DF contracts”) affect the supplier’s reliance on an alternative information source—stock prices—when making investment decisions. If suppliers find these forecasts a more direct signal of future demand than stock prices, they may reduce their reliance on stock prices to guide investments. Using hand-collected data, I find that suppliers’ investments become significantly less sensitive to stock prices after entering a DF contract for the first time. This effect is stronger when forecasts are more credible, demand more uncertain, and investments more irreversible. Supplier performance, measured by return on assets and cash flow from operations, improves post-DF. Overall, these findings suggest that when a relatively direct information source about future demand becomes available, managers reduce their reliance on stock prices in making real decisions. Data Availability: Data are available from public sources cited in the text.