Knowledge that Transforms

ABSTRACT This paper draws from my experiences as an accounting professor who has served as the dean of a business school for over seven years. It is based on my Presidential Scholar Lecture to the virtual 2020 American Accounting Association Annual Meeting. The challenges and opportunities that scholars face in their research and teaching differ substantially from those that deans face in leading and managing schools. Nonetheless, I have found many similarities between the behaviors of the best scholars and the most successful deans. Because the dean has a major impact on the success of a school, the academy should identify professors who have an interest in and skill for managing and leading early in their career and encourage, mentor, and develop them. This is particularly true for accounting professors because their understanding of financial information provides them with a competitive advantage in administration.

ABSTRACT While prior studies generally support that equity-based compensation induces CEOs to manipulate financial reporting, there is limited direct empirical evidence on whether financial misreporting concerns affect compensation design. A key challenge for establishing a causal relationship is that misreporting incentives and compensation policies are often endogenously determined. Exploiting the exogenous reduction in litigation threat following a 1999 ruling of the U.S. Ninth Circuit Court of Appeals, we examine how heightened misreporting concerns in a less litigious environment affect CEOs' compensation design. Consistent with the theoretical prediction that misreporting concerns prevent companies from providing more powerful incentive pay that is otherwise optimal, we find that firms headquartered in Ninth Circuit states decreased CEOs' equity portfolio vega relative to the control firms after the ruling. We further document that this reduction was concentrated among firms facing greater misreporting concerns post-ruling. JEL Classifications: J33; K22; M52.

ABSTRACT I examine a fundamental determinant of disclosure quality: how underlying data are disaggregated. For this, I create a measure of industry disaggregation, which is the extent to which segment disclosures are disaggregated based on underlying industries. To identify underlying industries, I apply a deep learning algorithm that extracts textual features from Item 1 business descriptions, in which firms are required to accurately describe their products and services. Industry disaggregation captures the disclosure of underlying industries and the adherence to industry-based disaggregation criteria. Consistent with capital markets being informationally segmented by industry, I find that industry disaggregation is negatively associated with analyst forecast error and dispersion, and positively associated with analyst following and information transfers among analysts and investors. These findings indicate that financial information is more informative, and, thus, of higher quality, when disaggregated by standardized criteria that achieve comparability and match the information-processing strategies of capital market participants. Data Availability: Data are available from the sources identified in the paper. JEL Classifications: D89; G14; M41; M48.

ABSTRACT We advance a theory asserting that CSR performance may exacerbate, not necessarily moderate, a company's negative stock price response to negative events. In testing this theory, we hypothesize and find that CSR performance alleviates (magnifies) the immediate negative stock price response to inadvertent (fraudulent) restatement announcements, and that these findings are robust to specifications that consider alternative CSR measures and a multitude of control variables shown by prior research to have explanatory power for the cross-sectional variation in stock returns. Overall, using restatement announcements as a channel through which CSR performance may affect company value, we show, in contrast to prior research, that depending on management conduct leading to the restatement, a company's CSR performance may destroy, not necessarily enhance, firm value. Our findings may, thus, inform researchers, market participants, and regulators. Data Availability: The data used in this study are publicly available from sources indicated in the text.

ABSTRACT We examine the effect of performance-based pay on misreporting intended to benefit a social mission. We show that performance-based pay decreases people's propensity to misreport for a social mission in a not-for-profit setting (Experiment 1). We similarly show that in a for-profit setting, performance-based pay also decreases misreporting propensity for a social mission, although not for a non-social mission (Experiment 2). Finally, using a framed field experiment with participants attending a conference hosted by a real charity, we show that performance-based pay reduces actual misreporting when misreporting leads to more donations for the charity (Experiment 3). These results are consistent with our theory suggesting that, relative to fixed pay, performance-based pay imposes additional costs on misreporting employees' self-concepts of benevolence and honesty. JEL Classifications: C93; J33; L31; M4; M52.