ABSTRACT The impact of earnings announcements (EAs) on investor uncertainty depends not only on how much new information they contain but also on how long it would take comparable information to arrive in the future through alternative sources, which I term “earnings horizon.” Using a structural model of periodic EAs, I show that earnings horizon is not captured by standard empirical measures of earnings informativeness or timeliness based on the event-study approach. However, earnings horizon can be estimated using patterns in return volatility over firms’ reporting cycles, which indicate that EAs have a short horizon and thus reduce investor uncertainty by one-third the amount suggested by event studies. Moreover, these patterns indicate that it takes investors considerably longer than the three- to five-day windows commonly applied in event studies to fully process EAs and that more frequent financial reporting may significantly enhance EAs’ informativeness. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: C58; D82; D84; G10; G12; G14; G30.

ABSTRACT Basel III introduced the first global banking liquidity requirement: the liquidity coverage ratio (LCR). This paper examines whether loosening the regulatory accounting for the LCR, by including certain municipal bonds in its computation, has a spillover effect on the municipal bond market. In contrast to statements made by regulators, I find that the rule decreases affected bonds’ yield spread, relative to unaffected bonds, due to an increase in nonfundamental bank demand for the affected bonds. The regulation also has a real effect on bond issuance: municipalities that can issue either affected or unaffected bonds change their behavior by issuing relatively more of the affected bonds. This suggests that regulatory accounting changes can affect the economic behavior of entities that are not even subject to the regulation. JEL Classifications: H74; G21; G28; M40.

ABSTRACT We study the investment efficiency of the historical cost and fair value measurement rules when a reporting firm and its investors confront higher-order uncertainty inferring the behavior of others. Although all investors are attentive to the firm’s report, the firm and investors incorrectly believe only some investors are attentive. We find that a report prepared under the historical cost rule yields greater investment efficiency than under the fair value rule if and only if (1) the investors are badly calibrated, (2) the firm’s production technology exhibits sufficiently strong returns to scale, (3) the firm’s productivity realization is sufficiently negatively correlated with market returns, and (4) the firm is sufficiently well calibrated about its investors’ attentiveness. JEL Classifications: C72; D80; D83; M41.

ABSTRACT The audit environment operates using an apprenticeship model, where more experienced auditors are responsible for the training and development of junior auditors. Academic research has investigated this model primarily as a quality control mechanism for the subordinate’s work product. In contrast, we investigate what effect the apprenticeship model has on supervising auditors. We theorize that coaching an apprentice activates norms that are accompanied by an ideal audit quality focus. In an experiment with experienced auditors, we find that salient apprenticeship norms result in a higher-quality sample selection. Although work-life conflict has an overall negative effect on quality, we find no evidence that apprenticeship norms attenuate this effect. Finally, auditors faced with client pressure improve the quality of their subsequent inventory testing selections only when apprenticeship norms are salient. Our findings expand our understanding of the ways the traditional audit environment encourages quality behavior, with important implications for research and practice.

ABSTRACT We show that financial reporting influences consumer behavior by drawing consumer attention to announcing firms. Analyzing global positioning system (GPS) data, we document upticks in foot traffic to firms’ commercial locations immediately following their earnings announcements. This increase is more pronounced for announcements with substantial media attention, fewer concurrent announcements, heightened internet search volume, and extreme stock price jumps and earnings surprises—indicating that announcement coverage impacts consumer behavior by capturing attention. Furthermore, foot traffic increases with positive earnings for firms offering durable goods, suggesting consumers respond to news about firms’ financial prospects. Consumer attention patterns increase revenues and advertising effectiveness, ultimately suggesting that financial reporting serves a marketing function. Data Availability: All other data are available from the public sources cited in the text. JEL Classifications: G10; G11; G12; G14; G40; G41.

ABSTRACT Guided by the performance feedback literature, we study PCAOB inspections as a nonstandard feedback event. We use an experiential questionnaire to collect and analyze perceptions, reactions, and responses to inspection feedback from 120 partners and managers subject to a recent PCAOB inspection. Despite varying perceptions, we find on average auditors perceive strong firm support but also that firms acquiesce to inspectors. Generally, the feedback source, inspectors, are perceived as professional, organized, and knowledgeable and auditors agree with the feedback message, perceiving it as consistent and well reasoned. We observe a range of auditor reactions (satisfaction with and motivated to use inspection feedback), responses at the engagement level (improvements to audit quality and inspection risk or impression management), and individual responses. Multivariate analyses show more positive feedback perceptions improve reactions, which enhance desirability of responses and are robust to considering the inspection outcome, offering insights for refining inspection interactions and processes.

ABSTRACT Local-thinking bias, wherein agents overweight information that comes readily to mind, is a prominent finding in cognitive psychology. In this study, we investigate local-thinking bias in the context of sell-side analysts and measure each analyst’s “local” information as news stemming from their individual coverage portfolio. Tests examining multiple analysts forecasting on the same focal firm at the same time find that individual analysts overweight idiosyncratic local news and underweight news from economically linked firms that are not in their coverage portfolios. Market prices track the analyst bias from local news, leading to predictable and economically significant return reversal patterns in the future. A trading strategy that adjusts for analysts’ biases earns meaningful abnormal returns. We discuss the implications of these findings for three literatures: (1) cognitive psychology, (2) analyst behavior, and (3) behavioral asset pricing. JEL Classifications: D91; G14; G17; G41; M41; M49.

ABSTRACT Employees’ skill development is key to organizations’ competitiveness in a global, knowledge-based economy. Prior research in accounting, however, has mainly focused on motivating the provision of transitory effort. This study investigates how relative performance information (RPI) as a management control influences employees’ willingness to engage in skill development and whether the effect of RPI depends on whether employees face a tradeoff between training and current work performance. We predict and find that RPI increases the likelihood of taking training when a work-training tradeoff is absent but decreases it when a work-training tradeoff is present. We also predict and find RPI increases employee performance when a work-training tradeoff is absent and the effect is less positive (and directionally negative) when a work-training tradeoff is present. Our paper is an important first step in investigating how management controls interfere with employees’ investment in skill development and its tradeoff with transitory effort provision. Data Availability: Data are available upon request. JEL Classifications: M21; M41; M52.