The SEC requires public companies to disclose material information on Form 8-K within four days of a triggering event. We show that on 8-K event and filing dates, there is significant abnormal attention on Bloomberg terminals, which are a source of information for institutional investors, while traditional media attention tends to be higher on filing days. Significant price discovery occurs on the event date and on the days between that day and the filing date. The traditional media coverage on the filing day appears to attract the attention of retail investors and leads to further price changes in the direction of the pre-filing day price change. Institutional investors exploit this price pressure via opportunistic liquidity provision. Overall, our evidence suggests that the Form 8-K filing may have little direct informational benefit, particularly to retail investors.

Prior research documents a negative stock price reaction to initial securities lawsuit filings, on average. Prior research provides no evidence, however, regarding whether and how the market prices information subsequently generated by the litigation process. We examine the market response to a large sample of initial plaintiff complaints and subsequent docket events. Our results are consistent with the market pricing information about issues both systemic to the firm and specific to the pending lawsuit from federal court filings. First, we find the market response to the initial lawsuit filing varies significantly with information about governance and control problems signaled by details of the plaintiff's complaint. Second, we find a significant market response to subsequent court filings that increases with measures of litigation severity and decreases as the litigation progresses over time. Overall, our results highlight the role of federally accessible court filings in facilitating the market's pricing of defendant firms.

We examine the effect of a charitable contribution matching (CCM) program on employee effort. In CCM programs, employers commit to match employees' donations to charity. We expect CCM to activate a norm of other-regarding behavior, inducing employees to increase effort to benefit their employer. Experimental results robustly support our expectation. We find that CCM increases effort under both fixed-wage and performance-based incentive contracts. Further, our results suggest that CCM is more effective at eliciting effort than alternative uses of firm capital. Specifically, CCM is more effective at eliciting effort than the firm allocating an equivalent amount of capital to either direct firm charitable giving or increased performance-based pay. Our study suggests that CCM has efficient and robust effort-elicitation benefits that increase its value as a compensation tool incremental to any initial employee selection benefits from CCM and any effort benefits from firms' direct charitable giving.

We compare seven fraud prediction models with a cost-based measure that nets the benefits of correctly anticipating instances of fraud against the costs borne by incorrectly flagging non-fraud firms. We find that even the best models trade off false to true positives at rates exceeding 100:1. Indeed, the high number of false positives makes all seven models considered too costly for auditors to implement, even in subsamples where misreporting is more likely. For investors, M-Score and, at higher cut-offs, the F-Score, are the only models providing a net benefit. For regulators, several models are economically viable as false positive costs are limited by the number of investigations regulators can initiate, and by the relatively low market value loss a “falsely accused” firm would bear in denials of requests under the Freedom of Information Act (FOIA). Our results are similar whether we consider fraud or two alternative restatement samples. Data Availability: Data are available from the public sources cited in the text.

Studies find evidence that opportunistic reporting often accompanies fair value measurement. However, research has not determined whether the source of this opportunism is the estimate of fair value. Using detailed information on insurers' investment holdings, we separate the use of fair value measurement discretion from the application of non-measurement-related discretion in accounting for impairments of financial assets. Our evidence contradicts the view that fair value measurement discretion plays a large role in opportunistic avoidance of impairment recognition for investment securities. Instead, managers appear to avoid recording impairment losses by opportunistically applying subjective criteria regarding perceived loss persistence and intent to hold. Data Availability: Data are available from sources identified in the paper.

We examine the effect of foreign employment on two outcomes—income shifting and the tax uncertainty of foreign transactions. Using a hand-collected sample of employment disclosures, we partition our sample into firm-years with a higher or lower degree of foreign employment. Using two distinct income shifting models, we document that, on average, a high degree of foreign employment is associated with greater tax-motivated income shifting out of the U.S. We also posit and find that a high degree of foreign employment enhances the economic substance of foreign transactions, reducing the tax uncertainty associated with foreign income. We conduct additional analyses to mitigate selection bias concerns, and we use exogenous changes to the costs and benefits of income shifting using foreign employment to strengthen identification. Our results highlight firms' use of employees as part of a tax-efficient supply chain and how foreign employment enhances income shifting opportunities between jurisdictions.

We investigate how performance-to-target (exceeding versus missing prior target) and task type (ability-driven versus effort-driven) affect managers' target-setting decisions in a setting where a manager sets targets for multiple employees. To do so, we use an experiment that involves executives, who average more than 16 years of work experience. We predict and find stronger target adjustments when prior targets are exceeded than when they are missed, especially when tasks are ability-driven. We also predict and find targets are differentiated more between employees within a firm when tasks are ability-driven rather than effort-driven, but this effect is attenuated when prior targets are missed. As prior empirical findings are inconclusive in this area of research, we contribute to the literature by providing controlled experimental evidence about the asymmetric nature of target adjustments. Additionally, we identify an important factor affecting managers' target-setting decisions—task type—that has largely been neglected in prior work.

A dedicated investor relations (IR) function facilitates direct and ongoing dialog between management and shareholders. This paper examines whether this form of engagement mitigates activism that relies upon support from other shareholders. We find that IR engagement is associated with increased investor confidence in management and the board, as well as a lower likelihood of activism, with this deterrent effect becoming stronger when there are fewer frictions surrounding the development of mutual understanding and trust with investors. We also find that when firms do experience an activist campaign, firms with IR engagement have less costly and contentious campaigns, including a lower likelihood of CEO turnover, than those without such a commitment. Taken together, our findings suggest that direct and ongoing IR engagement is an important factor in achieving mutual understanding and trust between the firm and its shareholders, which deters activist investors and mitigates the costly escalation of initiated campaigns.

Amid growing globalization, many countries have offered tax incentives to attract corporate investment. Prior research studies the role such incentives play in firms' location and investment choices. However, we have limited evidence regarding the role that uncertainty about the intensity of future tax enforcement plays in those decisions. In 2013, the European Commission (E.C.) abruptly began investigating the tax-ruling practices of several countries in response to allegations that certain firms received preferential tax treatment (“state aid cases”). We use this setting to study the economic consequences of increased uncertainty about future tax enforcement. We find evidence consistent with significant reductions in U.S. multinational enterprises' subsidiary investments within, firm input purchases from, and aggregate investment of U.S. firms flowing to targeted state aid countries. Specifically, for U.S. multinational enterprises' subsidiary investments, we find fixed assets declined by 1.7 percent of total assets, or $7.6 million per subsidiary.

Firms face a greater risk of lawsuits for overstated rather than understated earnings or net assets, suggesting conservatism can reduce firms' expected legal costs. Because managers with legal expertise are more likely than other managers to recognize the legal benefits of conservatism, this study examines whether legal expertise among members of senior management promotes greater conservatism. Consistent with this prediction, we find that firms with a general counsel (GC) in senior management (our proxy for legal expertise) report more conservatively. We also find that GC firms recalibrate their conservatism levels in response to changes in the legal environment—their conservatism choices are more responsive to litigation against peer firms and to two judicial rulings that affected the litigation risk for firms located in the Ninth Circuit. Overall, our findings suggest that populating senior management with legal experts affects the extent to which a firm's level of conservatism incorporates legal risks. Data Availability: Data are available from public sources identified in the text.