This study examines whether managers alter their financial reporting decisions in the face of investment-related pressure. We define investment-related pressure as the increased pressure managers feel to retain their job following an M&A poorly received by the market. We hypothesize that managers attempt to assuage pressure by delivering strong performance post-merger, creating incentives for misreporting. Our findings indicate that acquirers with more negative M&A announcement returns are more likely to misstate financial statements in the post-investment period and the issuance of misstated financials mitigates this pressure, at least in the near term. Our study contributes to the literature on the relation between corporate investing and financial reporting by showing how investment-related pressure leads to misreporting, even in a setting where the costs (e.g., greater probability of detection) are high. Our study also has implications for the large body of research that evaluates various consequences of M&As using post-merger performance. Specifically, researchers should be careful to distinguish real from misstated financial performance in the post-investment period. Data Availability: Data are available from the public sources indicated in the text.

We investigate the role played by the Securities and Exchange Commission (SEC) in monitoring fair value disclosures in regulatory filings. Specifically, we assess whether SEC action via the issuance of fair value comment letters to registrants is followed by reductions in uncertainty about the firms' fair value estimates. We hypothesize that registrants that receive a comment letter focusing on their fair value disclosure policies experience reductions in investor uncertainty regarding their fair value estimates in the post-letter period, compared to the pre-letter period. Supporting this prediction, we find that for the periods after the fair value comment letters, the associations between Level 2 and 3 fair value assets and our measures of uncertainty are significantly reduced. These findings are robust to a series of tests designed to ensure that we do not simply capture general changes in market uncertainty levels for firms investing in these types of assets. Our study contributes to the further understanding of market participants' perception of fair value disclosures by investigating the role of SEC enforcement. This finding is important given recent criticisms of fair value reporting emanating from the highest levels of government and industry. Data Availability: Data are available from public sources identified in the paper.

We use confidential, U.S. Census Bureau, plant-level data to investigate aggregation in external reporting. We compare firms’ plant-level data to their published segment reports by grouping a firm’s plants that share the same four-digit SIC code into a “pseudo-segment.” We then determine whether each pseudo-segment is disclosed as an external segment, or whether it is subsumed into a different business unit for external reporting purposes. We show that a pseudo-segment is more likely to be aggregated when the agency and proprietary costs of separately reporting the pseudo-segment are higher and when firm and pseudo-segment characteristics allow for more discretion in the application of segment reporting rules. For firms reporting multiple external segments, aggregation of pseudo-segments is driven by both agency and proprietary costs. For firms reporting a single external segment, we find no evidence of an agency cost motive for aggregation.

We exploit a one-month period when SEC activity largely stopped during a U.S. government shutdown to examine whether variation in SEC scrutiny affects its ability to enforce insider trading. Difference-in-differences analyses suggest insiders earn abnormal profits during the shutdown, and the findings are robust to using different control periods and groups. We estimate that it takes roughly one week before the abnormally profitable trading begins, consistent with insiders updating their beliefs regarding the duration and disruption of the shutdown. Supporting the claim that SEC regulatory activity drops with the shutdown and does not fully recover afterward, we find a decline in the frequency of insider trading enforcement releases, investigations, and comment letter issuances after the SEC resumes operations. Our study speaks to the SEC insider trading enforcement literature and economic consequences of a regulatory discontinuity in a divisive political climate. Data Availability: All data are available from public sources.