I first distinguish the terms economic growth, economic development, and sustainable development. I then discuss the term ESG and why this term is used with respect to the corporation. I follow with a discussion of the shareholder primacy perspective and how this perspective plays a defining role in corporate law, corporate governance, and asset management. I argue that the shareholder primacy perspective is not appropriate for sustainability reporting because when a firm pollutes the environment, reduces biodiversity, or has inequitable social policies, it does not bear the full cost of its action; society and the planet does. Therefore, providing sustainability disclosures that are relevant to investors misses the point that sustainability disclosures are motivated by the desire of other stakeholders to learn about externalities. I discuss the different standard setters in the sustainability space and how accounting and measurement play key roles. I close with a discussion of research opportunities. Data Availability: Data are publicly available from sources indicated in the text.

The Securities and Exchange Commission permits companies to redact proprietary information from material contract filings, so long as the redacted information (1) would cause competitive harm if disclosed, and (2) the information is legally immaterial. Because these joint criteria are inherently contradictory, we examine whether legally immaterial redacted information is economically material to investors. We find that firms’ stock price discovery process is significantly slower and insider trading is significantly greater after companies file redacted contracts compared to nonredacted contracts. We then examine the impact of the 2019 FAST Act, which reduced the SEC’s oversight of redacted contracts. Companies redact more frequently and insider trading (but not speed of stock price discovery) is more pronounced after the FAST Act. Taken together, these findings suggest that at least some redacted information is economically material to investors and that reducing SEC oversight of redacted information may not be in investors’ best interests.

We examine the effects of banking deregulation on bank board policies—specifically, whether deregulation affects the performance and risk exposure measures used in bank CEO turnover decisions. Using the staggered adoption of interstate branching as our setting, we find that bank CEO turnover is more (less) sensitive to stock (accounting) performance after deregulation. We also find that deregulation is associated with a higher sensitivity of bank CEO turnover to the idiosyncratic component of tail risk. Moreover, such changes in turnover policies primarily exist in large banks and federally chartered banks, which are best positioned to exploit growth opportunities, and in banks that expand branch operations after deregulation. Our results indicate an increased emphasis on stock performance and tail risk in turnover decisions when growth opportunities are greater in the deregulated environment. The findings provide evidence that the information used in board decisions varies with features of the competitive environment.

We examine outside board appointments of executives allegedly involved in governance failures—“tainted” executives—to shed light on appointing firms’ underlying motivations. Less attractive firms and those with greater advising needs are more likely to appoint tainted executives to their boards than other firms are. Tainted appointees are less likely to be placed on the nominating and governance committees than nontainted appointees. Tainted appointees have similar or better skill sets compared with nontainted appointees. Firms that appoint tainted executives to their boards display an improvement in operating performance in the postappointment period relative to the preappointment period and relative to a matched control sample. We do not find evidence of poor monitoring outcomes for these firms. Overall, our evidence suggests that board needs, not a conspicuous attempt to weaken monitoring, drive the appointment of tainted executives to boards. Data Availability: Data are available from the public sources cited in the text.

In a quasi-experiment with external (EA), in-house internal (IIA), and outsourced internal auditors (OIA) as participants in their natural roles, we compare auditors’ internal control evaluations in the presence of differing management reporting motives. Grounded in Organizational Identity (OID) Theory, we find EAs’ evaluations are more (less) lenient when management’s motive is less (more) self-serving. We provide evidence that management’s motives affect EAs’ evaluations because management is a conduit for EAs’ OID and because EAs adopt an affiliative protective orientation. In contrast, we find no evidence management’s motives affect IIAs’ evaluations or that management is an OID conduit for IIAs. Finally, we find that although OIAs and IIAs exhibit similar OID levels, on average, OIAs’ evaluations are more lenient than IIAs’. Our results clarify how auditors form OID, how it manifests into protective behaviors, and suggest EAs’ preference to rely on OIAs’ work over IIAs’ may inadvertently diminish audit quality.

We investigate circumstances in which referral-based hiring can exacerbate rather than mitigate agency problems. When incentive contracts cannot fully align employees’ incentives with the interests of the firm, employees may behave opportunistically. Referred job candidates likely obtain inside information from existing employees about opportunistic incentive responses, and it is this information that exacerbates agency problems. Our research setting enables us to distinguish between referred and nonreferred employees. It also features a context in which the incentive contract consists of two measures with different properties (efficiency and quality), which allow for opportunistic incentive responses, i.e., sacrificing quality for efficiency. We find that referred employees focus more on efficiency and less on quality than nonreferred employees. We further document the persistence of this behavior and the differential departure likelihood of referred and nonreferred employees. Our findings suggest that referral-based hiring can exacerbate agency problems when incentive contracts allow for opportunistic gains. Data Availability: All data are proprietary. Confidentiality agreements prevent the authors from distributing the data.

Prior research shows that individuals exhibit a propensity to surrogate performance measures for their underlying strategy, resulting in suboptimal strategic decisions. We investigate whether the incorporation of flexibility in contemporary performance measurement systems (PMSs) reduces surrogation propensity in the context of product innovation and whether this effect varies depending on environmental dynamism. We conduct a 2 × 2 experiment and find that PMS flexibility significantly lowers managers' surrogation propensity when the business environment is more dynamic and when the investment decisions have opportunity costs. Our study contributes to the literature by identifying a viable way to reduce managers' surrogation propensity.

We conduct an experiment in the securities-based crowdfunding setting to investigate whether some investors avoid accounting information for psychological reasons, even when they understand the information is useful in their decision-making. Results suggest investors who experience relatively more psychological discomfort when working with quantitative information are relatively less likely to acquire the financial statements of a potential crowdfunding investment. Importantly, this effect is incremental to any effect of investors' quantitative ability (i.e., their numeracy) and attenuates with an intervention designed to help investors overcome their psychological discomfort. Altogether, the results extend our understanding of the theory of information avoidance, provide a behavioral explanation for investors' documented underuse of accounting information, and can inform regulators as they revise crowdfunding regulations.

We investigate (1) how well a machine learning algorithm can predict one-year ahead effective tax rates (ETRs) and (2) which items in the financial statements and notes are most useful for these predictions. We compare our machine-generated ETR predictions with those from ETRs implied by analysts’ earnings forecasts and find the algorithm’s predictions are less biased, more precise, and explain more of the variance in future ETRs. We then use Explainable AI (based on Shapley values) to measure the usefulness of each disclosure item in the algorithm’s predictions. We find that while some tax-related items are useful, others offer minimal value. Using the machine learning algorithm’s use of information as a benchmark, we then further use Shapley values to examine which information is underweighted or overweighted by analysts. Overall, our results help inform standard setters on the relevance of certain tax disclosures in achieving the objective of predicting future ETRs.