We document peer effect as an important factor in determining corporate voluntary disclosure policies. Our identification strategy relies on a discontinuity in the distribution of institutional ownership caused by the annual Russell 1000/2000 index reconstitution. Around the threshold of the Russell 1000/2000 index, the top Russell 2000 index firms experience a significant jump in institutional ownership compared with their closely neighbored bottom Russell 1000 index firms due to index funds' benchmarking strategies. The increase in institutional ownership and resultant improvement in the information environment of the top Russell 2000 index firms create pressures on their industry peers to increase voluntary disclosures. Consistent with this prediction, we find that the discontinuously higher institutional ownership of the top Russell 2000 index firms significantly increases industry peers' likelihood and frequency of issuing management forecasts. Further analyses show that such an effect could be driven by firms' incentive to compete for capital. JEL Classifications: G23; G34; M41; D80. Data Availability: Data are available from the public sources cited in the text.

This paper examines the credit supply-side effect of the U.S. 2003 dividend tax cut on the real economy through the banking sector. We show that C-corporation banks (treatment group), particularly those capital-constrained, increase the supply of small business loans more than S-subchapter banks (control group) following the tax cut, aligning with the old view of dividend taxation and the supply-side effect rooted in credit rationing. Such an enhanced small business loan supply stemming from the tax cut translates into real effects on the economy. We find that areas with a greater presence of C-corporation banks exhibit more small business formations, employment, and innovations. The positive real effects are concentrated in subsamples when business growth opportunities are more abundant or international trade exposures are higher. Overall, our findings add to the literature on the real effects of the tax cut by showing an important yet unexplored bank credit supply channel.

We examine efficiency improvement associated with audit firm mergers. Our analysis is made possible by a unique dataset of audit hours in China. We find a significant reduction in audit hours, unaccompanied by a deterioration in audit quality, of merged audit firms. Further, we find a larger reduction in audit hours when acquirers are Chinese domestic Big 10 audit firms and when client firms are more complex. These results are consistent with the notion of economies of scale arising from horizontal mergers. However, enhanced efficiency does not necessarily reduce audit fees. Instead, we find an increase in audit fees when acquirers are international Big 4 audit firms even when we control for possible changes in market power. This premium is at least partially due to the certification effect of international Big 4 audit firms.

We investigate the role of financial analysts in product quality failures. Relying on information about product recalls, we first show that analyst coverage on average reduces product quality, particularly when managers face greater short-term pressure from institutional investors. However, after identifying a subgroup of analysts who raise questions on product-related issues in earnings conference calls, we find that coverage by these “product analysts” enhances rather than compromises product quality. Firms with greater product analyst coverage are also more likely to retire low-quality products. Additional analysis demonstrates that product analysts help safeguard product quality by further probing into product-related matters and issuing more timely recommendation downgrades after firms announce product deficiencies. Data Availability: Data are available from the public sources cited in the text.

This study examines the effect of banking market consolidations via mergers and acquisitions (M&As) on the role of banks in intermediating corporate tax planning through offshore tax haven operations. We find that bank clients significantly increase their tax haven operations after their banks are merged with others. In addition, such an increase is greater when a commercial bank merges with an investment bank and when the clients have greater tax planning opportunities. We also employ network analyses to show that the propensity for a client to expand its operations into a new tax haven country increases significantly when its relationship bank enters into this country through an M&A. Collectively, our findings reveal that bank M&As enhance banks’ tax intermediation capability.