Knowledge that Transforms

Using individual records of about 950,000 financial advisors, we find that the probability and intensity of financial advisor misconduct significantly increase after local newspaper closures. The impact is more pronounced in counties with a higher proportion of seniors, minorities, and individuals with lower education levels. Male advisors are more likely to commit misconduct following newspaper closures than female advisors. The sensitivity of advisors’ job turnover to misconduct decreases after closures, suggesting a lower cost of committing misconduct. Our evidence indicates that local newspapers play a distinct role in mitigating financial advisor misconduct, as media exposure raises the costs of misbehavior.

We document that climate-triggered institutional portfolio rebalancing affects S&P 500 firms’ cost of equity through climate change price pressure (CCPP). Using a demand-based asset pricing framework, we estimate firm-level CCPP from physical and transition exposures over 2005–2021. A one-standard-deviation intensification of CCPP raises the cost of equity by up to 6% of its average, with banks and insurers as the main drivers. Yet firms do not subsequently improve environmental performance, indicating that the statistically significant effect of CCPP on cost of equity is ineffective to alter corporate behavior. Our CCPP metrics can help policymakers and investors design targeted environmental strategies.

Using high-frequency disagreement data from the investor social network StockTwits, we find that greater unsophisticated disagreement facilitates informed buying and selling. During periods of overvaluation, the facilitating effect of disagreement on trading is dampened for informed buyers but is amplified for informed sellers. These findings are unexplained by sentiment, news, and retail order flow, and they remain when we measure disagreement overnight and disagreement of technical investors, which alleviates the concern that disagreement and informed trading respond to a common shock. These findings suggest that informed traders respond meaningfully but differently to valuation changes induced by unsophisticated disagreement.

Using a proprietary data set covering all foreign investors’ daily trades in the Chinese stock market from 2016 to 2019, we find that foreign order flows, facilitated by regulatory liberalization through several channels, present strong predictive power for future stock returns, implying that these order flows are likely informed. We track the source of this informativeness and find that foreign order flows significantly predict firm-level news and news-day returns, suggesting that foreign investors can effectively process local firm information. Finally, we find that regulatory reforms that generally relax investment access requirements further improve foreign investors’ predictive power.

The identification of disaster risk has remained a significant challenge due to the rarity of macroeconomic disasters. We show that the interbank market can help characterize the time variation in disaster risk. We propose a risk-based model in which macroeconomic disasters are likely to coincide with interbank market failure. Using interbank rates and their options, we estimate our model via maximum likelihood estimation (MLE) and filter the short-run and long-run components of disaster risk. Our estimation results are independent of the stock market and serve as an external validity test of rare disaster models, which are typically calibrated to match stock moments.

This study examines the impact of recreational marijuana laws (RMLs) on firm-level employment using an imputation-based difference-in-differences (DiD) approach across U.S. states. RMLs significantly reduce employment, particularly among firms with high-skilled labor, strong union presence, permissive corporate cultures, and in states with greater dispensary density. Alternative explanations—including economic crises, COVID-19, fiscal changes, labor regulations, and related policies such as smoking bans and right-to-work (RTW) laws—are systematically ruled out through a series of placebo and robustness tests. RMLs also reduce investment, sales growth, and innovation, suggesting that legalization introduces labor-related frictions with broad implications for firm performance and long-term dynamism.

In this study, we examine how achievement‐related tendencies are expressed in the professional auditing context, particularly through the interplay between the CEO and the audit partner. We use the facial width‐to‐height ratio (fWHR), a stable morphological trait widely applied in prior research, as a proxy for achievement drive. Using a sample of US audit partners from 2016 to 2019, we find that higher achievement drive is associated with enhanced audit quality, evidenced by fewer restatements and lower abnormal accruals. Auditors with higher achievement drive are also more likely to become industry experts, attain leadership positions, and achieve partnership status more quickly. Importantly, we find that high‐achievement‐drive audit partners are more inclined to assert dominance in negotiations, particularly when working with equally driven CEOs, leading to improved audit quality. Overall, our findings suggest that, when activated in auditing contexts, achievement‐oriented tendencies, as proxied by fWHR, are linked to higher audit quality.

ABSTRACT Exploiting the staggered rollout of third‐generation (3G) mobile broadband networks across 40 countries between 1999 and 2012, we examine how technological progress affects capital markets. We find that the introduction of 3G networks is followed by a reduction in bid‐ask spreads and an increase in price informativeness. These effects are more pronounced among firms with lower institutional ownership, indicating that information access through mobile broadband networks disproportionally benefits retail investors. We further show that these effects are concentrated in countries with well‐functioning markets, as characterized by transparent accounting information, broad investor participation, and strong legal protections for investors. Taken together, our findings suggest that mobile broadband connectivity reduces information frictions and improves price informativeness. They further highlight the institutional conditions under which these benefits materialize.

ABSTRACT We investigate investors' voluntary disclosure decisions under uncertainty about their information endowment. In our model, an investor may receive initial evidence about a target firm. Conditional on learning the initial evidence, the investor may receive additional evidence that helps them interpret the initial evidence. The investor takes a position in the firm's stock, then voluntarily discloses some or all of their findings, and finally closes their position after the disclosure. We present two main findings. First, the investor will always disclose the initial evidence, even though the market is uncertain about whether the investor possesses such evidence. Second, the investor's disclosure strategy of the additional evidence increases stock price volatility: they disclose extreme news and withhold moderate news. Due to the withholding of the additional evidence, misleading disclosure arises as an equilibrium outcome, where the investor's report decreases (increases) price despite their news being good (bad). These results remain robust when considering the target firm's endogenous response to the investor's report.

ABSTRACT This paper examines the association between CEOs' prosocial tendency and their firms' likelihood of accounting manipulation. We measure CEOs' prosocial tendency based on their involvement with charitable organizations. We find that prosocial CEOs are less likely to engage in accounting manipulation, as proxied by material non‐reliance restatements and SEC or US Department of Justice enforcement actions. The effect is more pronounced when CEOs are involved with charities that directly aim to improve the welfare of others and when they face stronger incentives to misreport. These results continue to hold in analyses of changes in CEOs' prosocial tendency around turnover events. Taken together, our findings suggest that CEOs' prosocial tendency, a fundamental personal trait, plays a significant role in shaping the quality of accounting information.