This study investigates the time‐series trend and determinants of matching between revenues and expenses in a sample of 42 countries. We find that the decline in matching documented by Dichev and Tang ( ) is not unique to the United States, but is a worldwide phenomenon. Our results show that matching is weaker in countries with (i) wider use of accrual accounting; (ii) a larger proportion of firms reporting significant special items; (iii) slower economic growth; (iv) more research and development activities; (v) larger service sectors; and (vi) stronger investor protection. We find no evidence that mandatory adoption of International Financial Reporting Standards affects matching. Changes in accounting and economic factors collectively explain the downward trend in matching. Overall, the results suggest that both accounting and economic factors are important determinants of matching over time and across countries.

We examine the inducement effect of labor cost on corporate innovation in emerging markets. To establish causality, we adopt a difference-in-differences approach, based on the variations generated by the passage of the new Labor Contract Law in China, as well as an instrumental variable approach. We find the inducement effect of labor cost is more pronounced for Chinese non-state-owned enterprises, firms without political connections, and firms with low labor productivity. Our results support the induced innovation hypothesis in that increases in wages will induce invention and technology adoption, but also suggest that government intervention through state ownership and political connections largely decreases this inducement effect. Our findings have implications for emerging markets regarding the transition from a low-cost labor development model to an innovation-driven growth model.

Fund managers tilt towards stocks from the location of their tertiary education (education province). We find that, compared with their peers, fund managers overweight stocks headquartered in their education provinces. This overweighting differs from other biases, such as local bias, hometown bias, and educational ties, and is detrimental to fund performance. Funds with more education-province bias have poorer fund performance and higher idiosyncratic risk than those with less bias. Further analysis shows that education-province bias is more evident during poor market times, among underperforming funds, for stocks with less information asymmetry, in economically depressed provinces, and when fund managers are educated at lower-ranked institutes. Overall, our findings suggest that education-province bias is largely attributed to fund managers’ familiarity bias.