Knowledge that Transforms

This study investigates how audit firm-level spatial licensing requirements affect audit market competition and audit quality, focusing on small (triennially inspected) audit firms, for which licensing frictions are most relevant. Exploiting the staggered state-level adoption of CPA firm mobility provisions that remove spatial licensing barriers, we find that adoption increases competition among small audit firms, as reflected by lower market concentration and greater first-time entry by small out-of-state auditors. Firm mobility adoption also improves audit quality, as indicated by a lower likelihood of client misstatements. These effects are concentrated in less competitive audit markets and among auditors with higher PCAOB deficiency rates. Audit quality improvements extend to both incumbent auditors and new out-of-state entrants, and we find no evidence of audit fee discounting. Overall, our results suggest that removing spatial licensing barriers fosters a more competitive small audit firm market while improving audit outcomes, without increasing audit costs.

This study examines whether Freedom of Information Act (FOIA) requests to the Securities and Exchange Commission convey value-relevant information about publicly traded firms and whether sophisticated investors trade on that information. Our empirical analysis reveals heterogeneous value relevance associated with different types of requests. Specifically, requests submitted by proxy agents to probe for ongoing investigations as well as anonymous requests are negatively correlated with future returns, while requests from institutional investors and intellectual property entities are associated with positive future returns. Our results also support the direct-trading hypothesis, showing institutional investors and short sellers trade on FOIA-obtained information. Our findings add to the information-acquisition literature by highlighting the heterogeneous value signals in FOIA requests, particularly the negative value signals.

We examine whether negative news media coverage of peer audit firms affects audit quality by mitigating the contagion effect of low-quality audits. We find that when a company issues a restatement, other companies served by the same audit office or within the same city are more likely to subsequently issue a restatement. However, we find that higher negative peer firm news coverage mitigates this contagion effect, particularly when auditors have greater opportunity to improve audit quality (smaller companies) and when media attention amplifies reputational pressures (higher local news intensity). Our findings extend to litigation-related news but not to nonnegative news, suggesting that auditors respond to perceived reputational threats stemming from negative news. Additionally, negative peer news increases auditor attention, consistent with an auditor supply-side effect that improves audit quality. Our findings highlight the media’s role as an informal oversight mechanism.

We examine how analysts’ information acquisition and processing differ when analysts have access to AI resources, focusing on investment banks’ AI investments. We propose and test a two‐step framework, which is informed by in‐depth interviews with analysts. First, consistent with AI facilitating automation‐assisted public information processing, we show that AI investments are associated with more timely earnings forecasts following 10‐K filings, particularly after the implementation of iXBRL, which increases the machine readability of filings. Second, we show that analysts reallocate the time and capacity freed by automation toward acquiring and incorporating private information, supported by several sets of evidence: AI investments (1) are associated with higher quality and bolder earnings forecasts, particularly when private information is more important and accessible to analysts; (2) are associated with an expansion of analyst coverage to new firms and industries; and (3) are associated with higher information‐seeking efforts, particularly greater participation in earnings conference calls. Additionally, exploiting the launch of AskResearchGPT at Morgan Stanley, an in‐house generative AI designed for research, we find results consistent with our main analyses. Overall, our study provides insights into the potential for AI to reshape the human value of sell‐side analysts.

Why do so few women become CEOs? To understand this glass ceiling, we estimate a dynamic model of the CEO gender decision, which contains perceived gender productivity differences, search costs reflecting limited female labor supply, and employer disutility from discrimination. The key factor is the shortage of suitable female candidates, as boards prefer hiring women, and productivity differences between genders are minimal. We find no evidence of a glass cliff in which women become CEOs just as firms are failing. While better governance is associated with women becoming CEOs, the importance of limited female labor supply is unrelated to governance.

We examine how labor market competition affects the quality of workplace information on social media. Using employer reviews on Glassdoor for U.S. publicly listed firms from 2011 to 2022, we find that reviews become less informative about actual workplace practices when firms face more intense competition for labor, consistent with competition inducing workplace information management. The decline in review informativeness is more pronounced when employees have narrower external networks, when firms are less unionized, and when firms have a smaller review base, suggesting that workplace information management is more likely when labor market information asymmetry is greater. Additional analyses show that positive reviews in highly competitive labor markets predict higher short-term labor inflows but greater subsequent employee turnover, indicating a gap between managed expectations and actual workplace conditions. Taken together, our evidence suggests that labor market competition potentially distorts the crowdsourced signals available to job seekers on anonymous review websites.

We study how fatal and nonfatal health shocks affect households’ ability to meet their financial obligations. We find that fatal shocks substantially increase the likelihood of default and that housing wealth plays a key role as a self-insurance mechanism. Surviving spouses who experience the largest income losses are more likely to sell their homes, and those without housing wealth face a sharply higher risk of debt collection. In the most financially vulnerable families, these shocks even generate intergenerational spillovers. In contrast, nonfatal health shocks lead to only modest increases in default risk. Taken together, our findings suggest that strengthening survivors’ benefits for households with limited resources could improve welfare across generations.