What is the role of information intermediaries in corporate governance? This paper examines equity analysts’ influence on managers’ earnings management decisions. Do analysts serve as external monitors to managers, or do they put excessive pressure on managers? Using multiple measures of earnings management, I find that firms followed by more analysts manage their earnings less. To address the potential endogeneity problem of analyst coverage, I use two instrumental variables based on change in broker size and on firm's inclusion in the Standard & Poor's 500 index, and I find that the results are robust. Finally, given the number of covering analysts, analysts from top brokers and more experienced analysts have stronger effects against earnings management.

We investigate the capital structure of pioneering startup firms, which are frequently credited with opening new markets and niches in the digital era and often face the threat of the potential entry of successful, cash-rich firms from adjacent markets. Our analysis is made in the context of a winner-take-all competition in the form of an all-pay auction for the monopolistic position in a new market. We show that a pioneer's optimal capital structure exhibits widespread diversity and is determined by a tradeoff between entry deterrence and post-entry competition intensification. A pure-equity (a mixture of equity and risky debt) structure is optimal when (1) barriers to entry are small (large), (2) the future prospect of the new market is fairly certain and/or, (3) the new market is likely (unlikely) to create large externalities on the potential entrant's existing business. The post-entry competition is likely to engender large losses to both the winner and the loser.

This article studies an asymptotic framework for conducting inference on parameters of the form φ( heta_0), where φ is a known directionally differentiable function and heta_0 is estimated by $\hat heta_n$. In these settings, the asymptotic distribution of the plug-in estimator $φ(\hat heta_n)$ can be derived employing existing extensions to the Delta method. We show, however, that (full) differentiability of φ is a necessary and sufficient condition for bootstrap consistency whenever the limiting distribution of $\hat heta_n$ is Gaussian. An alternative resampling scheme is proposed that remains consistent when the bootstrap fails, and is shown to provide local size control under restrictions on the directional derivative of φ. These results enable us to reduce potentially challenging statistical problems to simple analytical calculations—a feature we illustrate by developing a test of whether an identified parameter belongs to a convex set. We highlight the empirical relevance of our results by conducting inference on the qualitative features of trends in (residual) wage inequality in the U.S.

We propose a novel and easy-to-implement approach to detect potential overbilling based on the hours worked implied by the service codes which physicians submit to Medicare. Using the Medicare Part B Fee- for-Service (FFS) Physician Utilization and Payment Data in 2012 and 2013 released by the Centers for Medicare and Medicaid Services, we construct estimates for physicians' hours spent on Medicare beneficiaries. We find that about 2,300 physicians, representing about 3 percent of those with 20 or more hours of Medicare Part B FFS services, have billed Medicare over 100 hours per week. We consider these implausibly long hours.

Nearest neighbor (NN) matching is widely used in observational studies for causal effects. Abadie and Imbens (2006) provided the first large‐sample analysis of NN matching. Their theory focuses on the case with the number of NNs, M fixed. We reveal something new out of their study and show that once allowing M to diverge with the sample size an intrinsic statistic in their analysis constitutes a consistent estimator of the density ratio with regard to covariates across the treated and control groups. Consequently, with a diverging M , the NN matching with Abadie and Imbens' (2011) bias correction yields a doubly robust estimator of the average treatment effect and is semiparametrically efficient if the density functions are sufficiently smooth and the outcome model is consistently estimated. It can thus be viewed as a precursor of the double machine learning estimators.

Using finite mixture models, we find that financial distress is related to realized return negatively (positively) for one (the other) latent group. The negative (positive) relation concentrates in firms with large negative (positive) realized return; the likelihood for a firm to be in the latent group with a positive relation is negatively related to its price-to-value ratio estimate and mispricing score, both of which measure relative mispricing. The mispricing-correction component of realized return is negative (positive) for overvalued (undervalued) firms and decreases (increases) with corrected overvaluation (undervaluation). Overall, our findings are consistent with the view that mispricing—undervaluation and overvaluation—is larger for firms with higher financial distress. Evident in our findings, an overall negative relation between financial distress and realized return is driven by the negative relation between financial distress and the mispricing-correction component for overvalued firms and, therefore, it is not at odds with the risk-reward paradigm. • The relation between distress and realized return is positive (negative) for undervalued (overvalued) firms. • The negative overall relation between distress and realized return does not contradict the risk-reward paradigm. • Zhuo (June) Cheng acknowledges financial support from Hong Kong SAR Research Grants Council, China (#15506018).

The average total compensation of directors in U.S.-listed companies was $342,030 in 2020, 5.06 times the median household income. Directors set their own pay, giving rise to potential self-dealing. We argue and document that in the presence of self-dealing, external mechanisms such as legal standards act as effective means of governance. Following a landmark Delaware court ruling that subjected director pay to a more stringent legal standard, Delaware-incorporated firms reduced director compensation relative to non-Delaware firms and experienced positive and non-transient stock price reactions. Our results indicate that proper governance of director compensation enhances firm value.

ABSTRACT Using two decades of French administrative data, we find that post‐leveraged buyout (LBO), target firms reduce within‐firm pay gaps while increasing profitability relative to control firms. Employee turnover drives the pay‐gap reduction. In target and control firms alike, turnovers reduce average pay more at the top of the wage distribution than at the bottom because separated employees are paid more—new joiners less—than similar employees, especially among skilled employees. LBOs amplify this effect through increased turnover among managers. Post‐buyout, p90/p10, gender, age, and managers/non‐managers pay gaps decline by 3%, 9%, 21%, and 4% and the employee pool becomes younger.

Abstract This study investigates whether the existence or strength of any misreaction in the options market is affected by investor sophistication and investor sentiment. Based on a unique data set of the complete history of all transactions in the Taiwan options market, we find that individual investors exhibit significant misreaction to information and that this misreaction becomes stronger during periods of high investor sentiment. In addition, more active or aggressive individual investors always exhibit misreaction and do not learn from their past mistakes. Our empirical results are robust to alternative measures of investor sentiment and definitions of long- and short-term horizons.