Many experiments have found that participants take more investment risk if they see returns less frequently, see portfolio-level returns (rather than each individual asset's returns), or see long-horizon (rather than one-year) historical return distributions. In contrast, we find that such information aggregation treatments do not affect total equity investment when we make the investment environment more realistic than in prior experiments. Previously documented aggregation effects are not robust to changes in the risky asset's return distribution or the introduction of a multi-day delay between portfolio choice and return realizations.

Exchange rate models with uncertain and incomplete information predict that investors focus on a small set of fundamentals that changes frequently over time. We design a model selection rule that captures the current set of fundamentals that best predicts the exchange rate. Out-of-sample tests show that the forecasts made by this rule significantly beat a random walk for 5 out of 10 currencies. Furthermore, the currency forecasts generate meaningful investment profits. We demonstrate that the strong performance of the model selection rule is driven by time-varying weights attached to a small set of fundamentals, in line with theory.

Research summary: Shareholder activism has become more widespread, yet the role of corporate governance as antecedent to shareholder activism remains equivocal. We propose a new conceptual model that characterizes the stochastic of observable shareholder activism as a compound product of two latent components representing (1) shareholder activists' propensity to target a company and (2) executives' propensity to settle activists' demands privately. Our model explicitly decouples corporate governance expectations for the two latent components embedded in activism process, and thus allows us to relax assumptions of homogenous shareholder interests and constrained managerial discretion where corporate managers are expected to negotiate privately and settle only value‐creating activist demands. Bayesian analysis of zero‐inflated Poisson regression reveals that corporate governance relationships with activism vary across shareholder demands and private settlements. Managerial summary: Increasing shareholder activism has generated debates as to whether activism promotes managerial accountability and responsibility or instead encourages managerial short‐termism. Our research model allows for heterogeneous interests among a company's shareholders. We theorize and empirically investigate a broader role of corporate governance: governance mechanisms need to ensure that executives are not (1) ignoring activists' value‐increasing demands or (2) accommodating activists' value‐decreasing demands in a private, opaque manner that disenfranchises other shareholders. Our results indicate that corporate governance implications differ for visible shareholder demands in contrast with private activism. A plausible application of our model is that it provides estimates of the probability of the numbers of shareholder demands to be received by a firm and the probability of privately settling a demand. Copyright © 2015 John Wiley & Sons, Ltd.

We describe the process through which the Securities and Exchange Commission (SEC) makes filings “publicly available.” For a sample of Form 4 (insider trade) filings, we show that, during the period we examine, the majority of filings are available to paying subscribers of the SEC's public dissemination system (PDS) feed before they are posted to the EDGAR website, and so provide subscribers and their clients with a private advantage. We show that this advantage translates into an economically significant trading advantage, and prices, volumes, and spreads respond to the news contained in filings beginning around 30 seconds before public posting. These findings indicate that the SEC dissemination process does not always provide a level playing field and that the meaning of publicly available information in capital markets is no longer simple or obvious. In response to our study, the SEC launched an investigation and agreed to eliminate the PDS timing advantage.

Based on a difference-in-differences approach, we find strong evidence that the initial enforcement of insider trading laws improves capital allocation efficiency. The effect is concentrated in developed markets and manifests shortly after the enforcement year. Further analysis shows that the improvement is positively associated with the increase in liquidity around the enforcement year and the opaqueness of the information environment before the enforcement year. The improvement is more pronounced for firms operating in more competitive markets, being more financially constrained, and with more severe agency problems. Finally, we find increased accounting performance after the enforcement and the increase is positively associated with the improvement in capital allocation efficiency. Overall, our evidence suggests that the initial enforcement of insider trading laws improves capital allocation efficiency by providing more information to guide managerial decisions and by reducing market frictions arising from information asymmetry and agency problems.

The accepted manuscript version (last revised 5 Jan 2018 (v8)) has 118 pages, 3 tables, 11 figures, and includes supplementary appendix. This version corrects some typos in Example 2 of the published version. This supplement contains 11 appendices with additional results and some omitted proofs. Appendices F-J include additional results for Sections 2-7, respectively. Appendix K gathers auxiliary results on algebra of covering entropies. Appendices L and M contain the proofs of Sections 4 and 5 omitted from the main text. Appendix N contains the proofs of Sections 6 omitted from the main text, together with the proofs of the additional results for Section 6 in Appendix I. Appendix O reports the results of a simulation experiment.

We estimate the effect of endogenous training participation on transitions in and out of employment for disadvantaged women in the Job Training Partnership Act (JTPA) study. Decomposing the effect of training on employment into its effects on transitions in and out of employment has the potential to develop more effective programs. We also consider a potentially serious identification problem that arises when individuals do not undertake training immediately, and we propose a test to shed light on this problem. We find that this problem is not important in our context. JTPA classroom training substantially reduced unemployment durations, and thus it complements programs that increase employment durations.

ABSTRACT In this study, we examine how information foraging by auditors affects audit evidence collection in two distinct contexts, and show how a small change to audit methodology mitigates the potentially harmful effects of foraging. Information Foraging Theory explains how, while navigating an information environment, individuals learn to acquire information through personally experiencing the costs incurred and the values obtained from information. Consistent with the theory, we find that auditors react to the immediately felt costs of information collection (e.g., time and effort) at the expense of a more global consideration of information value (i.e., auditors collect lower-quality audit evidence). However, foraging behavior is moderated by removing the personal cost to the individual auditor (identifying audit evidence for another member of the audit team to collect), further demonstrating that these personally felt costs influence auditor choices in a way that reduces the quality of information collected. We contribute to the literature by demonstrating how information foraging can influence evidence quality and, thus, audit quality, and how a slight alteration of audit methodology can mitigate this behavior.

We examine the association between employee quality and financial reporting outcomes. Using the average workforce education level in MSA(s) where the firm operates as a proxy for employee quality, we find that firms with a high-quality workforce exhibit higher accruals quality, fewer internal control violations, and fewer restatements. These firms also issue superior management forecasts, in terms of frequency, timeliness, accuracy, precision, and bias. Employees located at the firm's headquarters primarily drive our findings. Our evidence suggests employee quality, particularly at a firm's headquarters, is associated with both mandatory and voluntary disclosure quality.

We assess the rate of replication for empirical papers in the 2010 American Economic Review. Across 70 empirical papers, we find that 29 percent have 1 or more citation that partially replicates the original result. While only a minority of papers has a published replication, a majority (60 percent) have either a replication, robustness test, or an extension. Surveying authors within the literature, we find substantial uncertainty over the number of extant replications.