The release of the full set of financial statements in Form 10–Q provides investors with the data necessary to estimate the discretionary portion of earnings, thereby allowing them to better assess the integrity of reported quarterly earnings. We thus expect a negative association between unexpected discretionary accruals estimated using 10–Q disclosures and stock returns around 10–Q filing dates. Consistent with our expectations, we document a negative association between unexpected discretionary accruals and cumulative abnormal returns over a short window around the 10–Q filing date. Furthermore, this association varies systematically with investor sophistication. Finally, results from portfolio tests indicate that this association is economically as well as statistically significant. One interpretation of our findings is that accruals management has substantial valuation consequences, which are quickly impounded into stock prices.

Accounting Standards Update (ASU) 2016‐01 requires that unrealized gains and losses on equity investments (equity‐URGL) previously recognized in other comprehensive income now be included in net income. Using a sample of public insurers, we examine how this accounting standard change influences managerial investment decisions, with a particular focus on the moderating effects of compensation contracting and financial reporting practices. We find that prior to ASU 2016‐01, equity‐URGL was positively associated with CEO compensation, but this association dissipates in the post‐adoption period, when equity‐URGL is more frequently excluded from CEO performance metrics. Despite purported concerns about increased earnings volatility due to the new reporting requirements, highly affected insurers do not significantly reduce the size or risk of their equity investment portfolios following ASU 2016‐01, particularly when compensation metrics exclude equity‐URGL. We also find that equity‐URGL is more frequently excluded from non‐GAAP earnings post‐adoption, suggesting that managers adjust financial reporting practices as a response to the change. Moreover, highly affected insurers maintain the size and risk of their equity portfolios when equity‐URGL is excluded from non‐GAAP earnings. These findings suggest that managerial responses to ASU 2016‐01 are influenced by a balance between incentive structures and the costs associated with adjusting investment strategies.

We evaluate the net costs and benefits of the whistleblower ( WB ) provisions adopted under the Dodd‐Frank Reform Act of 2010 by examining investor responses to events related to the proposed regulations. We focus our main analysis on a sample of firms that lobbied against implementation of the WB provisions by submitting a comment letter to the SEC . Lobbying firms are characterized by weaker existing WB programs and greater degrees of managerial entrenchment than a matched control sample of similar non‐lobbying firms. Short‐window excess stock returns around events related to implementation of the WB rules are significantly more positive for the portfolio of lobbying firms than for their matched controls; this effect is also more pronounced for lobbying firms with weaker existing WB programs. These results suggest that investors expect the new WB provisions to provide net benefits by improving shareholder protection.

We empirically examine the effects of intensified scrutiny over non-GAAP reporting on the quality of non-GAAP earnings exclusions. We find that, on average, exclusions are of higher quality (i.e., more transitory) following intervention by the Securities and Exchange Commission (SEC) into non-GAAP reporting. We further find that firms that stopped releasing non-GAAP earnings numbers after the SEC intervention had lower quality exclusions in the pre-intervention period. These results are consistent with the SEC's objectives of improving the quality of non-GAAP earnings figures. However, when we decompose total exclusions into special items and other exclusions, we find evidence that the quality of special items has decreased in the post-intervention period, which suggests that managers adapted to the new disclosure environment by shifting more recurring expenses into special items. This suggests that there may be unintended consequences arising from the heightened scrutiny over non-GAAP reporting.