ABSTRACT We study how nonfinancial firms’ operating risks change after bank competition increases. By exploiting the 1990s staggered regulatory reforms across U.S. states that allowed interstate banking and branching, we show that out-of-state bank entry was associated with lower borrower risk-taking on average. Large, profitable, safe, and geographically diversified firms signed up as new clients of large entrant banks, which offered larger and cheaper loans that reflected their higher efficiency and risk reduction through geographical diversification. We argue that these large banks could substitute for local relationship lending with more data collection from branches in multiple states. Firms that began borrowing from entrant banks increased capital expenditures and project-specific financing and kept R&D expenses stable but reduced R&D risk. Firms that continued borrowing from incumbent banks paid higher interest rates and increased their risk, suggesting that their credit access fell. States that opened up more had bigger changes in these outcomes. Data availability: Data are available from the public sources cited in the text. JEL Classifications: G21; G28; G32.

ABSTRACT We show that firms' investment opportunity sets (IOS) are multidimensional. Analyzing Form 10-K texts, we identify 445 unique keywords that predict firms' future investments during 1995–2009 and combine them into 43 underlying factors. Industry-specific factors include Bio-Pharma, Banking, Information Technology, Oil and Gas, and Retail Stores, while more general factors include Equity Intensity, Debt Intensity, Lease, Going Concern, and Acquisition. These factors form our multidimensional measures of IOS. They outperform Tobin's Q and/or industry fixed effects, in predicting future out-of-sample (2010–2015) investments and related corporate policies, and even inform incrementally over lagged dependent variables. We trace the factors' improved predictive power to their multidimensional nature, which captures IOS-related variation within and between industries, and stability in IOS that allows 10-K texts to be more informative. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: G31; G32; G35; M41; M21.

Sales decreases affect earnings more than sales increases because of cost stickiness. We hypothesize that this correlated omitted variable constitutes a confounding effect in standard asymmetric timeliness models. Controlling for a piecewise linear effect of sales changes in these models decreases the measured asymmetric timeliness significantly and changes inferences about the average level of conservatism and the extent of cross-sectional variation in conservatism. Validation tests confirm that the asymmetry for sales changes is consistent with sticky costs and is distinct from conditional conservatism. Future empirical research on conditional conservatism should recognize the potential confounding effect of sticky costs.

ABSTRACT We study the influence of bank competition on U.S. public borrowers’ accounting conservatism by exploiting the staggered adoption of the Riegle-Neal Interstate Banking and Branching Efficiency Act (IBBEA) of 1994, which increased the threats of new bank entrants and actual bank entry. We find that borrowers’ conditional conservatism fell after IBBEA. Conservatism fell more for firms located in states with weak incumbent banks and states with more out-of-state entrants, especially entrants with better monitoring technologies. The decrease in conservatism partially stems from borrowers’ increased investment and risk-taking incentives. Conservatism fell more for firms relying more on bank loans, especially those that borrowed loans for the first time after IBBEA and for firms having lower dedicated institutional ownership and board independence. We also find that loans included fewer covenants and that bank loan borrowers became less likely to choose Big N auditors and industry specialist auditors after IBBEA. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: G21; G28; K23; M41.

ABSTRACT Accountants examine multiple indicators when assessing whether individual assets are impaired. Different indicators predict cash flows over varying time horizons, and their importance varies with how far into the future individual assets are expected to generate cash flows. We predict that earnings exhibits asymmetric timeliness with respect to multiple indicators, including stock return, sales change, and operating cash flow change, which differentially explain write-downs of current assets, long-lived tangible assets, and indefinite-lived goodwill. We predict an interaction effect between indicators, such that the total impact of several consistent indicators is greater than the sum of their individual impacts. Empirical estimates for U.S. firms are consistent with our predictions and yield new insights about the effects of multiple indicators for both conservatism and impairment research. Our multi-indicator asymmetric models also change inferences about the relative explanatory power of economic factors versus reporting incentives in asset impairments. JEL Classifications: G32; L25; M41; M42.