Knowledge that Transforms

We investigate whether credit default swap (CDS) trading results in managers learning new information through stock prices that is relevant to their investment and forecasting decisions. We argue that the CDS market structure, the sophistication of CDS market participants, and the cleanness of CDS spreads as a signal of default risk together produce and convey information that is new to managers of firms referenced in CDS contracts. We consider two measures for managerial learning: (1) the sensitivity of managerial investments to share prices and (2) the sensitivity of changes in management forecast accuracy to stock returns. We find that both sensitivity measures increase significantly when firms are referenced in any traded CDS contracts, indicating that CDS trading improves managerial learning. We also find that the improvement in managerial learning is more pronounced for firms that are subject to higher uncertainty in industry‐specific and economy‐wide prospects, consistent with the view that CDS market participants have informational advantages with respect to the industry‐level and macroeconomic environments. We further find that the improvement in managerial learning is more evident for firms with higher credit risk. Our findings provide large‐sample evidence on a positive consequence of CDS trading in the context of managers' ability to learn from outside investors.

This study examines how the design of incentive contracts for tasks defined as workers' official responsibilities (i.e., standard tasks) influences workers' propensity to engage in employee‐initiated innovation (EII). EII corresponds to innovation activities that are not formally assigned to workers but are nonetheless encouraged and considered to be important for the company's success. Like other extra‐role behaviors, EII is difficult to incentivize directly. Therefore, it is important to understand whether and how explicit incentive contracts designed for the workers' standard tasks may indirectly influence their EII activity. We use field data from a manufacturing company that uses a dedicated information system to track workers' EII idea submissions. We find theory‐consistent evidence that, compared to workers receiving fixed pay, employees rewarded for their standard tasks with variable compensation contracts exhibit a lower propensity to engage in EII. This result is concentrated among ideas benefiting other constituents and activities beyond the proponents' standard task (i.e., broad‐scope ideas). In contrast, we find no difference attributable to standard task incentive design in the proposal of innovation ideas narrowly focused on the proponent's standard task (i.e., narrow‐scope ideas). Our findings suggest that variable pay narrows employees' conceptual focus around the standard task and hinders employee engagement in broad‐scope innovation activities compared to fixed compensation contracts. We contribute to the literature on incentives for innovation by showing that standard task compensation contracts have spillover effects on EII behavior. We also contribute to the nascent literature on EII by showing that innovation types , defined based on their relation with the proponent's standard task, matter. Our results are relevant for practitioners in that managers relying on variable pay contracts to incentivize standard task performance should expect lower employee engagement in broad‐scope EII.

The Journal of Accounting Research is proud to recognize our top referees of the previous calendar year. The senior editors selected those named below for their “2022 Excellence in Refereeing” based on the quality and the number of reviews they had performed for the journal during the 2022 calendar year. We thank the referees for their invaluable services to the journal. Jannis Bischof, University of Mannheim Matthew Bloomfield, University of Pennsylvania Pietro Bonetti, IESE Business School Thomas Bourveau, Columbia University Mark Bradshaw, Boston College Matthias Breuer, Columbia University Jung Ho Choi, Stanford University Yiwei Dou, New York University Raphael Duguay, Yale University Travis Dyer, Brigham Young University Henry Eyring, Duke University Fabrizio Ferri, University of Miami Henry Friedman, University of California, Los Angeles Stephen Glaeser, University of North Carolina João Granja, University of Chicago Nicholas Guest, Cornell University Steven Kachelmeier, University of Texas, Austin John Kepler, Stanford University Sehwa Kim, Columbia University Ranjani Krishnan, Michigan State University Lian Fen Lee, Boston College Miao Liu, Boston College Yao Lu, Cornell University Daniele Macciocchi, University of Miami Charles McClure, University of Chicago Mihir Mehta, University of Michigan Maximilian Muhn, University of Chicago James Omartian, University of Michigan Gaizka Ormazabal, IESE Business School Hong Qu, Kennesaw State University Thomas Rauter, University of Chicago Delphine Samuels, University of Chicago Timothy Shields, Chapman University Nemit Shroff, MIT Lorien Stice-Lawrence, University of Southern California Stephen Stubben, University of Utah Andrew Sutherland, MIT Sorabh Tomar, Southern Methodist University Rahul Vashishtha, Duke University Felix Vetter, University of Mannheim Dushyantkumar Vyas, University of Toronto Charles Wang, Harvard Business School Clare Wang, University of Colorado, Boulder Edward Watts, Yale University TJ Wong, University of Southern California Gaoqing Zhang, University of Minnesota Frank Zhou, University of Pennsylvania Christina Zhu, University of Pennsylvania Luo Zuo, Cornell University