Abstract Do individuals care about their relative income? While this is a long-standing hypothesis, revealed-preference evidence remains elusive. We provide a unique test by studying residential choices: individuals often must choose between places with different income distributions, and as a result they “choose” their relative income. We conducted a field experiment with 1,080 senior medical students who participated in the National Resident Matching Program. We estimate their preferences by combining choice data, survey data on perceptions, and information-provision experiments. The evidence suggests that individuals care about their relative income and that these preferences differ across single and nonsingle individuals.

ABSTRACT We examine the effects of corporate networks involving common directors and auditors (i.e., connections creating single or double ties between companies) on two important monitoring roles: financial reporting quality and auditor dismissal decisions. We also investigate how shocks to the networks, in the form of the audit failing to detect misstatements, affect these networks' structure. The investigations are important because these networks can have significant effects on firm governance and may have different effects when they overlap. We have three primary findings about double‐tie networks: (i) there is no evidence that they improve overall financial reporting quality beyond the effect of single‐tie networks; (ii) they lower directors' willingness to dismiss the auditor, even when there is a signal of an audit failure within the network; and (iii) they allow audit‐quality problems to spread between companies. Our results demonstrate the importance of investigating multiple types of networks and how shocks travel through them. Our findings also lend credence to concerns that “cozy” relationships between directors and auditors diminish the link between poor audit quality and market‐imposed reputation penalties—specifically, auditor dismissals.

ABSTRACT Using a novel empirical approach and newly available administrative data on U.S. tax filings, we estimate the corporate elasticity of taxable income, decompose the elasticity into economic responses versus other tax‐motivated “accounting” transactions, and determine how responsiveness varies depending on accounting method, firm size, and interest rate. In response to a 10% increase in the expected marginal tax rate, private U.S. firms decrease taxable income by 9.1%, which indicates a discernibly more elastic response than prevailing estimates. This response reflects a decrease in taxable income of 3.0% arising from real economic responses to a firm's scale of operations and 6.1% arising from accounting transactions via (for example) revenue and expense timing. Responsiveness to the corporate tax rate is more elastic if a firm uses cash (9.9%) rather than accrual accounting (7.4%), if the firm is small (9.9%) rather than large (8.6%), and if the firm discounts future cash flows at a lower rate.

Abstract We establish limitations to the usage of direct revelation mechanisms (DRMs) by corporations seeking decision-relevant information in economies with securities markets. In this environment, posting a DRM increases the informed agent’s outside option: if the agent rejects the DRM, he convinces the market he is uninformed, and he can aggressively trade with low price impact, thereby generating large (off-equilibrium) trading gains. This endogenous outside option may make using a DRM to screen uninformed agents impossible. When screening is possible, solely relying on the market for information is optimal if the increase in outside option is sufficiently large. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Abstract We run a series of experiments involving over 4,000 online participants and over 10,000 school-aged youth. When individuals are asked to subjectively describe their performance on a male-typed task relating to math and science, we find a large gender gap in self-evaluations. This gap arises when self-evaluations are provided to potential employers, and thus measure self-promotion, and when self-evaluations are not driven by incentives to promote. The gender gap in self-evaluations proves to be persistent and arises as early as the sixth grade. No gender gap arises if individuals are asked about their performance on a more female-typed task.

We empirically examine the effects of index investing using predictions derived from a Grossman-Stiglitz framework. An exogenous increase in index investing leads to lower information production as measured by Google searches, EDGAR views, and analyst reports, yet price informativeness remains unchanged. These findings are consistent with an equilibrium in which investors choose to gather private information whenever it is profitable. As index investing increases, there are fewer privately-informed active investors (so overall information production drops), but the mix of investors adjusts until the returns to active investing are unchanged. As a result, passive investing does not undermine price efficiency.

We study the link between industrial policy and asset prices by using the Made in China 2025 industrial policy, announced in May 2015, as an external shock. We track Chinese firms and U.S. firms in ten high-tech industries targeted by the policy. In the short run, stock prices, measured by cumulative abnormal returns (CARs), increase significantly for both Chinese and U.S. firms, by 9.9% and 1.4%, respectively. However, in the long run, Chinese firms’ CARs drop heavily, while U.S. firms’ CARs continually increase. We further find that after the policy announcement, Chinese firms’ profitability declines dramatically by an average of 52.9% and firms’ leverage increase significantly, but they do not receive additional government subsidies. We conclude that the policy only boosts market reaction in the short run but does not promote targeted industries longer term.

This study examines intra-industry information transfer in the emerging market of China, where financial and market institutions are underdeveloped and the majority of investors are inexperienced individual investors. In an analysis of the management earnings forecasts of publicly listed firms, we find that investors in China transfer information between peer firms, with a stronger transfer when earnings forecasts are more accurate and credible, and when the investors of non-announcing firms are more sophisticated. We also find that the non–market-based resource allocation and entry restrictions in China discourage intra-industry information transfer between firms. Overall, our results suggest that intra-industry information transfer in China is constrained by institutional barriers. Reforms aimed at removing these barriers can help enhance these markets’ stock price efficiency. Our results provide policy implications to other emerging markets with institutional environments similar to China.

This paper investigates the trade-offs between local elites and state agents as tax collectors in low-capacity states. We study a randomized policy experiment assigning neighborhoods of a large Congolese city to property tax collection by city chiefs or state agents. Chief collection raised tax compliance by 3.2 percentage points, increasing revenue by 44 percent. Chiefs collected more bribes but did not undermine tax morale or trust in government. Results from a hybrid treatment arm in which state agents consulted with chiefs before collection suggest that chief collectors achieved higher compliance by using local information to more efficiently target households with high payment propensities, rather than by being more effective at persuading households to pay conditional on having visited them. (JEL D73, D83, H24, H26, H71, O12, O17)

ABSTRACT Most research on non-GAAP financial measures focuses on earnings or earnings per share, although non-GAAP revenue disclosure has recently attracted SEC scrutiny. It is unclear ex ante what non-GAAP adjustments could improve revenue's usefulness because, unlike earnings, revenue is a top-line number related primarily to core (i.e., persistent) business activities. We present the first archival analysis of non-GAAP revenues using a large, hand-collected sample of disclosures from 2015 to 2018. Approximately one in five earnings announcements contains a non-GAAP revenue disclosure, focused on revenue growth. Our evidence suggests that firms disclose non-GAAP revenue when GAAP revenue is incomparable with prior periods, and not to compensate for poor GAAP performance. Furthermore, non-GAAP revenue growth predicts future revenue growth better than GAAP revenue growth, and the market responds to this information. Overall, non-GAAP revenue disclosures are motivated by economic fundamentals rather than opportunism, on average, and they provide investors with relevant information.