Knowledge that Transforms

Despite regulations mandating audit committee economic independence, the CEO may still influence audit committee members’ objectivity through social ties (e.g., belonging to the same country club) or professional ties (e.g., having served on boards together). Additionally, prior archival research finds that audit committee industry expertise enhances financial reporting quality. Nonetheless, information about ties and industry expertise are not currently publicly disclosed in regulatory filings. In an experiment with 342 reasonably informed investors, we find, as hypothesized, that ties (professional or social) and industry expertise affect assessments of audit committee independence and competence. Using planned contrast tests, we also find that investors assess audit committees with no ties and industry expertise (social ties and no industry expertise) as the most (least) effective and also result in the highest (lowest) likelihood of investing. Further, the potential negative effects of social ties on investor’s judgments are muted when there is industry expertise present, while the presence of no ties appears to decrease negative effects on investor judgments due to a lack of industry expertise. This study provides important baseline evidence supporting the relevance of audit committee ties and industry expertise information to investors and thus suggests the value of increased disclosures to investors of such information to enhance their ability to make more informed investment decisions.

In this paper, we investigate how increasing transparency about managers' treatment of their employees affects the tendency of employees to initiate collusion. Building on behavioral economics theory, we argue that employees who are treated less kindly by their managers are more willing to initiate or join a collusive agreement. We hypothesize that internal transparency affects collusion in two ways. First, by revealing how kindly employees are treated by their managers, transparency increases or decreases the probability that individuals are singled out as potential “partners in crime.” Second, increasing transparency incentivizes managers to treat employees more kindly, which in turn reduces employees’ inclination to initiate collusion. The results of two experiments generally support the theory. We discuss the implications of our study for research and practice.

We examine responses to pressures to act on extractive firm country-by-country reporting (CbCR) by three regulators: the International Accounting Standards Board, the European Commission, and the Securities and Exchange Commission. Debates over CbCR of payments that extractive firms make to governments center on improvements to transparency, governance, and accountability and raise questions about the division of regulatory labor in terms of where and by whom global reporting issues are undertaken and why. Our comparative analysis suggests that while the three regulators resist or respond reluctantly to similar pressures to act on CbCR, each responds in distinct ways that reflect and impact regulatory mandates. Specifically, we show how the regulators’ responses constitute the purpose, problematize the objectives, and construct the perceived interests served by CbCR in relation to each regulator’s mandate. We highlight how these responses can be understood through modes of discursive ignorance (McGoey, 2019) and the uncomfortable knowledge (Rayner, 2012) that each regulator may engage with when pressures challenge how regulators make sense of the world. Our study highlights that regulatory responses are based partly on what regulators assume are their mandates, their legitimacy and ways of operating. It analyzes their self-understandings and defense mechanisms, thereby providing an elaboration of responses to pressures for action and offering a richer political economy of regulation that highlights sensemaking in these processes. We further elaborate on what these responses imply for the division of regulatory labor around pressures to act on global reporting issues, as well as broader implications for participation in and ignorance around accounting regulatory projects.

This paper examines the evolution of the institutional logic of public finance in Brazil, adopting both an historical time frame and a short time frame of recent reforms. We find that a bureaucratic logic of budgeting at the level of the organizational field has blended historically with a political logic of patrimonial power at the societal level to form a succession of hybrid institutions. Adopting a shorter-term perspective, we observe the processes by which hybridization occurs in response to reforms for fiscal responsibility and accruals reporting. Our analysis reveals two pathways to hybridization: by the assimilation of compatible institutional logics and by the accommodation of contradictory logics. We explain reform outcomes as the product of the agency of actors performing social roles across the organizational field. These generate a ‘package’ in which the accommodation of change in some respects is facilitated by the persistence of operational routines in other respects. In reviewing our contribution, we propose that more attention should be given to studies at the level of the organizational field which reveal agency as the product of the structural position of role-holders to complement studies of specific organizations which tend to suggest strategic agency.