The gold standard in the sciences is uncovering causal relationships. A growing literature in economics utilizes field experiments as a methodology to establish causality between variables. Taking lessons from the economics literature, this study provides an “A‐to‐Z” description of how to conduct field experiments in accounting and finance. We begin by providing a user's guide into what a field experiment is, what behavioral parameters field experiments identify, and how to efficiently generate and analyze experimental data. We then provide a discussion of extant field experiments that touch on important issues in accounting and finance, and we also review areas that have ample opportunities for future field experimental explorations. We conclude that the time is ripe for field experimentation to deepen our understanding of important issues in accounting and finance.

This paper examines whether the negative association between aggregate earnings and returns is explained by the monetary policy news in aggregate earnings. Using Federal funds futures data to construct a measure of policy news, we find that aggregate earnings convey information about the Fed׳s policy actions. Additionally, the negative aggregate earnings-returns association is muted when we control for policy surprises. This result is more pronounced in periods with negative policy surprises, which tend to trigger a more significant market reaction. Taken together, these results suggest that aggregate earnings convey policy news and the market reacts negatively to policy surprises, which drives the negative aggregate earnings-returns association.

This article studies optimal patents with respect to the timing of innovation disclosure. In a simple model, we identify forces that lead firms to either suboptimally patent too early or too late in equilibrium, and we determine conditions so that stronger patents induce earlier or later equilibrium disclosure. Then, by solving an infinite multistage patent game with a more explicit structure, we describe innovation growth, and derive detailed predictions that can be used for policy experiments. As an application, we calibrate our multistage game using summary statistics from the seeds breeding industry. We find that weaker patent rights may result in welfare gains of 46% relative to the status quo. The gains are achieved because weaker patents reduce competition, thus leading firms to postpone patenting.

Official margin requirements in the U.S. stock market were established in October 1934 to limit the amount of credit available for the purpose of buying stocks. Since then, higher or rising margin requirements are associated with lower stock price volatility, lower excess volatility, and smaller deviations of stock prices from their fundamental values. The results hold throughout the post-1934 period and are not very sensitive to the exclusion of the turbulent depression years from the sample. Thus margin requirements seem to be an effective policy tool in curbing destabilizing speculation. (JEL 313, 520). Federal regulation of securities margins was mandated by Congress in the Securities Exchange Act of 1934. The stock market experience of the late 1920s led Congress to the conclusion that credit-financed speculation in the stock market might create excessive market volatility through a pyramidingdepyramiding process.' Congress reasoned that the imposition of margin requirements could constrain the amount of borrowing and prevent excessive market volatility, and subsequently gave the Federal Reserve jurisdiction over the level of margin requirements. Since 1934, the Federal Reserve

Academic and anecdotal evidence indicates that incentive systems often provide short‐term payouts without regard for long‐term consequences. New detailed disclosures mandated by FIN No. 48, Accounting for Uncertainty in Income Taxes, enable us to use a tax setting to investigate whether boards adjust performance‐based pay for uncertainty. We find managers’ bonus payouts are positively associated with tax performance; however, bonus payouts are lower when measures of ex ante tax uncertainty are higher. Our results are robust to tests of alternative explanations including financial reporting aggressiveness, overall firm risk, and other forms of compensation. Further, we document that the relation between bonus compensation and tax performance has changed in the post‐ FIN No. 48 period. Specifically, we identify a significant association between bonus payout and GAAP ETR only in the pre‐ FIN No. 48 period and a significant association between bonus payout and cash ETR only in the post‐ FIN No. 48 period, suggesting that the relation between compensation and tax avoidance should be examined carefully with particular attention to the post‐ FIN No. 48 period.

We hypothesize that greater information asymmetry causes greater losses to debtholders. To test this, we identify exogenous increases in information asymmetry using the loss of an analyst that results from broker closures and broker mergers. We find that the loss of an analyst causes the cost of debt to increase by 25 basis points for treatment firms compared to control firms, and the rate of credit events (e.g., defaults) is roughly 100–150% higher. These results are driven by firms that are more sensitive to changes in information (e.g., less analyst coverage). The evidence is broadly consistent with both financing and monitoring channels, although only a financing channel explains the impact of the loss of an analyst on firms' cost of debt.

We present evidence consistent with operational constraints leading firms to use high discount rates that average twice the firms’ cost of financial capital. Based on a survey of Chief Financial Officers matched to archival data, we find that firms with abundant access to capital but limited qualified management or manpower appear to forgo profitable projects in preparation for more profitable future investment opportunities. Consistent with this explanation, firms that use high discount rates have strong balance sheets, low leverage, and large cash holdings. In addition, firms appear to increase discount rates to account for idiosyncratic risk.

Individual heterogeneity is an important source of variation in demand. Allow-ing for general heterogeneity is needed for correct welfare comparisons. We consider general heterogenous demand where preferences and linear budget sets are statis-tically independent. Only the marginal distribution of demand for each price and income is identified from cross-section data where only one price and income is observed for each individual. Thus, objects that depend on varying price and/or income for an indiviual are not generally identified, including average exact con-sumer surplus. We use bounds on income effects to derive relatively simple bounds on the average surplus, including for discrete/continous choice. We also sketch an approach to bounding surplus that does not use income effect bounds. We apply the results to gasoline demand. We find tight bounds for average surplus in this application but wider bounds for average deadweight loss.

Using the intuition that financial markets transfer risks in business time, “market microstructure invariance” is defined as the hypotheses that the distributions of risk transfers (“bets”) and transaction costs are constant across assets when measured per unit of business time. The invariance hypotheses imply that bet size and transaction costs have specific, empirically testable relationships to observable dollar volume and volatility. Portfolio transitions can be viewed as natural experiments for measuring transaction costs, and individual orders can be treated as proxies for bets. Empirical tests based on a data set of 400, 000+ portfolio transition orders support the invariance hypotheses. The constants calibrated from structural estimation imply specific predictions for the arrival rate of bets (“market velocity”), the distribution of bet sizes, and transaction costs.

We examine the effect of institutional ownership on corporate disclosure policy using a regression discontinuity design. Using a novel dataset comprising every 8-K filing between 1996 and 2006, we find that positive shocks to institutional ownership around Russell index reconstitutions increase the quantity, form, and quality of disclosure. Compared with those at the bottom of the Russell 1000 index, firms at the top of the Russell 2000 index increase institutional ownership by 9.8%, and disclose 4.7% longer 8-K filings with 21.3% more embedded graphics. This incremental disclosure significantly increases the information content of 8-K filings for the market and for analysts.