Using a large sample of U.S. firms for the period 1993–2009, we provide evidence that the sensitivity of a chief financial officer's (CFO) option portfolio value to stock price is significantly and positively related to the firm's future stock price crash risk. In contrast, we find only weak evidence of the positive impact of chief executive officer option sensitivity on crash risk. Finally, we find that the link between CFO option sensitivity and crash risk is more pronounced for firms in non-competitive industries and those with a high level of financial leverage.

Previous literature finds anomalies are at least as prevalent in developed markets as in emerging markets; namely, the global anomaly puzzle. We show that while market development and information diffusion are linearly related, information diffusion has a nonlinear impact on anomalies. This is consistent with theoretical developments concerning the process of information diffusion. In extremely low-efficiency regimes, without newswatchers sowing the seeds of price discovery and ensuring the long-run convergence of price to fundamentals, initial mispricing and subsequent correction will not occur. The concentration of emerging countries in low-efficiency regimes provides an explanation to the puzzle.

Leveraging the China Securities Regulatory Commission’s annual random inspection exercise as a quasi-natural experiment, we document that the risk scrutiny of preventive regulatory enforcement creates regulatory uncertainty about inspected firms to business partners, leading them to reduce the provision of trade credit. Reduced access to trade credit is more pronounced for firms with weak bargaining power, high opacity, or low financial resilience. Reduced access is also evident in both ‘compliant’ and non-compliant firms, though the reduction gradually subsides as uncertainty dissipates in different ways for the two types of inspected firms. Our findings uncover an important unintended effect of preventive regulation and have implications for policy making.

We examine the stock market consequences of disclosing accounting irregularities for U.S.‐listed foreign firms. After controlling for the severity of the irregularity and other firm characteristics, we find that foreign firms experience significantly more negative short‐window stock market reactions following irregularity announcements than do U.S. firms. Moreover, for a subsample of 64 irregularities of foreign firms that are listed on both a U.S. and home country stock exchange, we find evidence that restating firms' U.S. investors react more negatively to the same irregularity than their home country investors. This differential market reaction appears related to firm‐specific information risks that are greater for foreign firms than U.S. firms. Collectively, consistent with the reputational bonding hypothesis in prior literature, our results suggest that accounting irregularities cause U.S. investors to reassess the information risk associated with foreign firms.

We explore whether accounting fraud can be detected using the information of firms economically linked to a focal firm. Specifically, we examine whether customer information disclosed by a supplier firm, combined with customers’ accounting information, helps to detect the supplier’s revenue fraud. We first confirm the economic link between the supplier and customers by showing a strong positive correlation between the supplier’s sales growth and the growth rate of total customer purchases. We then introduce two variables based on customer accounting information—the discrepancy between supplier sales growth and customer purchase growth and customer excess purchases—and show that they are predictive of supplier revenue fraud. We conduct a battery of cross-sectional tests and generally find results to vary cross-sectionally in a predictable way. Finally, the out-of-sample tests indicate that adding the two variables to Dechow, Ge, Larson, and Sloan (2011) model increases fraud prediction accuracy.

A number of sell-side healthcare analysts gain access to information outside the purview of management through Freedom of Information Act requests to the Food and Drug Administration for records on factory inspections, complaints, and drug and medical device applications. Using a difference-in-differences methodology, we find that buy (sell) recommendations and upgrades (downgrades) earn higher (lower) stock returns over the year following the receipt of FDA records. We also examine the type of information revealed in FDA factory inspection reports, and find that analysts are less likely to downgrade and are less pessimistic in their recommendations than the consensus recommendation when the information contained in the FDA report is not particularly severe. Our findings are consistent with a subset of analysts utilizing non-public information channels independent of management to gain value-relevant information about their covered firms.

This study examines the effect of restrictions on managers' outside employment opportunities on voluntary corporate disclosure. The recognition of the Inevitable Disclosure Doctrine (IDD) by courts in the U.S. states in which the firms are headquartered places greater restrictions on their managers from joining or forming a rival company. We find that, on average, the IDD adoption increases the asymmetric withholding of bad news. We further show that the IDD adoption increases the asymmetric withholding of bad news relative to good news for firms whose managers are mainly concerned about losing their current job. However, an opposite effect is observed for firms whose managers are mainly interested in seeking promotion elsewhere. Furthermore, these effects are less pronounced for firms subject to greater monitoring of their disclosure policy. These results suggest that managers' career concerns affect corporate disclosure policy, and the effect varies with the type of career concerns.

We identify a positive causal effect of healthy working environments on corporate innovation, using the staggered passage of U.S. state-level laws that ban smoking in workplaces. We find a significant increase in patents and patent citations for firms headquartered in states that have adopted such laws relative to firms headquartered in states without such laws. The increase is more pronounced for firms in states with stronger enforcement of such laws and in states with weaker preexisting tobacco controls. We present suggestive evidence that smoke-free laws affect innovation by improving inventor health and productivity and by attracting more productive inventors.

This paper provides new evidence on the impact of the housing collateral lending channel on entrepreneurial activities by allowing homeowners to access property equity and invest in new businesses. We exploit dual housing property rights forms in China as an instrument, where complete access to collateral values is only legally granted to homeowners with full property rights (FPR), with no access for those without FPR. Using data from a large survey, we find that local house price growth significantly increases the probability of starting a new business for FPR homeowners relative to the control group. The effects are robust when we rely on the exogenous shock induced by the house purchase restriction and primarily driven by homeowners without household debt. Macro analysis supports a positive correlation between the concentration of FPR homeowners and employment and economic growth, where homeowners are better able to obtain external financing via the collateral channel.

China’s land reform in 1978–84 unleashed rapid growth in farm output and household income. In new data on reform timing in 914 counties, we find an immediate trend break in the fraction of male children following the reform. Among second births that followed a firstborn girl, sex ratios increased from 1.1 to 1.3 boys per girl in the 4 years following reform. Larger increases are found among families with more education. The land reform estimate is robust to controlling for the county-level rollout of the One Child Policy. Overall, we estimate land reform accounted for about 1 million missing girls.