Using detailed data of individual investors, this study shows that, on average, individuals invest more in firms with clear and concise financial disclosures. The results indicate this relation is less pronounced for high frequency trading and financially-literate individuals. The study also shows that individuals' returns are increasing with clearer and more concise disclosures, implying such disclosures reduce individuals' relative information disadvantage. Together, the findings suggest improved corporate disclosure practices benefit individual investors, in particular buy-and-hold investors.

Software is one of the most important assets that needs to be priced in the digital economy. It has emerged as a disruptive technology, with companies primarily valued for their software offerings growing from 2 percent to 13 percent of market share between 1996 and 2023. We document persistent anomalies in growth forecasts and stock returns for software companies, indicating significant deviations from rational expectations over multiple decades. Our findings are consistent with Bayesian investors gradually learning about software’s growing importance, highlighting how markets can be very slow to discern fundamental shifts from transient shocks in noisy data. (JEL D22, G12, G32, L14, L86)

A large body of accounting research finds that various contracting incentives lead managers to engage in conservative accounting practices. We extend existing research by modeling the impact of extant accounting rules on conservative accounting. Accounting rules typically require assets to be written down when their fair values drop sufficiently below their book values. We document evidence of the resulting non-discretionary conservatism and show that it appears to explain some of the results from previous research on contracting incentives.

This study presents a field experiment in which media articles for a random sample of firms with earnings announcements are promoted to a one percent subset of Yahoo Finance users. Promoted firms have higher abnormal returns and some evidence of lower bid-ask spreads on the day of the earnings announcement. These results are more pronounced for less visible firms, negative earnings news, and on days with fewer promoted firms. These findings suggest that investor attention affects the pricing of earnings and that retail investors buy stocks that catch their attention, in a setting where attention is randomly assigned.

ABSTRACT We investigate the effects of audit partner rotation among U.S. publicly listed firms, utilizing the fact that audit partners are periodically copied by name in public correspondence between issuers and the Securities and Exchange Commission. Relative to non-rotation firms, we find no evidence of a change in the frequency of misstatements following the partner rotation; however, there is an increase in the frequency of restatement discoveries and announcements. We also find an increase in deferred tax valuation allowances. Overall, the results provide some evidence suggesting that U.S. partner rotations support a fresh look at the audit engagement. JEL Classifications: M41; M42; M48. Data Availability: Data are publicly available from sources identified in the article.

ABSTRACT: This study examines whether differences in proxies for audit quality between Big 4 and non-Big 4 audit firms could be a reflection of their respective clients’ characteristics. In our analyses, we use three audit-quality proxies—discretionary accruals, the ex ante cost-of-equity capital, and analyst forecast accuracy—and employ propensity-score and attribute-based matching models in attempt to control for differences in client characteristics between the two auditor groups while estimating the audit-quality effects. Using these matching models, we find that the effects of Big 4 auditors are insignificantly different from those of non-Big 4 auditors with respect to the three audit-quality proxies. Our results suggest that differences in these proxies between Big 4 and non-Big 4 auditors largely reflect client characteristics and, more specifically, client size. We caution the reader that this study has not resolved the question, although we hope that it encourages other researchers to explore alternative methodologies that separate client characteristics from audit-quality effects.

ABSTRACT Prior research examining the ASC 820 fair value hierarchy concludes that Level 3 fair value measurements are significantly less value-relevant than Level 1 and Level 2 fair value measurements. We reevaluate this conclusion using the closed-end fund setting, in which fair value measurements are available for substantially all assets. Contrary to prior research, we find that Level 3 fair values are of similar value relevance to Level 1 and Level 2 fair values. Our findings suggest that the results in previous research are attributable to correlated omitted variable bias arising from the absence of fair value data for most assets. JEL Classifications: M41; G12; G29. Data Availability: Data are publicly available from sources identified in the article.

ABSTRACT We use daily page views of analyst estimates, ratings, and target prices on Yahoo Finance to understand when users seek sell-side analyst research. Demand for this information is most pronounced on days with earnings announcements, management guidance, and All-Star analyst reports. Surprisingly, demand does not increase at Form 10-K and Form 10-Q filings. While the overall demand for analyst estimates is 19.9 percent less than for analyst ratings and target prices, on earnings announcement and management guidance days, this preference is reversed. Moreover, the demand for analyst information substantially trumps that of SEC filings and financial statement information. JEL Classifications: M41; G14; G24.