I examine whether declines in banks’ financial health affect their borrowers’ disclosures. Prior studies indicate that, in relationship lending, banks and borrowers rely on private communication, rather than public disclosures, to resolve information asymmetries. When banking relationships are threatened, borrowers must turn to new funding sources, inducing them to reconsider their disclosure policies. This paper predicts that borrowers, whose banking relationships are threatened by declining bank health, change their public disclosures of forward‐looking information. Using the emerging‐market financial crises in the late 1990s as shocks to the health of certain U.S. banks, I find that affected banks’ U.S. borrowers increase both the quantity and informativeness of their management forecasts following these shocks compared to borrowers of unaffected banks. The results are similar using conference calls or the length of the Management's Discussion and Analysis section as alternative proxies for voluntary disclosure. Overall, these results provide new insights into the impact of availability of relationship lending on firms’ disclosure choices.

This study examines the relationship between accounting credibility and firms' ability to fund their investments. Theory suggests that credible reporting resulting from external audits enables firms to attract external funds needed for their investments. The tests exploit monetary policy tightening that creates a liquidity shortage for banks, which, in turn, either requires banks to raise additional funds to restore liquidity or forces them to restrict their investments in the form of lending. Studying small non-public banks for which external audits are voluntary, I find that audited banks can better access funds during periods of monetary tightening than unaudited banks. As such, adverse liquidity shocks impede the lending of audited banks less. Overall, these findings present new evidence on how accounting credibility affects firms' ability to invest. Data Availability: The data are available from the sources indicated in the text.

We examine whether opinions on firms subsequently revealed to have misstated earnings affect analysts’ reputation with investors. We find that positive opinions by bullish analysts hurt their reputation, leading investors to react less to their research on non‐misstatement firms after the misstatement revelation (i.e., negative spillovers). We also find that bearish analysts issuing more negative opinions gain reputation and experience positive spillovers. Finally, for analysts who dropped coverage of the misstatement firm before the misstatement revelation, we find no spillovers, which suggests that analysts experience limited reputational gains when they did not issue a public negative opinion.

There is little research on how accounting information quality affects a firm’s external financing choices. In this paper, we use the occurrence of accounting restatements as a proxy for the reduced credibility of accounting information and investigate how restatements affect a firm’s external financing choices. We find that for firms that obtain external financing after restatements, they rely more on debt financing, especially private debt financing, and less on equity financing. The increase in debt financing is more pronounced for firms with more severe information problems and less pronounced for firms with prompt CEO or CFO turnover and auditor dismissal. Our evidence indicates that accounting information quality affects capital providers’ resource allocation and that debt holders help alleviate information problems after accounting restatements.

Prior research finds that the decline in the information content of earnings after restatement announcements is short-lived and the earnings response coefficient (ERC) bounces back after three quarters. We re-examine this issue using a more recent and comprehensive sample of restatements. We find that material restatement firms experience a significant decrease in the ERC over a prolonged period—close to three years after restatement announcements. In contrast, other restatement firms experience a decline in the ERC for only one quarter. We further find that among material restatement firms, those that are subject to more credibility concerns and those that do not take prompt actions to improve reporting credibility experience a longer drop in the ERC. Last, reconciling with prior research, we find that using a more powerful proxy for material restatements and imposing less restrictive sampling requirements help to increase the power of the tests to detect the long-run drop in the ERC. Data Availability: The data are available from the sources indicated in the text.

We examine whether the media can act as a friction that hampers the efficiency of corporate labor investment, a decision that attracts significant media attention. We develop a new measure of media exposure that takes into account the circulation and geographic proximity of a comprehensive set of media outlets. We show media exposure leads to greater labor investment inefficiency. Closer examination reveals that media exposure is associated with firms underhiring, but not underfiring. This underinvestment in labor by managers helps avoid future layoffs but is inefficient in that firms are left understaffed relative to their economic fundamentals. Further, we find that managers’ concerns about their personal reputation, but not the firm’s reputation, primarily drive our results. Our findings illustrate that the media can serve as a friction for, in addition to being a facilitator or monitor of, corporate labor investment decisions. Data Availability: All data are available from public sources identified in the paper.

How to address managerial short-termism is an important issue for companies, regulators, and researchers. We examine the effect of CEO contractual protection, in the form of employment agreements and severance pay agreements, on managerial short-termism. We find that firms with CEO contractual protection are less likely to cut R&D expenditures to avoid earnings decreases and are less likely to engage in real earnings management. The effect of CEO contractual protection is both statistically and economically significant. We further find that this effect increases with the duration and monetary strength of CEO contractual protection. The cross-sectional analyses indicate that the effect is stronger for firms in more homogeneous industries and for firms with higher transient institutional ownership, as protection is particularly important for CEOs in these firms, and is stronger when there are weaker alternative monitoring mechanisms.