This paper examines the information voluntarily disclosed about corporate restructurings. In 1995 the FASB’s Emerging Issues Task Force reached a consensus opinion about mandatory restructuring disclosures. I use these requirements to construct a statistic that measures the amount of information voluntarily disclosed for a sample of firms from 1990–1993. Disclosure levels increased dramatically when the SEC targeted restructurings as an area for increased oversight in late 1993. Controlling for this SEC action, I document a positive association between the amount of information disclosed and increased monitoring by shareholders, suggesting that monitoring complements disclosure rather than substitutes for it. The amount disclosed is negatively related to the appointment of a new CEO prior to the restructuring, perhaps reflecting the use of the restructuring charge to manage earnings for these firms.

We examine how regulatory restrictions on capital market activity affect the compensation contracting environment within firms. This study aims to expand our understanding of how financial market development affects firm risk‐taking via management compensation designs. Specifically, taking advantage of the staggered implementation of the Interstate Banking and Branching Efficiency Act (IBBEA), which increases bank competition and loan geographical diversification, this study examines how borrowing firms' compensation structures change when banks increase risk tolerance in their loan portfolios. Using hand‐collected compensation data of firms with market capitalization less than $75 million, we hypothesize and find that borrowing firms are likely to increase risk incentives after IBBEA and that this increase is more pronounced for firms located in states with less banking competition in the pre‐IBBEA period. We also show the findings to be more significant for borrowers whose lenders acquire more diversification benefits after IBBEA. These findings suggest that following deregulation, when banks face increased competition as well as an enhanced ability to diversify their credit risk geographically, these same banks tend to increase their tolerance for borrowers' risk‐taking. That is, their clients—nonfinancial firms borrowing from them—adjust their compensation contracts that are previously constrained by bank distaste for risk. We also document that firms that increase their risk incentives the most invest more in R&D, suggesting that management compensation is a complementary channel through which IBBEA affects firm innovation.

We evaluate the manner in which sponsors of highly leveraged asset‐backed commercial paper (ABCP) conduits responded to Financial Accounting Standards Board Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities an Interpretation of ARB No. 51 , and its Canadian counterpart Accounting Standards Board of Accounting Guideline 15 (AcG‐15), Consolidation of Variable Interest Entities . By matching commercial paper investors with corporations seeking liquidity, ABCP sponsors facilitate a significant amount of short‐term, securitized financing in the United States. FIN 46 and AcG‐15 require sponsors to consolidate their ABCP conduits with their financial statements. We demonstrate that the volume of ABCP began to decline when FIN 46 was first proposed, and that this decline is primarily attributable to a reduction in North American banks' sponsorship of ABCP. We also demonstrate that North American banks entered into costly restructuring arrangements to avoid having to consolidate their conduits per the new accounting standards. Our results suggest that, in certain settings, accounting standards appear to have real effects on investment activity and product‐market competition.

For a sample of U.S. firm years from 1980 through 1996 we document a positive association between the excess value of diversification as defined by Berger and Ofek [1995] and security analyst ratings of voluntary disclosure as developed by the Association for Investment Management and Research. We also examine an alternative proxy for disclosure quality that captures the degree of segment disaggregation and document a positive association between this measure and excess value. Our results are robust to controls for firm performance and information environment. Taken together, these phenomena suggest that disclosure plays a monitoring role in disciplining management's investment decisions. However, tests of the association between disclosure and the value of firms' investment spending yield mixed results.

This study examines whether managers alter their financial reporting decisions in the face of investment-related pressure. We define investment-related pressure as the increased pressure managers feel to retain their job following an M&A poorly received by the market. We hypothesize that managers attempt to assuage pressure by delivering strong performance post-merger, creating incentives for misreporting. Our findings indicate that acquirers with more negative M&A announcement returns are more likely to misstate financial statements in the post-investment period and the issuance of misstated financials mitigates this pressure, at least in the near term. Our study contributes to the literature on the relation between corporate investing and financial reporting by showing how investment-related pressure leads to misreporting, even in a setting where the costs (e.g., greater probability of detection) are high. Our study also has implications for the large body of research that evaluates various consequences of M&As using post-merger performance. Specifically, researchers should be careful to distinguish real from misstated financial performance in the post-investment period. Data Availability: Data are available from the public sources indicated in the text.

We investigate the role played by the Securities and Exchange Commission (SEC) in monitoring fair value disclosures in regulatory filings. Specifically, we assess whether SEC action via the issuance of fair value comment letters to registrants is followed by reductions in uncertainty about the firms' fair value estimates. We hypothesize that registrants that receive a comment letter focusing on their fair value disclosure policies experience reductions in investor uncertainty regarding their fair value estimates in the post-letter period, compared to the pre-letter period. Supporting this prediction, we find that for the periods after the fair value comment letters, the associations between Level 2 and 3 fair value assets and our measures of uncertainty are significantly reduced. These findings are robust to a series of tests designed to ensure that we do not simply capture general changes in market uncertainty levels for firms investing in these types of assets. Our study contributes to the further understanding of market participants' perception of fair value disclosures by investigating the role of SEC enforcement. This finding is important given recent criticisms of fair value reporting emanating from the highest levels of government and industry. Data Availability: Data are available from public sources identified in the paper.

Complexity in applying financial accounting standards can have real operational effects if firms alter their actions in response to increased reporting costs. We examine whether the introduction of ASU 2017‐12, designed to reduce compliance burden and better align hedge accounting rules with risk management practices, led to more effective hedging. Using detailed hedging disclosures, we show that firms that adopt the ASU expand the use of hedge‐accounted derivatives and reduce exposures to interest rate and foreign currency risks. ASU‐adopting firms also reduce cash flow volatility, increase their use of debt, invest more, and reduce information asymmetry in the equity market. Our analyses reveal that easing hedge effectiveness tests and reliefs targeting “cash flow hedges” and “net investment hedges of foreign operations” were the most influential of the ASU's reforms. Our study is the first to integrate the effects of hedge accounting frictions on firms’ risk management activities and resulting spillovers to debt financing and investments.

We exploit an influential 1991 Delaware court ruling to examine simultaneously two types of conservatism that play important roles in resolving creditor–owner agency conflicts: contracting conservatism and reporting conservatism. The ruling expanded managerial fiduciary duties in favor of creditors for Delaware‐incorporated firms in the vicinity of insolvency. In those firms, following the ruling, debt contracts are less likely to include conservative adjustments to accounting numbers used for covenant compliance (i.e., contracting conservatism decreases), while public financial reporting becomes more conservative (i.e., reporting conservatism increases). The decrease in contracting conservatism is concentrated in firms that exhibit a greater increase in reporting conservatism, suggesting that reporting conservatism is more cost‐effective in resolving agency conflicts. In addition, the substitution effect is more pronounced in firms facing greater business uncertainty and firms with greater board independence.

We use confidential, U.S. Census Bureau, plant-level data to investigate aggregation in external reporting. We compare firms’ plant-level data to their published segment reports by grouping a firm’s plants that share the same four-digit SIC code into a “pseudo-segment.” We then determine whether each pseudo-segment is disclosed as an external segment, or whether it is subsumed into a different business unit for external reporting purposes. We show that a pseudo-segment is more likely to be aggregated when the agency and proprietary costs of separately reporting the pseudo-segment are higher and when firm and pseudo-segment characteristics allow for more discretion in the application of segment reporting rules. For firms reporting multiple external segments, aggregation of pseudo-segments is driven by both agency and proprietary costs. For firms reporting a single external segment, we find no evidence of an agency cost motive for aggregation.