We model an investment bank's choice of resource allocation by the probability of acquirers' mergers and acquisitions frequency in the future to theoretically link the role of investment banks to the acquirer returns. Our model predicts the heterogeneity in the quality of advisory services provided by the same investment bank that leads to the heterogeneity in acquirer returns. Such heterogeneity declines as the likelihood of an industry merger wave rises. Controlling for investment bank fixed effects, acquirer fixed effects and potential self-selection bias, we find empirical evidence supporting our hypotheses.

This paper examines audit offices’ human capital investment in response to client restatement announcements and the resulting effects on audit quality and audit office client base. We find that audit offices attempt to acquire human capital and talent by posting more audit-related job positions just after a client announces a restatement. The increase in job postings follows restatements with more negative announcement returns and restatements of annual financial statements, and is concentrated among more senior and experienced positions. Importantly, the increased job postings are not driven by replacement hiring due to individual auditor departures and reflect more auditors joining the office. These human capital investments reduce future client misstatements and losses in client portfolios, indicating improvements in actual and perceived audit quality. Audit offices are also more likely to replace audit managing partners and prevent the signing partners of the misstated financial statements from signing new audit reports after restatement announcements.

We analyze the sales method for a sample of 575 acquisitions announced between 1998 and 2012 and find that targets choose auctions to maximize the target takeover premium through greater competition and to relax their financial constraints. Auctions, compared to negotiated deals, are associated with significantly higher target announcement returns, especially for relatively small targets. Bidder returns are positively related to auctions for bidders acquiring relatively small targets, not for the full sample. Taking into account size differences, we find that auctions, decrease target gains and increase bidder gains expressed in dollars.

We study how managers react to shareholder empowerment that makes votes on shareholder proposals binding. We empirically exploit staggered legislative changes that introduce such empowerment for proposals regarding majority voting in director elections. We find that managers become more responsive to shareholder requirements by initiating majority voting through either management proposals or governance guidelines. This early action crowds out shareholder proposals. Further results suggest compromised implementation: Managers adopt provisions that give them greater control over the channel of implementation and allow them to retain directors who fail in elections. Our results suggest that managers retain substantial discretion to modulate shareholder requirements. This article was partially completed when Wu was at Fudan University. Any errors are attributable solely to the authors.

We find that in general, both accrual-based and real earnings management decrease after the passage of shareholder-sponsored governance proposals. However, when accounting for the type of proposal, we observe significant heterogeneity in the effects on earnings management. Specifically, proposals focused on changing the governance structure (e.g., board independence) lead to reductions in both types of earnings management, whereas proposals specifically targeted at improving financial reporting quality lead to decreased accrual-based earnings management but increased real earnings management. The results suggest that constraints on accrual-based earnings management induce a shift toward real earnings management. Our paper indicates that the nature of the shareholder proposal has a significant impact on shareholder intervention.

ABSTRACT Does accounting regime play a role in the well-documented phenomenon of overbidding in M&As? The 2001 regulatory change from a goodwill amortization to a non-amortization regime (SFAS 142) affords us a quasi-experimental setting for testing the consequences of M&A accounting rules for acquirers' bidding decisions. Relying on a novel approach to modeling optimal bidding, our primary finding indicates a significant increase in overbidding in the post-2001 period, suggesting that M&A accounting has real consequences for bidding decisions, and that this result is robust to a battery of sensitivity tests. In addition, supplementary tests show that overbidding is more pronounced in pooling versus purchase transactions, and that the accounting regime's implications for overbidding and acquisition premium are distinct. Overall, our findings shed light on the role accounting plays in shaping managerial decisions—and, ultimately, shareholder wealth—in an important corporate setting. They may thus inform researchers, corporate boards, and standards setters. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: G34, M41.

In this article, we show that firms can become conservative in innovation when their directors face job insecurity. We find that after the staggered enactment of majority voting legislation that strengthens shareholders’ power in director elections, firms produce fewer patents, particularly exploratory patents, and fewer forward citations. This effect is stronger for directors facing higher dismissal costs or threats and for firms with greater needs for board expertise and is mitigated by institutional investors’ expertise in innovation. Overall, our results suggest that heightened job insecurity induces director myopia, which leads to a reduction in investment in risky, long-term innovation projects.

Using a new trademark-based product market competition measure and a novel trademark-merger data set over the period 1983–2016, we show that companies facing greater product market competition are more likely to be acquirers. We further show that postmerger, compared to their nonacquiring peers, acquirers consolidate their product offerings by discontinuing more existing product lines and developing fewer new product lines. Using a quasi-experiment based on bids withdrawn due to exogenous reasons helps us establish the causal effect of deal completion on product-market consolidation. We conclude that acquisitions create product market synergies by cutting overlapping product offerings to achieve cost efficiency.

ABSTRACT This paper examines the influence of labor market power in the audit profession. Using a dataset of online job postings, we confirm that audit offices in more concentrated labor markets have greater labor market power and exercise it in the form of higher skill requirements and greater required effort from their auditors, at similar or slightly lower wages. We then show that client firms of audit offices in more concentrated labor markets are less likely to restate their earnings and have lower absolute discretionary accruals. These findings are only present when employees have lower mobility across professions and geographies, consistent with audit offices’ power in the local labor market explaining the results. Collectively, our findings highlight the importance of labor market power in understanding audit quality. Data Availability: Data are available from the sources cited in the text. JEL Classifications: J31; J40; J42; M42; M55.