This study investigates three related questions: (1) Why did some firms provide private earnings guidance to analysts before Regulation Fair Disclosure? (2) How did the exogenous shock of Regulation Fair Disclosure affect these firms' disclosure policies? (3) What are the economic consequences of this disclosure regulation? To address these questions, I develop a new measure of private earnings guidance. Consistent with theory, I find that firms were more likely to provide private earnings guidance if they had higher proprietary information costs, and if their earnings were more predictive of other firms' earnings. Policymakers enacted Regulation Fair Disclosure to stop private earnings guidance, but they also intended for managers to replace private earnings guidance with public earnings guidance, thereby improving the information environment. However, I find that roughly half of the firms that I classify as relying more on private earnings guidance replace private earnings guidance with non-disclosure instead of public earnings guidance, and as a result, these firms suffer significant deterioration in their information environments. Consistent with theory, firms are more likely to replace private earnings guidance with nondisclosure if they have lower information asymmetry and higher proprietary information costs. On the other hand, firms that replace private earnings guidance with public earnings guidance, on average, prevent significant deterioration in their information environments. Evidence that firms respond to disclosure regulation as predicted by theory can help policymakers anticipate which firms' information environments are likely to be adversely affected by new disclosure regulations.

This study examines the association between chief financial officer (CFO) equity incentives and earnings management. Chief executive officer (CEO) equity incentives have been shown to be associated with accruals management and the likelihood of beating analyst forecasts (Bergstresser and Philippon, 2006; Cheng and Warfield, 2005). Because CFOs’ primary responsibility is financial reporting, CFO equity incentives should play a stronger role than those of the CEO in earnings management. We find that the magnitude of accruals and the likelihood of beating analyst forecasts are more sensitive to CFO equity incentives than to those of the CEO. Our evidence supports the Securities and Exchange Commission's (SEC) new disclosure requirement on CFO compensation.

Seemingly self-serving attributions either attribute favorable performance to internal causes (enhancing attributions) or poor performance to external causes (defensive attributions). Managers presumably provide such attributions in earnings press releases to heighten (dampen) investors' perceptions of the persistence of good (bad) earnings news, thereby increasing (decreasing) the market reward (penalty) for good (bad) earnings news. Building on attribution theory and prior research on earnings commonality, this study investigates cross-sectional differences in investors' responses to quarterly earnings press releases that contain seemingly self-serving attributions. Using a random sample of press releases from 1999 to 2005, we find that firms that provide defensive attributions to explain earnings disappointments experience less severe market penalties when: (1) more of the their industry peers also release bad news, and (2) their earnings share higher commonality with industry- and market-level earnings. On the other hand, firms that provide enhancing attributions to explain good earnings news reap greater market rewards when: (1) more of their industry peers release bad news, and (2) their earnings share lower commonality with industry- and market-level earnings. Collectively, our results demonstrate that investors neither ignore seemingly self-serving attributions nor accept them at face value, but rely on industry- and firm-specific information to assess their plausibility. Data Availability: Data are publicly available from the sources identified in the text.

In 2007, Pink Sheets LLC assigned each Pink Sheets ® company to a disclosure tier and on its website affixed a colorful graphic to its stock symbol signifying the company's public disclosure level. This unique innovation allows us to investigate the impact of increased salience of disclosure practices on liquidity. Using a difference‐in‐difference design, we find evidence that firms classified into the Current Information category experienced an increase in liquidity while firms classified into the No Information category experienced a decrease in liquidity, both relative to other unclassified over‐the‐counter firms. This suggests that increases in the salience of disclosure practices via assignment to disclosure tiers affect investors’ attention, leading to changes in trading behavior that ultimately translate into liquidity changes. We also provide evidence that some investors anticipated the resulting liquidity changes because stock returns around a key event date leading up to the release of the disclosure tiers are positively associated with subsequent liquidity changes.

Financial economics has posited a limited role for idiosyncratic noneconomic manager-specific influences, but the strategic management literature suggests such individual influences can affect corporate outcomes. We investigate whether individual managers play an economically significant role in their firms’ voluntary financial disclosure choices. Tracking managers across firms over time, we find top executives exert unique and economically significant influence (manager-specific fixed effects) on their firms’ voluntary disclosures, incremental to known economic determinants of disclosure, and firm- and time-specific effects. Managers’ unique disclosure styles are associated with observable demographic characteristics of their personal backgrounds: managers promoted from finance, accounting, and legal career tracks, managers born before World War II, and those with military experience develop disclosure styles displaying certain conservative characteristics; and managers from finance and accounting and those with military experience favor more precise disclosure styles. These plausible associations confirm that our estimated manager-specific fixed effects capture systematic long-lived differences in managers’ unique disclosure styles.

We examine the role of first impressions in angel investor decision-making. Video stills of entrepreneurs pitching on the Shark Tank show and in Startup Battlefield competitions yield six measures of first impressions of entrepreneurs’ facial traits and two principal components: one that captures general ability and the other that contrasts charm and managerial ability. We find positive associations between both components and the likelihood of entrepreneurs receiving an investment offer or winning a competition round. Post-event business outcome analyses reveal that investors internalize entrepreneurs’ general ability rationally but exhibit irrational tendencies when internalizing entrepreneurs’ charm and managerial ability. Investment experience mitigates investors’ irrational use of charm and managerial ability cues.

Firms can report comprehensive income in either an income-statement-like performance statement or the statement of equity. Traditional theories of contracting incentives cannot explain this reporting location choice that only affects where comprehensive income data appear, because the contractible values of net income, other comprehensive income items, and comprehensive income are exactly the same regardless of the location where the firm reports comprehensive income. Drawing on theory, analysis of comment letters, and results of survey-based and behavioral research, we identify two factors—equity-based incentives and concerns over job security—that help explain why most firms do not follow policymakers' preference to report comprehensive income in a performance statement. Our empirical evidence on a broad cross-section of firms shows that managers with stronger equity-based incentives and less job security are significantly less likely to use performance reporting. Overall, our study suggests that even though the reporting location choice is inconsequential in a traditional rational markets view, managers act as if they believe that comprehensive income reporting location matters.

Whether Big N auditors provide higher audit quality than non-Big N auditors remains a debate. We add new evidence to this debate by utilizing the setting of Big N auditors' acquisitions of non-Big N auditors. We identify 331 treatment firms that switched to Big N auditors due to the exogenous shocks imposed by Big N acquisitions. Our difference-in-differences analyses show that treatment firms' audit quality improves after switching to Big N auditors. In comparison, mergers or acquisitions among non-Big Ns have little impact on audit quality. Our cross-sectional analyses suggest the audit quality improvement among treatment firms is more likely due to Big N auditors' general competence rather than their industry-specific expertise. Finally, we find that treatment firms experience no significant market reactions around the announcements of Big N acquisitions, indicating that the capital markets may not attach any premium to the improved audit quality associated with Big N auditors.