We examine tone dispersion, or the degree to which tone words are spread evenly within a narrative, to evaluate whether narrative structure provides insight into managers’ voluntary disclosures and users’ responses to those disclosures. We find that tone dispersion is associated with current aggregate and disaggregated performance and future performance, managers’ financial reporting decisions, and managers’ incentives and actions to manage perceptions. Furthermore, we find that tone dispersion is associated with analysts’ and investors’ responses to conference call narratives. Our results suggest that tone dispersion both reflects and affects the information that managers convey through their narratives.

An extensive stream of literature investigates how product market competition, by increasing the proprietary costs of disclosure, influences corporate disclosure policy. We hypothesize that the proprietary costs incurred by firms are associated with how a disclosure is framed and structured. We predict and find that the intensity of competition in the product market is associated with more negative and uncertain earnings conference calls. We also find evidence of firms “casting calls” by emphasizing more pessimistic analysts’ questions. Our results are robust to matched analyses on cash flow uncertainty and to examining the casting of analysts, as opposed to their questions, on the earnings call. Finally, we find consistent results using alternative measures of linguistic structure and in an alternative channel of disclosure with an alternative measure of linguistic framing. Our results demonstrate that firms attempt to mitigate proprietary costs by managing discretionary disclosure structure and framing their conference calls.

We examine the financial reporting practices of small privately held businesses that are not subject to SEC regulation. Specifically, we determine the factors associated with the production and use of financial statements for firms that have discretion in the preparation of financial statements and do not face the demands of public equity markets. In addition, for firms that prepare financial statements, we determine the factors associated with the sophistication of the financial statements in terms of whether the financials are compiled, reviewed, and/or audited by a professional accountant and whether the firm produces accrual-based financial statements. Finally, we examine the potential benefits afforded firms producing financial statements, having audited financial statements, and having accrual-based financial statements. We find that firms with audited financial statements benefit in the form of greater access to credit and that firms with accrual-based financial statements benefit in the form of a lower cost of credit.

We examine the effects of local newspapers on firms’ information environments. With newspaper employment dropping precipitously in the last few decades, we posit that these changes will harm local firms’ information environments. Consistent with local news improving information environments, we find that volatility, spreads, and illiquidity increase as local newspaper intensity declines and that this is associated with firms’ importance in their local economy. We further find that for firms that are more important in their community, or have busy analysts, less local newspaper intensity is associated with significantly lower analyst accuracy and higher forecast dispersion. This is consistent with local newspapers improving information environments, even for sophisticated and likely remote information intermediaries. We also investigate how stakeholders respond to declines in local news and find that managers increase the amount of forward-looking disclosures while analysts increase coverage. These results provide insights into the methods by which stakeholders attempt to improve firms’ information environments when local news coverage fades.

This study examines whether a real production activity measure, firm‐level electricity consumption growth, is useful in detecting firm financial misreporting. Identifying proxies for a firm's underlying financial performance that are not a function of the firm's accounting system is essential for detection of misreporting. We propose that the difference between revenue growth and electricity consumption growth (i.e., growth wedge (GW)) is a useful signal of financial misreporting. Using electricity consumption data for Korean firms from 2006 to 2014, we find that the GW is positively associated with discretionary revenues and accruals and the likelihood of financial misreporting as proxied by accounting restatements, qualified audit opinions, and regulatory enforcement actions. The GW provides incremental information over firm characteristics and earnings management signals examined by prior research. Our findings are robust to a battery of additional tests, including within‐firm and industry comparisons that do not require access to cross‐sectional firm‐level electricity data. Overall, our study documents new evidence on the role of a real production activity measure from an independent reporting entity in detecting financial misreporting. Our evidence speaks to the potential usefulness of real activity metrics in forensic economics.

In response to the increasing use of computer programs to process firm disclosures, this registered report develops a new measure of “scriptability” that reflects computerized, rather than human, information processing costs. We validate our measure using SEC filing‐derived data from prior research and identify firm and disclosure characteristics related to it. In our planned hypothesis tests, we find some evidence that the speed of the market response to filings increases with scriptability, but find little evidence that scriptability affects the incidence and speed of news dissemination by Dow Jones. In additional analyses, we find that scriptability exhibits both positive and negative associations with changes in information asymmetry between market participants, depending on the filing, trading window, and measure examined. We also find little evidence that XBRL interacts with scriptability in a meaningful way. Overall, our study broadens our understanding of information processing costs and provides opportunities for new avenues of research.

We examine whether a shock to the enforceability of Regulation Fair Disclosure (Reg FD) limited its ability to restrict the flow of private information between managers and investors. Although prior work provides evidence that Reg FD reduced managers’ selective disclosure of material information immediately following its promulgation, we posit that private information flows returned as a result of the Securities and Exchange Commission's (SEC's) public enforcement failure in SEC v. Siebel Systems, Inc . Using multiple settings, we find consistent evidence suggesting that Siebel changed the cost–benefit tradeoff for Reg FD compliance and effectively reversed the initial effects of the regulation. We also find that Siebel disrupted the equilibrium of selective disclosure activity, resulting in an unleveling effect among investors with respect to private information advantages. Finally, we find that Siebel also had real effects by altering managers’ capital structure decisions. Our findings run counter to the prevailing “mosaic theory” and gradual learning explanations for private information advantages in the extended post–Reg FD period and highlight the importance of enforcement in achieving intended regulatory outcomes.