This paper examines how agents' response to macroeconomic uncertainty affects firms' revenues, expenses, and profitability in a global sample of firms spanning 1997 to 2018. Consistent with consumers reducing purchases and managers cutting costs, I find that increases in macroeconomic uncertainty lead to both lower revenues and lower expenses. The net short-term effect on profitability is positive as the reduction in expenses exceeds the fall in revenues. This favorable profitability effect is attenuated for firms whose institutional environment restrains cost-cutting, holds for both the cash and accrual components of earnings, and is robust to instrumental variable estimation employing exogenous variation in macroeconomic uncertainty arising from natural disasters, political unrest, revolutions, and terrorist attacks.

We examine whether the Securities Exchange Act of 1934 increased the information content of corporate earnings disclosures. Prior research questions whether the Act improved disclosure quality but generally relies on long‐window tests and yields mixed results. We focus on whether the Act increased earnings informativeness, improving upon prior designs by focusing on short earnings announcement windows and employing a difference‐in‐differences design to control for potential contemporaneous structural changes. We document an increase in earnings informativeness following the Act, which is larger for treatment firms (which withheld disclosure before the Act) than for control firms. The increase in informativeness is more pronounced for firms that are subject to stronger enforcement.

We examine whether the quality of firms' internal information systems influences the relation between inflation shocks and corporate investment, as posited by imperfect information models. Inconsistent with RBC models’ prediction that nominal variables (e.g., inflation) do not affect real variables (e.g., corporate investment) but consistent with the presence of information frictions, we first document a positive relation between inflation shocks and firm-level investment. Next, we show that higher internal information system quality, measured through responses to the World Management Survey, mitigates the positive relation between inflation shocks and firm-level investment. This result suggests that internal information quality serves as a channel through which aggregate-level nominal variables affect firm-level real variables. We then document that firms with higher internal information system quality make relatively more efficient investment decisions following inflation shocks. Our inferences are robust to using the 8th EU Company Law Directive as a shock to internal information system quality and to several additional tests.

We find that nonlinear estimation of profitability decomposition frameworks yields more accurate out-of-sample profitability forecasts than forecasts from both a random walk and linear estimation. The improvements derive from nonlinear estimation and synergies between nonlinear estimation and profitability decomposition frameworks. We analyze three essential financial statement analysis design choices to provide insights for the practice of fundamental analysis and find robust evidence that higher levels of profitability decomposition, focusing on core items, and using up to three years of historical information improve forecast accuracy. We find that our forecasts predict returns and profitability changes before and after controlling for analyst forecasts and common asset pricing factors.

Initial Gross Domestic Product (GDP) announcements are important economic signals that convey information on the state of the economy but contain substantial estimation error. We investigate how GDP estimation errors affect firms' real decisions and profitability. We find that GDP estimation errors are positively associated with one-quarter-ahead changes in firms’ capital investments, production, inventory, and profitability. However, we observe long-run profitability reversals, which is consistent with initial over (under) production eventually being met with declines (increases) in future profitability. Furthermore, managerial responses to the estimation errors mimic the response to the true component of the GDP signal, suggesting that managers do not filter estimation errors and overreact to both GDP signal components. Our firm-level findings translate to the macroeconomic level, where we find that a long-run reversal follows a positive short-run aggregate investment response to GDP signal components.

We examine whether the Financial Accounting Standards Board (FASB) Codification made it easier for preparers and auditors to locate relevant accounting guidance. We find that areas of U.S. GAAP with more dispersed and voluminous guidance before the Codification experience a larger post‐Codification reduction in restatements. We find a similar decline in SEC comment letter questions referencing areas of U.S. GAAP with more dispersed and voluminous pre‐Codification guidance. Our results suggest that before the Codification, preparers and auditors had difficulty in locating the appropriate accounting guidance and that the Codification mitigated this difficulty.

Central banks increasingly disclose their private information regarding the economy’s current and future state (CBET). Consistent with CBET shifting investors’ collection and pricing of aggregate-level (where managers do not have an information advantage) toward firm-level (where managers do have an information advantage) information, we find that CBET reduces managers’ learning from stock price. The results are (1) pronounced when firms do not provide guidance and when noise trading in firms’ stock is low, and (2) robust to using the 2013–2014 amendments to the Bank of England’s Inflation Report as an exogenous shock. Additional evidence suggests that CBET lowers investment efficiency.