This study examines whether requiring the disclosure of audited financial statements disciplines managers’ mergers and acquisitions (M&As) decisions. When an M&A transaction meets certain disclosure thresholds, the Securities and Exchange Commission (SEC) requires the public acquirer to disclose the target's audited financial statements after the merger is completed. Using hand‐collected data, I find that the disclosure of private targets’ financial statements is associated with better acquisition decisions. Furthermore, I find that this disciplining effect of disclosure is more pronounced when monitoring by outside capital providers is more difficult and costly, and when other disciplining mechanisms are weaker. Finally, these findings are robust to several alternative explanations, such as monitoring from blockholders and voluntary disclosures. In sum, the evidence suggests that the ex post mandatory disclosure of private targets’ accounting information disciplines managers’ acquisition decisions and improves acquisition efficiency.

This paper uses earnings announcements to analyze the trading behavior and associated price impacts of institutions that have a lending or underwriting relationship with client firms and also hold client firms' shares. Buying support from relationship institutions mitigates the negative impact of earnings surprises on client firms' stock prices, predicts subsequent negative earnings surprises, and is also associated with less selling by independent institutions holding the same firms' shares. Price reactions for firms without relationship institutions are significantly larger. Price support from relationship institutions appears to help resolve uncertainty accompanying clients' temporary earnings shocks, thus reducing noise in the capital markets.

Exploiting the staggered enactment of country‐level mergers and acquisitions (M&A) law as an exogenous increase in corporate takeover threat, this paper examines how a disciplinary market for corporate control affects accounting conservatism. Following M&A law adoption, we find increased accounting conservatism, with more pronounced effects in countries with weak shareholder protection and in those experiencing larger growth in takeover activity. Further analysis reveals that elevated takeover threats increase conservatism through changes in capital structure and investment decisions as well as improvements in board monitoring. Our findings highlight the importance of the market for corporate control in shaping financial‐reporting outcome.

This paper examines the relation between managerial power and compensation for Chief Executive Officers of S&P 500 companies from 1993 through 2012. We find that more-powerful CEOs earn more than less-powerful CEOs. We refer to this additional compensation as a “power premium” and investigate this power premium based on two competing views. The managerial ability view argues that the power premium compensates CEOs for their better managerial talent while the managerial power view argues that the power premium reflects the CEO's ability to extract excessive compensation. Overall, our results are more consistent with the managerial ability view. Empirically, we find that the power premium and the fraction of equity-based compensation are invariant to whether the CEO is newly hired or not. We also find that the likelihood of having an explicit employment contract is similar between new and incumbent CEOs.

Using institutional equity trading data, we find that a set of small institutional investors consistently follow credit ratings issued by an investor-paid rating agency in their trading decisions. Although rating information is credit related, we find that these followers often respond more strongly to investor-paid ratings than to influential trading signals, such as earnings announcements, analysts' earnings forecast revisions, and recommendation changes. Followers outperform non-followers, and show improved trading performance after becoming followers. We conclude that investor-paid rating agencies offer small institutional investors a cost-effective alternative to in-house research.

Despite their mediocre mean performance, actively managed mutual funds are distinct from passive funds in their return distributions. Active value funds better hedge downside risk, while active growth funds better capture upside potential. Since such performance features may appeal to investors with tail‐overweighting preferences, we show that preferences for downside protection and upside potential estimated from the empirical pricing kernel can help explain active fund flows in the value and growth categories, respectively. This effect of investor risk preferences varies significantly with funds' downside‐hedging and upside‐capturing ability, with levels of active management, and across retirement and retail funds.

FinTech is about the introduction of new technologies into the financial sector, and it is now revolutionizing the financial industry. In 2017, when the academic finance community was not actively researching FinTech, the editorial team of the Review of Financial Studies launched a competition to develop research proposals focused on this topic. This special issue is the result. In this introductory article, we describe the recent FinTech phenomenon and the novel editorial protocol employed for this special issue following the Registered Reports format. We discuss what we learned from the submitted proposals about the field of FinTech and which ones we selected to be completed and ultimately come out in this special issue. We also provide several observations to help guide future research in the emerging area of FinTech.

We examine how firms' dividend policy affects the initial compensation of their newly appointed CEOs. We focus on newly appointed CEOs to isolate the effect of dividends on compensation and to provide new insights into an aspect largely neglected by compensation research. We show that the dividend payout is positively related to new CEO compensation. Further, the positive effect of dividends is stronger for firms with no dividend cuts over the past two, three and four years, firms with relatively high institutional ownership, and those with strong boards, consistent with new CEOs receiving higher pay as compensation for greater dividend pressure.

Using the staggered enactment of constituency statutes across US states, we find that banks with directors whose legal duties are expanded to consider stakeholder and long-term interests significantly reduce risk-taking by increasing capital and shifting to safer borrowers. Additionally, we find that the effect of statute enactment on bank performance is insignificant on average but significantly positive for banks that take excessive risk. Furthermore, we find that banks that previously received a statute enactment fared significantly better during the crises. Our findings support the increasing calls for greater emphasis on stakeholder interests amidst the current bank regulatory and governance reforms.

We investigate how the state's intervention in the investment decisions of Chinese local SOEs is affected by corporate control distance in the form of pyramidal layers and the geographical distance between the SOEs and their government controllers. Although both the corporate control distance and the geographical distance affect the state's costs of acquiring information about the SOEs, the former is created intentionally by the state to delegate decision rights, and the latter is largely exogenous. We find that local SOEs’ investment efficiency is positively associated with the extensiveness of pyramids but negatively related to the geographical distance. The positive impact of pyramid-building on investment efficiency remains strong even when information costs captured by the geographical distance are low. However, the two distance measures lose their impact on investment efficiency when local governments reclaim control through a vertical interlock of chairman. Our results indicate that the credibility of the government's intention to delegate decision rights is vital to the SOEs’ efficiency when government intervention is the norm in China.