We examine the relation between accounting conservatism and inside debt held by managers in the form of pension benefits and deferred compensation. We find that financial reporting is less conservative in firms whose CEOs hold more inside debt, particularly in firms with high default risk and agency costs of debt. This is consistent with our hypothesis that by aligning managerial incentives more closely with those of debtholders, inside debt reduces debtholders’ expropriation concerns and thus their demand for accounting conservatism. Our results are robust to identification strategies addressing the endogeneity of CEO inside debt and to alternative measures of accounting conservatism.

This study examines whether mandatory increase in reporting frequency exacerbates agency problems. Utilizing the setting of the 2004 SEC mandate on increased reporting frequency of mutual fund holdings, we show that increased reporting frequency elevates window dressing (buying winners or selling losers shortly before the end of the reporting period). This effect is driven by low‐skill fund managers’ incentives to generate mixed signals. Funds managed by low‐skill managers experience lower returns, more outflows, and a higher collapse rate when their window dressing is elevated after the 2004 rule change. These results suggest that, although higher reporting frequency on agents’ actions can exacerbate signal manipulations, the related manipulation costs improve sorting among agents in the longer term.

We examine whether the level of trust in a country affects investors' perception and utilization of information transmitted by firms through financial disclosure. Specifically, we investigate the effect of societal trust on investor reactions to corporate earnings announcements. We test two competing hypotheses. On the one hand, corporate earnings announcements are perceived as more credible by investors in more trusting societies and, therefore, elicit stronger investor reactions. On the other hand, societal trust mitigates outside investors' concern of moral hazard and reduces the value of corporate earnings announcements to them, thereby weakening their reactions to these events. We analyze the abnormal trading volume and abnormal stock return variance during the earnings announcement period in a large sample of firm-year observations across 25 countries, and we find that both measures of investor reactions to earnings announcements are significantly higher in more trusting countries. We also find that the positive effect of societal trust on investor reactions to earnings news is more pronounced when a country's investor protection and disclosure requirements are weaker, suggesting that trust acts as a substitute for formal institutions; when a country's average education level is lower, consistent with less educated people relying more on trust in making economic decisions; and when firm-level information asymmetry is higher, supporting the notion that trust plays a more important role in poorer information environments.

We examine the impact of foreign institutional investors on firms' voluntary disclosure practices measured by management forecasts. In a sample of 32 non-U.S. countries, we find that, on average, foreign institutional investments lead to improved voluntary disclosure, and their impact is larger than that of domestic institutional investors. These results are more pronounced when foreign institutional investors (1) are unfamiliar with the firm's home country, (2) have longer investment horizons, and (3) are from countries with stronger investor protection and disclosure requirements than the firm's home country. However, we also find some evidence of voluntary disclosure deterioration in firms with foreign institutional investors from countries with inferior disclosure requirements and securities regulations and with concentrated foreign institutional ownership. Overall, our results suggest that the relation between foreign institutional investors and voluntary disclosure is much richer and more complex than what has been documented for domestic institutional investors in the literature.

Speakers of weak future‐time reference (FTR) languages perceive the future as closer and more imminent. In this study, we examine the important question of whether the FTR properties of languages spoken by investors affect their demand for forward‐looking information, thereby influencing corporate management forecast practices in different countries. We predict that investors who speak weak‐FTR languages are more concerned about the future prospects of their investments and the ability of company management to respond to future changes, leading to a greater demand for management forecasts from these companies. We find that firms in weak‐FTR language countries exhibit a greater propensity for and frequency of issuing management forecasts and that they also issue more long‐horizon forecasts, compared to those in strong‐FTR language countries. Our results hold after controlling for other country‐level cultural factors. Within the same countries, firms with more foreign institutional ownership from weak‐FTR countries issue more (long‐horizon) management forecasts than their counterparts. Finally, firms from strong‐FTR countries significantly increase their issuance of (long‐horizon) management forecasts, after cross‐listing their stocks in Germany, a weak‐FTR country. This is the first study to examine language FTR as an antecedent to voluntary disclosures. We document a linguistic trait as a novel investor environment factor that shapes corporate voluntary disclosures and explains the cross‐country variations in management forecast practices.

Utilizing the Trade Reporting and Compliance Engine (TRACE) setting as an exogenous shock to bond market transparency, we find that improved bond market transparency leads to lower crash risk in the stock market, consistent with increased information spillover from the bond market into the stock market. Results from the Path analysis suggest that bond market transparency affects stock price crash risk not only directly, but also indirectly through its effects on management guidance, analyst forecasts, and media reports. We also find that the mitigation effect of bond market transparency on stock price crash risk is more pronounced for firms with higher default risk bonds, lower institutional stock ownership, and more opaque financial reporting. Overall, our findings suggest that increased bond market transparency following TRACE generates a positive externality in reducing crash risk in the stock market.

We investigate the relationship between societal trust and managers' decisions to voluntarily issue earnings forecasts. We reason that managers are more likely to issue earnings forecasts in high-trust countries than in low-trust countries because investors view these voluntary disclosures as more credible information about the firm's future profitability. We find evidence consistent with these predictions, suggesting that societal trust fosters corporate voluntary disclosure. We also document that societal trust works as a substitute for country-level formal institutions in terms of its implications for management earnings forecast (MEF) issuance. Additionally, we find a stronger relationship between firm-level commitment to credible disclosure and MEFs in low-trust countries, suggesting that country-level societal trust relates to the effectiveness of firm-level credibility-enhancing mechanisms. Finally, we show that firms from countries with higher societal trust issue more precise and accurate MEFs that contain more information about multiple items.