This paper examines how market participants trade on private information about firm fundamentals using the largest known case of informed trade of earnings announcements. From 2011 to 2015, a cartel of sophisticated traders illegally obtained early access to and traded on over 1,000 firm earnings announcements. Using this setting, I identify the information in earnings announcements that these market participants found most price relevant. The informed traders preferred announcements with larger earnings and sales surprises relative to forecasts, quantitative managerial guidance, and more extreme news sentiment. Despite their perfect foresight, the traders performed, perhaps surprisingly, poorly relative to hypothetical trading strategies based on comparable foresight. Frictions that limited their performance include price impact, risk aversion, and information processing costs. The trading performance of these informed traders implies that information about firm fundamentals explains little of the cross‐sectional variation in earnings announcement returns, even for sophisticated market participants.
{"title":"Informed Trade of Earnings Announcements","authors":"CHLOE XIE","doi":"10.1111/1475-679x.70032","DOIUrl":"https://doi.org/10.1111/1475-679x.70032","url":null,"abstract":"This paper examines how market participants trade on private information about firm fundamentals using the largest known case of informed trade of earnings announcements. From 2011 to 2015, a cartel of sophisticated traders illegally obtained early access to and traded on over 1,000 firm earnings announcements. Using this setting, I identify the information in earnings announcements that these market participants found most price relevant. The informed traders preferred announcements with larger earnings and sales surprises relative to forecasts, quantitative managerial guidance, and more extreme news sentiment. Despite their perfect foresight, the traders performed, perhaps surprisingly, poorly relative to hypothetical trading strategies based on comparable foresight. Frictions that limited their performance include price impact, risk aversion, and information processing costs. The trading performance of these informed traders implies that information about firm fundamentals explains little of the cross‐sectional variation in earnings announcement returns, even for sophisticated market participants.","PeriodicalId":48414,"journal":{"name":"Journal of Accounting Research","volume":"3 1","pages":""},"PeriodicalIF":4.4,"publicationDate":"2025-12-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145730962","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Karthik Balakrishnan, Darren Bernard, Kristina M. Rennekamp, Blake Steenhoven
Capital flows increase in response to new public information. Conventional explanations typically conclude that this reflects a rational response to reduced risk. However, investors may also be overconfident in their ability to benefit from new information, even when it is publicly available and does not provide a relative advantage. We exploit two complementary settings to examine how this “better‐than‐average” mechanism affects capital flows. Archival evidence from horse race betting markets shows capital flows increase following the public provision of a summary measure of horse performance, even though more total parimutuel wagering necessarily implies a greater wealth transfer from bettors to tracks. A controlled lab experiment provides direct causal evidence of our proposed mechanism. Combined, our results suggest that new public information can increase capital flows due to investors’ overconfidence in their ability to benefit from information relative to others. Our findings inform regulators seeking to understand the consequences of expanding the public information available to individual investors.
{"title":"Public Information, Relative Overconfidence, and Capital Flows","authors":"Karthik Balakrishnan, Darren Bernard, Kristina M. Rennekamp, Blake Steenhoven","doi":"10.1111/1475-679x.70031","DOIUrl":"https://doi.org/10.1111/1475-679x.70031","url":null,"abstract":"Capital flows increase in response to new public information. Conventional explanations typically conclude that this reflects a rational response to reduced risk. However, investors may also be overconfident in their ability to benefit from new information, even when it is publicly available and does not provide a relative advantage. We exploit two complementary settings to examine how this “better‐than‐average” mechanism affects capital flows. Archival evidence from horse race betting markets shows capital flows increase following the public provision of a summary measure of horse performance, even though more total parimutuel wagering necessarily implies a greater wealth transfer from bettors to tracks. A controlled lab experiment provides direct causal evidence of our proposed mechanism. Combined, our results suggest that new public information can increase capital flows due to investors’ overconfidence in their ability to benefit from information relative to others. Our findings inform regulators seeking to understand the consequences of expanding the public information available to individual investors.","PeriodicalId":48414,"journal":{"name":"Journal of Accounting Research","volume":"29 1 1","pages":""},"PeriodicalIF":4.4,"publicationDate":"2025-12-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145704195","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
JENNI KALLUNKI, JUHA‐PEKKA KALLUNKI, WAYNE LANDSMAN, EMMA‐RIIKKA MYLLYMÄKI, LASSE NIEMI
Using a novel data set of misconduct records for Finnish CEOs and directors and their parents, we explore whether corporate executives’ financial misconduct is associated with similar behavior by their parents. Controlling for various other factors of executive financial misconduct, we find that executives are significantly more likely to engage in financial misconduct, including accounting, tax, and other financial offenses, if their parents have a history of financial misconduct. This intergenerational association is stronger when the parental misconduct is more severe. Additional findings reveal that growing up in high‐misconduct municipalities and cohabiting with spouses who engage in financial misconduct are also associated with a higher likelihood of executive misconduct, indicating that such behaviors may be shaped by broader socialization processes that extend beyond the immediate family. Although our analyses do not establish causal relationships, the collective evidence presented in this study offers insights into why some corporate executives engage in misconduct while others do not.
{"title":"Family Matters: Exploring the Link Between Parental and Executive Financial Misconduct","authors":"JENNI KALLUNKI, JUHA‐PEKKA KALLUNKI, WAYNE LANDSMAN, EMMA‐RIIKKA MYLLYMÄKI, LASSE NIEMI","doi":"10.1111/1475-679x.70028","DOIUrl":"https://doi.org/10.1111/1475-679x.70028","url":null,"abstract":"Using a novel data set of misconduct records for Finnish CEOs and directors and their parents, we explore whether corporate executives’ financial misconduct is associated with similar behavior by their parents. Controlling for various other factors of executive financial misconduct, we find that executives are significantly more likely to engage in financial misconduct, including accounting, tax, and other financial offenses, if their parents have a history of financial misconduct. This intergenerational association is stronger when the parental misconduct is more severe. Additional findings reveal that growing up in high‐misconduct municipalities and cohabiting with spouses who engage in financial misconduct are also associated with a higher likelihood of executive misconduct, indicating that such behaviors may be shaped by broader socialization processes that extend beyond the immediate family. Although our analyses do not establish causal relationships, the collective evidence presented in this study offers insights into why some corporate executives engage in misconduct while others do not.","PeriodicalId":48414,"journal":{"name":"Journal of Accounting Research","volume":"24 1","pages":""},"PeriodicalIF":4.4,"publicationDate":"2025-11-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145553593","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study investigates the relation between audit competition, audit quality, and auditor labor hours. Using proprietary data on auditor realization rates, we construct new measures of competition based on theory predicting that abnormal profits will quickly disappear when competition is high but persist over multiple periods when competition is low. We find consistent evidence of persistent abnormal profits among U.S. Big 4 engagements and that individual offices earn persistent abnormal returns, suggesting that the market is not perfectly competitive. Examining the consequences of lower competition, we find that profit persistence is negatively related to audit hours and positively related to audit quality. Although we are cautious about inferring causality, our findings suggest that lower competition is associated with more efficient and effective audits.
{"title":"Profit Persistence in the U.S. Audit Market","authors":"WILLIAM A. CICONTE, ANDREW R. KITTO","doi":"10.1111/1475-679x.70029","DOIUrl":"https://doi.org/10.1111/1475-679x.70029","url":null,"abstract":"This study investigates the relation between audit competition, audit quality, and auditor labor hours. Using proprietary data on auditor realization rates, we construct new measures of competition based on theory predicting that abnormal profits will quickly disappear when competition is high but persist over multiple periods when competition is low. We find consistent evidence of persistent abnormal profits among U.S. Big 4 engagements and that individual offices earn persistent abnormal returns, suggesting that the market is not perfectly competitive. Examining the consequences of lower competition, we find that profit persistence is negatively related to audit hours and positively related to audit quality. Although we are cautious about inferring causality, our findings suggest that lower competition is associated with more efficient and effective audits.","PeriodicalId":48414,"journal":{"name":"Journal of Accounting Research","volume":"19 1","pages":""},"PeriodicalIF":4.4,"publicationDate":"2025-11-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145545414","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Ben Lourie, Alexander Nekrasov, Phong Truong, Chenqi Zhu
Leveraging micro‐level data on individual employees’ bank and credit card transactions, we examine the impact of earnings announcement (EA) news on employee spending. Utilizing an event study methodology, we find strong evidence that EA news elicits significant reactions in employee spending. These reactions are stronger for employees located in the firm's headquarters state, with longer tenure, possessing investment experience, or earning higher wages, consistent with these employees being more likely to attend to their firm's EAs. The reactions are also stronger for the fourth fiscal quarter than interim quarters, suggesting that year‐end results garner greater employee attention. Furthermore, consistent with media facilitating employee processing of EA news, the reactions are stronger for EAs covered by a larger number of news articles. Finally, in line with the notion that EAs contain information about employees’ future cash flows, we find that EA news predicts changes in employee wages and that employees with higher past wage‐to‐EA news sensitivity exhibit stronger spending reactions. Overall, our findings provide evidence of the role of financial reporting in employees’ spending decisions.
{"title":"Do Earnings Announcements Affect Employee Spending? Evidence from Transaction Data*","authors":"Ben Lourie, Alexander Nekrasov, Phong Truong, Chenqi Zhu","doi":"10.1111/1475-679x.70027","DOIUrl":"https://doi.org/10.1111/1475-679x.70027","url":null,"abstract":"Leveraging micro‐level data on individual employees’ bank and credit card transactions, we examine the impact of earnings announcement (EA) news on employee spending. Utilizing an event study methodology, we find strong evidence that EA news elicits significant reactions in employee spending. These reactions are stronger for employees located in the firm's headquarters state, with longer tenure, possessing investment experience, or earning higher wages, consistent with these employees being more likely to attend to their firm's EAs. The reactions are also stronger for the fourth fiscal quarter than interim quarters, suggesting that year‐end results garner greater employee attention. Furthermore, consistent with media facilitating employee processing of EA news, the reactions are stronger for EAs covered by a larger number of news articles. Finally, in line with the notion that EAs contain information about employees’ future cash flows, we find that EA news predicts changes in employee wages and that employees with higher past wage‐to‐EA news sensitivity exhibit stronger spending reactions. Overall, our findings provide evidence of the role of financial reporting in employees’ spending decisions.","PeriodicalId":48414,"journal":{"name":"Journal of Accounting Research","volume":"40 1","pages":""},"PeriodicalIF":4.4,"publicationDate":"2025-11-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145447277","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper studies the effect of reporting regulation on private firms' bank credit and its economic consequences. I exploit the Spanish institutional setting, which provides a unique combination of confidential loan data and regulatory features that generate quasi‐exogenous variation in reporting regulation. Using a regression discontinuity design, I find that firms subject to incremental reporting regulation obtain more bank credit primarily through cash flow–based lending, term loans, and long‐term debt, without higher interest rates. These findings are explained by stronger banking competition and greater reliance on financial statement data. However, firms do not expand their net financial position, as bank credit substitutes for other liabilities, and exhibit weaker performance consistent with the costs of reporting regulation. This evidence from a different setting offers new insights into how reporting regulation influences credit contracting for private firms and strengthens the empirical basis for policy‐making.
{"title":"Reporting Regulation and Private Firms' Bank Credit","authors":"ANTONIO MORETA","doi":"10.1111/1475-679x.70025","DOIUrl":"https://doi.org/10.1111/1475-679x.70025","url":null,"abstract":"This paper studies the effect of reporting regulation on private firms' bank credit and its economic consequences. I exploit the Spanish institutional setting, which provides a unique combination of confidential loan data and regulatory features that generate quasi‐exogenous variation in reporting regulation. Using a regression discontinuity design, I find that firms subject to incremental reporting regulation obtain more bank credit primarily through cash flow–based lending, term loans, and long‐term debt, without higher interest rates. These findings are explained by stronger banking competition and greater reliance on financial statement data. However, firms do not expand their net financial position, as bank credit substitutes for other liabilities, and exhibit weaker performance consistent with the costs of reporting regulation. This evidence from a different setting offers new insights into how reporting regulation influences credit contracting for private firms and strengthens the empirical basis for policy‐making.","PeriodicalId":48414,"journal":{"name":"Journal of Accounting Research","volume":"156 1","pages":""},"PeriodicalIF":4.4,"publicationDate":"2025-11-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145427739","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper, we develop novel measures of managerial labor market classification and competition by constructing networks of compensation benchmarking peers disclosed in proxy statements. These networks represent firms’ relative positions within the managerial labor market. Our classifications strongly predict executive moves across firms, outperforming a comprehensive set of predictors in the literature. Subsequent tests further demonstrate the strength of our methodology in capturing the multidimensional and dynamic features of the managerial labor market. We also validate our competition measures by showing that they are associated with retention tools, such as higher equity pay and longer pay duration. Finally, we apply our measures to test two theoretical predictions. First, we find that labor market competition could explain controversial pay practices. Second, we demonstrate that the labor market provides managers with tournament incentives to deliver superior future performance.
{"title":"Aggregated Compensation Peer Group Disclosure and Managerial Labor Market Competition: A Network Analysis","authors":"RAY RUI GAO, YIFEI LU","doi":"10.1111/1475-679x.70026","DOIUrl":"https://doi.org/10.1111/1475-679x.70026","url":null,"abstract":"In this paper, we develop novel measures of managerial labor market classification and competition by constructing networks of compensation benchmarking peers disclosed in proxy statements. These networks represent firms’ relative positions within the managerial labor market. Our classifications strongly predict executive moves across firms, outperforming a comprehensive set of predictors in the literature. Subsequent tests further demonstrate the strength of our methodology in capturing the multidimensional and dynamic features of the managerial labor market. We also validate our competition measures by showing that they are associated with retention tools, such as higher equity pay and longer pay duration. Finally, we apply our measures to test two theoretical predictions. First, we find that labor market competition could explain controversial pay practices. Second, we demonstrate that the labor market provides managers with tournament incentives to deliver superior future performance.","PeriodicalId":48414,"journal":{"name":"Journal of Accounting Research","volume":"138 1","pages":""},"PeriodicalIF":4.4,"publicationDate":"2025-10-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145396856","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Issue Information - Standing Call for Proposals for","authors":"","doi":"10.1111/1475-679X.70023","DOIUrl":"https://doi.org/10.1111/1475-679X.70023","url":null,"abstract":"","PeriodicalId":48414,"journal":{"name":"Journal of Accounting Research","volume":"63 5","pages":""},"PeriodicalIF":6.3,"publicationDate":"2025-10-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.1111/1475-679X.70023","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145366831","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Issue Information - Request for Papers","authors":"","doi":"10.1111/1475-679X.70022","DOIUrl":"https://doi.org/10.1111/1475-679X.70022","url":null,"abstract":"","PeriodicalId":48414,"journal":{"name":"Journal of Accounting Research","volume":"63 5","pages":""},"PeriodicalIF":6.3,"publicationDate":"2025-10-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.1111/1475-679X.70022","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145366823","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Using data from over 4,000 Black Lives Matter (BLM) protests across 600 U.S. counties from 2014 to 2021, we examine how BLM activism shapes corporate diversity at different organizational levels. We develop an approach integrating OpenAI's GPT-4 with Chain-of-Thought prompting to classify race and ethnicity. In our validation tests, this method achieves higher accuracy than several tested open-source algorithms. Our main findings are as follows. First, although firms headquartered in protest-affected counties add more Black directors, particularly in larger protests, this gain appears to largely offset the representation of other non-Black minority directors. Second, these board-level shifts do not consistently extend to executives or the general workforce. In contrast, a gap may emerge between a firm's workforce composition and local labor-market demographics, particularly in the representation of Black employees. This pattern is consistent with diversity tokenism, which suggests firms may prioritize high-visibility board appointments and potentially downplay broader, transformative change. Our findings indicate that although board-level diversity gains are highly visible and attract notable public attention, they may not be accompanied by an organization's transformative commitment to company-wide diversity.
{"title":"Diversity Tokenism","authors":"KELVIN K. F. LAW, JINGDAN TAN","doi":"10.1111/1475-679X.70019","DOIUrl":"10.1111/1475-679X.70019","url":null,"abstract":"<p>Using data from over 4,000 Black Lives Matter (BLM) protests across 600 U.S. counties from 2014 to 2021, we examine how BLM activism shapes corporate diversity at different organizational levels. We develop an approach integrating OpenAI's GPT-4 with Chain-of-Thought prompting to classify race and ethnicity. In our validation tests, this method achieves higher accuracy than several tested open-source algorithms. Our main findings are as follows. First, although firms headquartered in protest-affected counties add more Black directors, particularly in larger protests, this gain appears to largely offset the representation of other non-Black minority directors. Second, these board-level shifts do not consistently extend to executives or the general workforce. In contrast, a gap may emerge between a firm's workforce composition and local labor-market demographics, particularly in the representation of Black employees. This pattern is consistent with diversity tokenism, which suggests firms may prioritize high-visibility board appointments and potentially downplay broader, transformative change. Our findings indicate that although board-level diversity gains are highly visible and attract notable public attention, they may not be accompanied by an organization's transformative commitment to company-wide diversity.</p>","PeriodicalId":48414,"journal":{"name":"Journal of Accounting Research","volume":"64 1","pages":"317-363"},"PeriodicalIF":6.3,"publicationDate":"2025-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.1111/1475-679X.70019","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145254609","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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