This paper examines how professionals adjust work to challenges posed by their personal life in the setting of financial analysts. Using a Difference-in-Differences (DID) design that compares Muslim and non-Muslim analysts in the U.S. during and surrounding Ramadan fasting periods, we find that Muslim analysts slightly delay their earnings forecasts, exhibit more herding without sacrificing forecast accuracy, and issue less optimistically biased forecasts during Ramadan. They are also more long-term oriented, and more bullish in recommendations, while they engage less actively with managers during conference calls. These findings are largely consistent with the “dual-channel” effects of Ramadan where the physiological effect of fasting intertwines with the spiritual effect of Ramadan. Further, our findings suggest that Muslim analysts shift their efforts and attention during Ramadan, highlighting the importance of flexible work schedule for maximizing employees' productivity and well-being.
We experimentally investigate how the presentation format of the extent to which a firm's earnings per share (EPS) diverges from analysts' EPS forecasts (i.e. deviation information) and a firm's EPS level affect the investment judgments of non-professional investors (referred to hereafter as “investors”). Our results suggest that investors' investment judgments are more positive when firms with low (high) EPS levels disclose deviation information in percentage (absolute) terms. Furthermore, when the percentage of forecast deviation is held constant, investment judgments are more positive when EPS levels are high versus low if the deviation information is expressed in absolute terms. By contrast, EPS level does not influence investment judgments when deviation information is communicated in percentage terms. Collectively, our results highlight how the effects of presentation format on investors' investment judgments depend on EPS levels. Our findings are insightful for managers on selecting presentation formats to communicate earnings information and for investors on interpreting performance metrics.
This study aims to examine the impact of the use of multidimensional performance measures on the quality of performance appraisals (clarity, communication, fairness and trust) and the subsequent impact on employee job performance and organisational performance (financial and non-financial performance). Data were collected using an online survey questionnaire completed by a random sample of 203 lower-level managers in Australian organisations. The results reveal that the use of multidimensional performance measures exhibits a direct positive association with all four dimensions of the quality of performance appraisals and an indirect association with employee job performance (through trust), non-financial performance (through trust) and financial performance (through trust and clarity). The findings provide managers with an insight into the significant role of using multidimensional performance measures in enhancing the quality of performance appraisals and performance. In addition, the findings indicate that the impact of using multidimensional performance measures on employee job performance and organisational performance is enacted through the quality of performance appraisal, thereby highlighting the importance of the quality of performance appraisals, in particular clarity and trust, as a mediator of the association between the use of multidimensional performance measures and performance.
The effect of corporate social responsibility (CSR) performance on CEO compensation has been of interest to researchers in management, finance, and accounting for at least three decades (Velte, 2020). We extend the literature by examining how the inclusion of CSR measures in CEO incentive contracts (CSR contracting) affects the CSR performance–compensation relationship. We also assess the impact of CSR performance on the likelihood of CEO turnover, considering firm stock performance. Our findings reveal a positive relationship between CSR performance and CEO pay, but the relationship is only significant in firms without explicit CSR contracting. Furthermore, while CSR performance is associated with CEO turnover, the association strengthens when a firm's stock return lags the industry average. Our study provides insights into how CSR contracting impacts the CSR-compensation link and the conditions under which CSR performance influences CEO turnover, offering important implications for boards of directors.
Increases in disclosure frequency have raised questions about how a firm's expected disclosure regime will impact retail investors. This study explores whether investors take factors such as anticipated disclosure frequency into consideration in making investment decisions, and whether this can influence the types of firms they invest in. In two experiments, we explore how an interaction between the risk profile of a firm and anticipated disclosure frequency influences investor judgments. Our experiments show that expectations of more frequent disclosures influence investor preferences across firms with different risk profiles. We also find that investors' behavior is influenced by their underlying psychology, as investors feel a stronger desire to process increased disclosures in order to alleviate feelings of uncertainty related to investing in firms with higher risk characteristics. This study contributes to literature on information processing, financial disclosure, and investor behavior.
Potter and Zhang (2025) examine whether firms adjusted CEO-to-worker pay ratios in anticipation of mandatory disclosure under the SEC's pay ratio mandate. I assess the theoretical framing of the reputational mechanism underlying the predicted response and consider how stakeholder scrutiny may shape disclosure-based discipline. I then examine measurement and sample construction choices, including the use of estimated pay ratios prior to mandatory reporting. Finally, I evaluate the interpretation of the findings, focusing on the distinction between relative slowing of dispersion and absolute reductions and the persistence of the documented effects.
In this paper, we examine a mechanism through which timely loss recognition delivers contracting benefits to debtholders: whether timely loss recognition enhances the ability of accruals to predict future cash flows in bad-news periods. Using industry-leverage groups that differ in the degree of timely loss recognition and in the predictive ability of accruals, we find a positive association between timely loss recognition and the ability of accrual components to predict future cash flows in bad news periods. Moreover, we find the effect is concentrated in income-reducing asset accruals that are more likely to reflect timely loss recognition (e.g., impairments and write-downs) than are liability accruals. We conduct additional analyses to strengthen the validity of our results. Our study provides evidence that timely loss recognition effectively alerts contracting parties to future declines in cash flows in bad news periods. This finding sheds light on how timely loss recognition facilitates contracting efficiency and advances the understanding of the debt contracting benefits of timely loss recognition claimed in prior literature.
This study documents and examines the within-year impairment frequency, a topic that has not been addressed in prior literature. Using quarterly financial statements, we show considerable variations in the frequency of property, plant, and equipment impairments across countries, industries, and years. Each year over the past decade, more than 30% of firms reporting impairments recognize impairment losses across multiple quarters. Despite this prevalence, little is known about what drives the more frequent recognition of impairments. To address this gap, we examine potential determinants of impairment frequency within a year. Our findings suggest that impairment frequency is jointly explained by firm-level economic and earnings management factors, as well as by country-level macroeconomic conditions and reporting regimes. In supplemental analyses, we find that in countries with weak governance, higher frequency of impairments is mostly explained by earnings management. This study is the first one to document the patterns and determinants of within-year impairment frequency.
In recent years, audit firms have made substantial investments in new technology and have expanded their use of artificial intelligence (AI) and data analytics to enhance audit procedures. This study explores a potential unintended consequence of enhanced audit firm capabilities. It explores whether a combination of current trends in practice may potentially pose a risk to audit firms in ways they may not have considered. Our experiments manipulate the audit firm's perceived technological capabilities in performing audit testing and whether the audit firm makes a greater effort to build the auditor-client relationship. Results of both experiments indicate that the combination of enhanced audit firm capabilities and greater efforts to build the auditor-client relationship can result in spillover effects that might unintentionally increase the risk of material misstatement outside of the audit firm's direct knowledge. Our study contributes to literature on auditor technological capabilities, auditor relationship management, and auditor risk assessment.
This study examines the effectiveness of the BAI (Behavior Analysis Interview) interviewing technique differentiating fraud perpetrators from non-perpetrators. The BAI is one of law enforcement's most widely used interviewing techniques. It uses a series of structured non-accusatory "assessment" questions designed theoretically to induce perpetrators of crimes to respond differently (on average) than non-perpetrators. Using simulated interviews in three experimental settings-wherein some of the participants have perpetrated a fraud and others have not-we find evidence that several BAI questions elicit different verbal responses from perpetrators than from non-perpetrators, as predicted. We also find that using the verbal responses from a BAI interview together predictive model enables us to distinguish fraud perpetrators from non-perpetrators with relatively high levels of accuracy.
Firms are allowed to redact proprietary information from material contracts under the Freedom of Information Act (FOIA). While these redactions are primarily driven by proprietary cost concerns, they also reveal the withholding firm's strategic motives and convey signals to peers about future competitiveness and growth opportunities. This study investigates whether firms react after observing a competitor redact proprietary information. We hypothesize and find that firms increase capital expenditure and R&D investments in reaction to rivals' redactions. The effect is stronger when a rival's redactions are from contracts containing higher proprietary cost concerns. Additionally, firms in high-growth industries are more likely to respond to redaction signals that indicate growth opportunities, whereas firms in low-growth industries tend to react more strongly to signals that indicate firm-specific threats. Cross-sectionally, we find firms react more aggressively when the signal is stronger or more credible. Finally, we find that the effect is more concentrated among lagging firms that use peers' redactions to avoid falling further behind. By responding to these redactions, firms subsequently experience improved future performance. These findings suggest that nondisclosure sends signals and has a real effect on competitors.
Rewarding a top leadership team (TLT), a diverse group of executives working collaboratively to guide the organization, presents a complex challenge. We adopt a team-based perspective that recognizes complementarities between two pay dimensions that have been examined largely in isolation: (1) CEO's unique leadership role, as reflected in the size of the CEO pay slice; and (2) collective versus individual rewards for the CEO's top team, as reflected in the degree of pay dispersion. We posit that CEO leadership (high CEO pay slice) may work through different channels - executing vision and strategy through high team cohesion (low pay dispersion) or through harnessing strong individual performance (high pay dispersion). We find that firms with high CEO pay slice combined with low pay dispersion outperform firms with low slice and low dispersion and that firms with high CEO pay slice and high dispersion outperform firms with low slice and high dispersion on return on equity (ROE) and return on assets (ROA). DuPont decomposition reveals that these performance advantages stem primarily from higher profit margins rather than asset turnover or financial leverage. Cross-sectional analyses demonstrate that TLTs characterized by a high CEO pay slice and low pay dispersion (High-Low profile) achieve higher performance in settings characterized by greater innovation intensity and more competitive product markets, environments where team cohesion is vital in executing the CEO's vision. We also document that the High-Low profile generates significantly positive cumulative abnormal returns over 18 to 36 months.
We investigate whether individual tax burdens affect political corruption. Higher individual tax burdens could increase government corruption by lowering after-tax income and incentivizing corruption. Alternatively, higher individual tax burdens may decrease corruption by increasing citizen political engagement and monitoring of politicians. We use the Tax Cuts and Jobs Act's (TCJA's) $10,000 cap on state and local tax (SALT) deductions and cross-county differences in property tax levels as plausibly exogenous variation in individual tax burdens. We find that future local political corruption convictions are associated with a 4.3% decrease for every 1% increase in tax burdens. Further, we document that increased individual tax burdens raise voter turnout. Four separate cross-sectional analyses find greater corruption reduction when the logic expects it. Together, our results provide evidence that tax burdens increase civic engagement and citizen monitoring of public officials, which in turn could contribute to lower corruption.
Gramlich, Nam, Potter, and Venkat (hereafter, GNPV or “the authors”) examine whether federal income tax burdens are associated with convictions of public officials for corruption. On the one hand, tax burdens decrease after-tax wealth and potentially increase officials' rationalization toward corruption to compensate for the shortfall in take-home pay. On the other hand, higher tax burdens could incentivize citizen engagement and monitoring, thus creating an external disciplining mechanism against corruption. Consistent with the second possibility, the authors find that the tax burden is negatively associated with corruption and positively associated with voter turnout. In my discussion of GNPV, I focus on generalizability and takeaway, identification and research design, and future research. Future research also includes a discussion of identification and cross-sectional tests to encourage others to expand on this important research question raised by GNPV. These items are also expected to benefit growing research that utilizes geographical units (MSAs or counties) to examine individual and corporate tax-related outcomes.
Nonprofit boards play a crucial role in governing the nonprofit organization. The benefits of nonprofit board networks include increased resources and improved performance. However, an open empirical question remains whether nonprofit board members can be too busy serving networked nonprofits. We find that the level of nonprofit board busyness is associated with reduced financial performance suggesting that nonprofits should carefully monitor board member commitments to ensure board members can adequately attend to the demands of nonprofit board governance. Moderating this effect are the organization's strength of governance, age, and size suggesting organizations with poorer governance, less established, with fewer resources should pay particular attention to the commitments of their board members.
Despite their growing representation, female CEOs continue to face more severe evaluations than male CEOs. Female CEOs undertake additional actions, such as apologizing, to mitigate this bias, although research shows these efforts are not always effective. Drawing from research on gender stereotypes, this study investigates whether CEO gender moderates the effect of a CEO apology on investors' evaluations of the CEO. Results show that a CEO apology generally improves investor evaluations of the CEO, with the strongest effect observed for the male CEO. While a female CEO's apology has limited influence on investor judgments of her performance, it enhances investor perceptions of the firm's investment attractiveness. In contrast, a male CEO's apology improves investment attractiveness by improving investor evaluations of his performance. These findings offer novel insights into gender bias in investor decision making and have implications for gender equity in corporate leadership.
Zhang, Ding, and Tang (2025) examine how financial analysts adjust their professional behavior in response to personal-life constraints arising from religious observance. The study provides evidence that Ramadan fasting affects analysts' activities through both physiological and spiritual channels, leading to changes in analysts forecast delay, more likely to herd, however, spiritually, they are more likely to issue a positive recommendation and look into long term. In my discussion, I highlight the paper's contributions to existing literature on work-life balance. In addition, I evaluate the empirical design, measurement choices, and interpretation of mechanisms, and offer constructive suggestions for strengthening causal inference and disentangling underlying channels. Finally, I outline several suggestions for future research. Overall, the paper provides important insights into how professionals strategically adapt to conflicts between personal obligations and professional responsibilities, contributing to productivity and behavior literature.
As public accounting firms adjust to workplace disruptions caused by the COVID-19 pandemic, understanding how auditors' work practices have evolved is critical for sustaining audit quality and retaining talent. We conducted semi-structured interviews primarily with early- and mid-career audit professionals across public accounting firms to explore how the pandemic reshaped perceptions of the audit work environment. Using Bourdieu's theory of practice as a conceptual lens, we find that auditors generally perceive the post-pandemic work environment more positively, particularly regarding flexibility, work-life balance, well-being, and retention. Our findings suggest a realignment of auditors' habitus with a transformed professional field in which hybrid work has become normalized. However, participants also identified challenges related to staff development and training, as well as potential implications for audit quality. Results from a supplemental survey of audit professionals corroborate the qualitative findings. Collectively, the study provides insight into how disrupted work practices are being institutionalized within the auditing profession and highlights implications for firm leadership, educators, and regulators.
In this paper, we examine the U.S. capital market's reaction to mandatory social disclosures under Section 1502 of the Dodd-Frank Act. Under this requirement, U.S. public companies are expected to provide audited disclosures on the sourcing and use of conflict minerals from the Democratic Republic of Congo (DRC). This Act aimed to deter the extreme violence and human rights violations in the DRC and adjoining countries that is funded by the exploitation and trade of certain minerals. Using cross-sectional regression and difference-in-difference research designs, we find that the bid-ask spread increases for firms the first time they provide any conflict minerals disclosure (CMD) in their public filings. Additionally, firms with CMDs experience reductions in trading volume and increases in price volatility in the post-disclosure period. These findings suggest that using the Securities and Exchange Commission (SEC)’s traditional financial reporting system for CMDs increases information asymmetry in U.S. capital markets and adversely affects market participants. Our findings are relevant to legislators and regulators considering the use of financial reporting systems to achieve social and foreign policy goals.
