Job vacancy duration reflects the time a firm spends searching, selecting, and hiring for a job opening. Capturing vacancy duration using the creation and deletion dates of job postings by US public firms, we examine the informativeness of vacancy duration for future firm profitability. We find that while firms that quickly fill low-skill job vacancies exhibit higher future profitability, firms that take more time to fill high-skill jobs exhibit higher future profitability. Our cross-sectional analyses across the benefits and costs of candidate selection and performance expectations suggest that the informativeness of vacancy duration comes from its reflection of firms’ hiring strategies. That is, firms expecting higher profitability recruit more intensively to avoid the opportunity cost associated with vacancies for low-skill jobs and to ensure the selection of high-quality workers for high-skill jobs. Further analyses show that the implication of job vacancy duration for future profitability is not incorporated timely in the capital markets, as evidenced by pessimistic analyst forecasts and positive earnings announcement returns in future quarters for firms with short (long) durations for low-skill (high-skill) jobs. These results demonstrate the informativeness of job vacancy duration for firm profitability and advance the understanding of firms’ hiring strategies.

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We examine the measurement error in surrogate measures of operating cash flows and accruals widely used in the accounting literature. We decompose the measurement error into two components, non-articulation error and omission error. We find that the measurement error is large in magnitude and primarily driven by the omission error. Furthermore, we find non-articulation events have little effect on the omission error. We demonstrate that the measurement error produces biased coefficients and incorrect inferences in four common research settings. We also provide a simple correction that eliminates the omission error and show that the correction reduces biases and improves inferences. Importantly, our decomposition and correction can be used by future researchers to identify, understand, and take steps to mitigate the measurement error and the resulting biases that are introduced when using surrogate measures of operating cash flows or accruals.

ABSTRACTThis 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.

We examine whether tax-motivated income shifting by U.S. multinational corporations affects information asymmetry. Using a new firm-year measure of income shifting and a two-stage least squares approach, we find income shifting is positively associated with four measures of information asymmetry. Cross-sectional tests reveal that this effect is more pronounced for firms with large differences between foreign and domestic earnings growth. Using SFAS 131 to improve identification and establish evidence consistent with a causal relation between income shifting and information asymmetry, we demonstrate that the adverse impact of income shifting on information asymmetry is concentrated in firms that discontinue geographic earnings disclosures. Overall, our study provides evidence that significant consequences of information asymmetry are associated with tax-motivated income shifting.

We examine the real effects of lease capitalization rules (i.e., standards that require firms to capitalize finance leases) on corporate investment. We show that the introduction of these rules leads to a decrease in investment, which is more pronounced for firms with high reliance on leases. We posit and find that lease capitalization affects investment via a learning channel and a contracting channel. Regarding the first channel, we argue that managers identify areas of overinvestment and activities that should be discontinued or downsized because of the information they collect and analyze to comply with lease capitalization rules. Accordingly, we find that the effect of lease capitalization is stronger when learning opportunities are higher. Regarding the second channel, we argue that lease capitalization affects investment via its effect on contracts. Accordingly, we document an increase in the likelihood of covenant breaches and a stronger decline in investment for financially constrained firms.

We examine the implications of measurement error in surrogate measures of operating cash flows. We decompose the measurement error into two components—the inclusion error and the non-articulation error. We find that the measurement error is large in magnitude and primarily driven by the improper inclusion of accruals in surrogate cash flow measures (i.e., the inclusion error). Furthermore, we find the non-articulation error has little effect on the inclusion error. We demonstrate that the measurement error in surrogate cash flow measures produces biased coefficients and incorrect inferences in common research settings. We also provide a simple correction that eliminates the inclusion error and show that the correction reduces biases and improves inferences. Importantly, our decomposition and correction can be used by future researchers to identify, understand, and take steps to mitigate the measurement error and the resulting biases that are introduced when using surrogate measures of operating cash flows.