This paper examines the impact of appointing in-network auditors (i.e., audit firms from the same global audit firm network) in business groups on the investment efficiency of subsidiaries. We use a sample of European business groups for which we observe the parent and both domestic and foreign subsidiaries. Our findings reveal that an audit by in-network auditors does not affect the investment efficiency of domestic subsidiaries but leads to improvements in the investment efficiency of foreign subsidiaries. Specifically, external audits by in-network auditors are associated with a reduced likelihood and reduced extent of over-investments by foreign subsidiaries. While prior research mostly focuses on the role of auditors in providing financial reporting assurance within business groups, our study shows that in-network auditors provide audits with more added value by enhancing subsidiary investment efficiency.

We survey and interview U.S. private firm CFOs about their accounting basis and verification choices in the absence of reporting mandates. We document substantial reporting customization: 68% of private firms use U.S. GAAP, but many apply it with exceptions or combine it with other accounting bases, resulting in 21 distinct reporting configurations in our sample. Moreover, GAAP use does not imply an audit, as only 60% of GAAP users obtain one. Whereas prior work emphasizes the influence of external financing providers on GAAP adoption, CFOs report that internal benefits—including improved budgeting, forecasting, and profitability analysis—are equally important drivers of GAAP use. GAAP users generally report meaningful benefits and manageable costs of using GAAP, while non-GAAP firms indicate that limited decision usefulness, rather than implementation cost, is the primary adoption barrier. Our findings provide new evidence on how and why firms customize reporting when fundamental accounting choices are voluntary.

We provide a comprehensive overview of accounting-related regulatory changes (financial accounting, auditing, tax, and other disclosures) in the 27 European Union countries and the United Kingdom since 1993 based on an extensive literature review, survey, and topic and country expert input. Across all countries and years, we find that more than 16 regulatory events occur in a typical difference-in-differences research design that includes pre- and post-periods of four years. On average 3.4 out of four accounting disciplines are affected, emphasizing the need for interdisciplinary awareness. Our accompanying website (http://www.eu-regulations.com) offers visual representations of these events, regulation summaries, literature links, and source documents, all by country. This work aims to (1) lower the cost for researchers, reviewers, and editors to understand the EU's evolving regulatory landscape; (2) improve research designs by identifying concurrent regulatory events; and (3) highlight research opportunities for those studying the EU or specific member states.

We investigate the dynamics of internal forecasting in multi-location firms and the relations between forecast characteristics and investment. Using U.S. Census microdata on plant-level growth expectations, we find that plants within multi-location firms make forecasts that are both more certain and less accurate than those of standalone plants. We provide evidence suggesting that headquarters infers uncertainty from inter-plant forecast disagreement, and that headquarters is able to facilitate the use of relevant information held by one plant but applicable to another. Differences between peer and focal plants' forecasts predict forecast errors and relate to investment decisions at the focal plant, suggesting that information from multiple sources is integrated into capital allocation decisions. Headquarters' heavier use of peer plant forecast information when focal plants are more uncertain likely weakens focal plant managers' incentives to consider extreme scenarios when forecasting.

On the occasion of The Accounting Review's centennial, I bring renewed urgency to the need for management accounting research to have practical relevance given the budgetary pressures on higher education. Practically relevant research is also relevant in the classroom. I present three ideas to increase the practical and teaching relevance of management accounting research. First, study the heterogeneity in management accounting practices across industries and embrace single-industry research deep dives. Second, focus on the role of management accounting in decision-making, planning, and forecasting. Third, explore the connections of management accounting with other subfields in accounting as well as other business disciplines. casting; planning; interdisciplinary research.

Using Census microdata on 28,000 manufacturing plants, we examine how firms manage employee retention concerns. In response to reductions in the local unemployment rate, plants take additional steps beyond increasing compensation. First, plants adjust bonus architecture to ensure bonuses can be paid. Second, plants offer more agency to employees by deploying high-involvement work practices that generate longer-term commitment. Third, plants pull these retention levers less when they have high availability and use of data as this reduces the adverse effects of employee turnover on organizational knowledge. These results are robust to using the fracking revolution as a shock increasing firms' retention concerns. Additionally, we observe that while compensation increases tend to spill over to other plants within the same firm -aligning with theories of inequity aversion- adjustments to bonus architecture and the provision of employee agency do not, suggesting these may be more cost-effective strategies for multi-plant firms.

Formal theory and empirical research are complementary in building and advancing the body of knowledge in accounting in order to understand real-world phenomena. We offer thoughts on opportunities for empiricists and theorists to collaborate, build on each other's work, and iterate over models and data to make progress. For empiricists, we see room for more descriptive work, more experimental work on testing formal theories, and more work on quantifying theoretical parameters. For theorists, we see room for theories explicitly tied to descriptive evidence, new theories on individuals' decision making in a data-rich world, theories focused on accounting institutions and measurement issues, and richer theories for guiding empirical work and providing practical insights. We also encourage explicitly combining formal theory and empirical models by having both in one paper and by structural estimation.

We study the effect of proximity to corporate headquarters on the productivity of inventors and research and development (R&D) facilities. Distant inventors and R&D facilities are less productive, and plausibly exogenous reductions in the travel time from these inventors or facilities to headquarters increase their productivity and creativity. We hypothesize that these improvements in the management of innovation production occur because proximity improves monitoring, managerial ability to provide direction, relationship building that supports creativity, and information exchange, including advice from headquarters. Consequently, our results suggest that proximity can help managers balance both exploration and exploitation when overseeing innovation. Naturally, these results then beg the question of why firms do not locate all inventors and R&D facilities in close proximity to headquarters. We find that distant inventors and R&D facilities are located in areas with better general economic indicators, and especially more favorable tax rates, than headquarters, suggesting firms balance these benefits against the benefits of proximity when locating innovation production. This paper was accepted by Brian Bushee, accounting. Supplemental Material: Data and the internet appendix are available at https://doi.org/10.1287/mnsc.2022.4469 .

We examine the relation between plant-level predictive analytics use and centralization of authority for more than 25,000 manufacturing plants using proprietary US Census data. We focus on headquarters' authority over plants through delegation of decision-making and design of performance-based incentives. We find that increased predictive analytics use is associated with reduced delegation of decision-rights to local managers, increased centralization of control over data gathering and reduced plant managerial payrolls. In terms of incentives, predictive analytics use is associated with more accurate targets and tighter linkages between rewards to workers (performance-based bonuses, promotions and firings) and measured performance. Overall, our findings suggest that predictive analytics use is associated with increased centralization of authority in headquarters.

Health care costs in the United States make up a larger proportion of gross domestic product (GDP) than in any other developed country and continue to rise. We examine whether the use of consistent metrics in costing information systems across hospitals provides one avenue to reduce these costs. We refer to such consistency as “costing information consistency” or CIC and empirically measure it by identifying whether hospitals in a multihospital system share the same costing system vendor. Using M&A activity among vendors as an instrument for exogenous changes in hospital CIC, we find that CIC is associated with a 13.3% reduction in operating expenses, suggesting that increased cost comparability from CIC helps hospitals identify ways to reduce operating expenses by identifying clinical and administrative best practices. Further, it appears that CIC allows hospitals to decrease costs without sacrificing quality of care. We find no significant association between CIC and patient satisfaction, mortality, or readmission rates, and we see that hospitals with increases in CIC reduce expenses related to administrative and support services while increasing resources directly related to patient care. Based on our findings, we estimate that introducing CIC in all inconsistent US hospitals could result in a 3.8% reduction in economy-wide hospital expenses, or roughly $45 billion.

This paper examines the reliance on data in internal forecasting. Using US Census microdata on plant-level sales growth expectations, we find that plants with higher data intensity make forecasts that are both overly precise and less predictive of actual sales. These e ff ects are strongest for plants that have recently increased their data intensity, suggesting there is a learning curve when it comes to e ffi ciently using data for forecasting. Additionally, high data intensity plants issue forecasts that are less idiosyncratic and more like other plants within the firm as opposed to geographic peers, consistent with overreliance on readily available data crowding out incentives for managers to gather relevant local information. Finally, although high data intensity plants su ff er from worse forecasting outcomes, they appear to respond more nimbly to unexpected sales growth patterns.

We examine how tax-induced organizational complexity (“TIOC”), which we define as the organizational complexity that would not exist in a zero-tax world, is associated with executive performance measurement. While these structures can facilitate lower tax burdens, firms need to design their performance measurement systems to encourage executives to manage the associated complexity to avoid potential negative consequences. Using firms’ subsidiary structures in tax havens and other low tax countries to measure TIOC, we document several main findings. We find that TIOC is associated with longer-term performance measurement, consistent with boards wanting executives to manage both the short-run tax benefits and longer-run costs associated with TIOC. We also find that TIOC is associated with a greater propensity to use adjusted performance metrics, consistent with firms correcting standard metrics for measurement error and bias introduced by TIOC. Finally, we find that TIOC is associated with a greater usage of unique metrics and lower similarity in metrics across the executive team, consistent with TIOC creating heterogenous activities that top managers need to monitor and manage in support of optimizing taxes. Our study contributes to the tax and managerial accounting literatures by shedding light on how firms manage TIOC via performance measurement.

We study the effect of senior manager oversight on inventors’ productivity. We use changes in travel times between inventors and their employer’s headquarters caused by flight time changes as sources of plausibly exogenous variation in manager oversight of inventors. We find that oversight increases inventors’ productivity, as measured by equity market returns to patent approval announcements, the number of patent filings, and forward citations received. Oversight also increases inventors’ creativity and propensity to collaborate, and has a greater effect when the manager’s incentive to invest in the inventor is greater. Consequently, manager oversight appears to increase inventor productivity via advising and information sharing, and not via greater control. We also find that the effects of oversight vary with three unique features of innovation: its horizon, its creativity, and the difficulty contracting with inventors. Our results suggest that the primary role of managers in innovative settings is to provide guidance, rather than to exercise control.

This paper provides evidence on the determinants and economic outcomes of updates of accounting systems (AS) over a 24-year timespan in a large sample of U.S. hospitals. We provide evidence that hospitals update their AS in response to three types of pressures: economic pressures , such as increases in the quality of accounting information driven by vendor rollouts of improved AS; coercive pressures imposed by regulators mandating certain practices, such as internal control practices imposed by Sarbanes–Oxley Section 404; and mimetic pressures for hospitals to conform their AS to those of their peers, such as local county and prominent “celebrity” peers. We find that only economically driven updates lead to economic benefits in the form of lower operating expenses and higher revenues. In contrast, we find some evidence that AS updates prompted by coercive regulatory pressures actually impose economic costs in the form of higher operating expenses. This paper was accepted by Suraj Srinivasan, accounting .

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We investigate if and how in-network auditors (where parent and subsidiary are audited by auditors from the same audit firm network) serve as information intermediaries within business groups. Using a sample of European groups, we show that in-network auditors, in contrast to involving out-of-network auditors, increase the speed at which information is compiled and enhance the comparability of information within groups. We confirm these results through interviews which provide examples of how in-network auditors can improve information flows within groups. As a result, groups and subsidiaries benefit from increased responsiveness to investment opportunities. While prior literature mostly focuses on the role of the auditor in providing assurance to financial reporting, our paper shows that in-network auditors provide increased added value to their audit clients through improved information intermediation within business groups.

This monograph provides a structured overview of costing system research that can explain the variation in the characteristics and properties of costing systems found in practice based on firms’ source(s) of their demand for cost information. Costing systems are not developed in a vacuum but are designed to fulfill a purpose. In order to have a meaningful decision on the various demands for cost information, I start in Part 1 by exploring the different techniques firms can use to supply cost information to its managers and employees. Next, I discuss how even the most advanced costing systems will contain error, and present research on how the production environment affects this costing error and what firms can do to reduce the error, outlining important avenues for future research. Part 2 then moves onto the sources of the demands for cost information. I first discuss the decision-making objective of costing systems, and the requirements it places on the preferred measurement object, which resources to include in the cost measurement, and the desired properties of the costing system. The most voluminous literature here is on the capacity acquisition and allocation decision problem, but I cover the demands on costing systems to support customer portfolio decisions, inventory management decisions and decisions on managing competition as well. This part also explores the demands for costing systems for the identification of cost management opportunities and inventory valuation to support financial and tax accounting in a chapter each. Part 2 concludes with a chapter on cost information supporting performance measurement and control, again with respect to the preferred measurement object, which resources to include and the costing system’s preferred properties. Part 3 develops on the conflicting demands placed on costing systems by firms’ attempts at designing costing systems that serve multiple purposes. Furthermore, this part also discusses the nature of the strategic interactions between those different demands.

We explore the theoretical relation between earnings and market returns as well as the properties of earnings frequency distributions under the assumption that managers use unbiased accounting information to sequentially decide on real options their firms have and report generated earnings truthfully, with the market pricing the firm based on those reported earnings. We generate benchmarks against which empirically observed earnings-returns relations and aggregate earnings distributions can be evaluated. This parsimonious model shows a coherent set of results: reported losses are less persistent than reported gains, decision making diminishes the S-shaped market response to earnings and earnings relate to returns asymmetrically in the way documented by Basu [1997]. Furthermore, the implied frequency distribution of aggregate earnings is neither symmetric nor necessarily single-peaked. Instead, it may exhibit a kink at zero and look similar to the plots reported by Burgstahler and Dichev [1997]. However, within our model, none of these phenomena are due to reporting noise, bias, or some undesirable strategic managerial behavior. They are the natural consequences of using past earnings as the basis for value increasing managerial decision making that in turn generates the future earnings on which future decisions will be based.