Research on conference calls documents that the question and answer (Q&A) portion is informative to markets. However, prior studies focus on the attributes of the participating individuals, primarily managers and analysts. We instead use the conversation as our unit of analysis, and examine whether conversational engagement between managers and analysts in earnings calls is informative to market participants. Using an experiment, we first demonstrate that linguistic style matching (LSM), a form of verbal coordination, is a reasonable empirical proxy for conversational engagement. We next use a quasi-experiment to confirm that investors can detect differences in engagement. Finally, using a hand-collected archival dataset comprised of audio recordings and textual transcripts from over 2400 earnings calls, we show that LSM in manager-analyst conversations during the Q&A is positively associated with absolute stock returns during the conversation, suggesting that conversations with greater engagement are more informative to capital markets and facilitate price formation.

The papers in this volume were published through a Registration-based Editorial Process (REP). Authors submitted proposals to gather and analyze data; successful proposals were guaranteed publication as long as the authors lived up to their commitments, regardless of whether results supported their predictions. To understand how REP differs from the Traditional Editorial Process (TEP), we analyze the papers themselves; conference comments; a survey of conference authors, reviewers, and attendees; and a survey of authors who have successfully published under TEP. We find that REP increases up-front investment in planning, data gathering, and analysis, but reduces follow-up investment after results are known. This shift in investment makes individual results more reproducible, but leaves articles less thorough and refined. REP could be improved by encouraging selected forms of follow-up investment that survey respondents believe are usually used under TEP to make papers more informative, focused, and accurate at little risk of overstatement.

In this paper, we examine the growing number of behavioral studies of how financial reporting, auditing, and other corporate governance regulations affect earnings management and accounting choice-related decisions of managers, auditors, and directors. We first describe how experimental and survey studies can add unique insights into our understanding of earnings management and accounting choice. We then organize our review of the literature by the type of regulation (financial reporting, auditing, or corporate governance) and secondarily by which of the three parties are affected. Finally, we point out useful directions for future research and discuss key methodological choices faced by those who will conduct that future research.

This paper examines how the reversibility of the accounting effect of asset impairments affects managers' investment decisions. We conduct two experiments in which participants act as CEO of a multi-division electronics company that suffers a large asset impairment at one of the divisions. Drawing on prior psychology research involving cognitive dissonance and decision reversibility, we predict and find that managers who are responsible for the decision to record the asset impairment invest more in the impaired division when the accounting effect of the impairment is reversible than when it is irreversible. This is consistent with the idea that reversible accounting effects encourage behavioral attempts to alter the cash flow outcome, while irreversible accounting effects encourage belief revision to rationalize the cash flow outcome. Also in line with cognitive dissonance theory, we show that managers who are not responsible for the decision to impair the asset, or managers who are given the opportunity to deny responsibility for the asset impairment, do not differ in their investment in the impaired division, regardless of impairment reversibility.

Prior research argues that sequential decisions lead to a slippery slope toward unethical or fraudulent behavior, with little evidence to support such claims. We conduct two experiments which demonstrate the existence of the slippery slope in a controlled setting, and investigate how it leads “good people” (low-Machiavellians) to do “bad things.” The first experiment manipulates whether the potential to overstate personal performance in order to earn excess monetary compensation increases or decreases across two experimental tasks. We find that smaller initial incentives to misreport followed by larger subsequent incentives to misreport lead to greater subsequent misreporting by low-Machiavellians. High-Machiavellians do not exhibit this slippery slope pattern of behavior. Our second experiment manipulates the length of time between tasks to examine whether the effects of misreporting incentives on slippery slope behavior diminish as opportunities to misreport are separated. We again observe slippery slope behavior among low-Ms at the short horizon, but not at the long horizon. Our study confirms the existence of a slippery slope toward unethical behavior, highlights individual differences along an important personality trait, and suggests that slippery slope behavior is likely to be magnified when individuals are presented with frequent opportunities to misreport.