Incorporating Costs
Corporate Litigation, Governance, and the Role of Law Firms
Frank Allen Ferrell et al.
Journal of Accounting Research, May 2026, Pages 763-830
Abstract:
We study plaintiff law firms in corporate litigation, focusing on "star" firms that dominate settlement outcomes. Stars are associated with larger settlements; however, much of this effect is predicted by the defendant's litigation insurance coverage, suggesting assortative matching of stars with lawsuits that have ex ante larger expected payoffs. Moreover, stars charge higher fees for a given settlement size. Additional tests suggest that visibility and information asymmetry vis-à-vis less sophisticated plaintiffs help sustain the stars' market share. These findings advance our understanding of corporate litigation and the agency relationship between plaintiff law firms and their clients.
Do director ownership plans change director behavior?
Shawn Mobbs & Shage Zhang
Journal of Corporate Finance, June 2026
Abstract:
We find evidence that board-wide mandated director ownership plans, as opposed to simply relying upon individual self-directed ownership decisions, strengthen the alignment of interests between directors and shareholders through the constraints such plans impose on director selling of shares. This is especially so in the presence of influential institutional investors. In a propensity score-based matched sample difference-in-differences framework, we find that directors in firms adopting ownership plans are associated with greater ownership increases, a reduction in net sales of shares, and increased engagement relative to directors in non-adopting firms. Results are similar when examining directors with multiple directorships in director-fixed effects regressions. We also find disinterested directors depart firms after adoption. We find that firms shift toward more stock-based compensation around plan adoptions, further revealing that the strength of these plans comes from the share-selling restrictions. These findings indicate that ownership plans can be effective governance mechanisms, providing shareholders a means to offset weak director reputation incentives and improve firm value.
Intangible Capital and (Mis)measured Productivity
John Kepler, Charles McClure & Christopher Stewart
University of Chicago Working Paper, January 2026
Abstract:
We study how omitting intangible capital from production functions distorts key measures of firm-level productivity. Using a novel dataset of nearly 21,000 U.S. mergers and acquisitions from 2002 to 2024 -- representing approximately $15.5 trillion in acquired assets -- we observe market-based valuations of target firms' tangible and intangible assets immediately prior to acquisition. For each target firm, we estimate productivity, before they are acquired, using identical production-function specifications with and without intangible capital inputs. Incorporating these inputs substantially reshapes their measured total factor productivity (TFP): over 70% of firms change TFP rank, with some firms shifting by as many as eight deciles. The average absolute change in firm-level TFP is 69%, with sector-level changes exceeding 94% in manufacturing. Intangible-adjusted TFP better predicts future growth in sales, sales per employee, and R&D investment, indicating that it captures economically meaningful variation in operating efficiency. Consistent with its limited observability, intangible-adjusted TFP is not reflected in public equity valuations, but is strongly associated with acquisition deal premiums, where due diligence reveals private information about firm efficiency. Taken together, our findings show that accounting for intangible capital is central to measuring firm-level productivity, understanding productivity-driven growth, and interpreting how productivity is reflected in prices.
The Determinants of ESG Ratings: Rater Ownership Matters
Dragon Yongjun Tang, Jiali Yan & Yaqiong Yao
Journal of Accounting Research, May 2026, Pages 1087-1130
Abstract:
We examine whether and how common ownership affects Environmental, Social, and Governance (ESG) ratings -- an important research question given the increasing use of these ratings in investment decisions and corporate evaluations. We find that companies with major shareholders in common with the rating agency ("sister firms") tend to receive higher ESG ratings. When a company becomes a sister firm through a change in the rating agency's ownership structure, its rating from that agency is subsequently upgraded, whereas its ESG ratings from other agencies remain unchanged. Sister firms exhibit greater rating disagreements across agencies than other firms. The higher ESG ratings for sister firms are partly attributable to the transfer of immaterial positive ESG information through common owners. The common ownership effect is more pronounced when the owner can exert a greater influence on the rating agency. Moreover, sister firms with initially elevated ratings demonstrate poorer future ESG performance. Overall, our findings suggest that owners can affect ESG ratings of their portfolio companies in a way consistent with their influence and interest.
Website cookies and voluntary disclosure
Junhao Liu
Journal of Accounting and Economics, forthcoming
Abstract:
Using website cookie information from U.S. firms' websites, I measure consumer data collected through cookies and examine how such data affect firms' accounting information environments. Cookies provide granular and real-time consumer data to firms' internal information environments and may improve the quality of internal information that managers rely on for external reporting. I find that firms with more cookies issue management sales forecasts more frequently and devote a larger share of disclosures in 10-K filings to customer, marketing, and product topics. The effects are stronger when cookie-collected data are more relevant or larger in volume and when firms have better data analytic technology. However, proprietary costs and data privacy protection mechanisms attenuate these effects. Using the California Consumer Privacy Act as a quasi-natural experiment, I provide causal evidence linking cookie-collected data to voluntary disclosure. Overall, the study highlights the role of firm-collected consumer data in shaping accounting information environments.
Regulatory thresholds and post-IPO acquisitions: Evidence from the JOBS Act
Azizjon Alimov
Small Business Economics, March 2026, Pages 1441-1469
Abstract:
This paper examines whether the JOBS Act's $700 million public-float threshold, which conditions regulatory relief for Emerging Growth Companies, altered post-IPO acquisition behavior. Using a large sample of IPOs and a design analogous to difference-in-differences that compares issuers below and above the threshold before and after the Act, we find that firms below the threshold undertook fewer acquisitions and spent less on deals than comparable firms above it. The decline is concentrated in stock-financed deals, consistent with firms avoiding equity issuance that would raise float. The effect is attenuated in high-growth industries, where acquisition opportunities outweigh regulatory savings. We find no corresponding change in capital expenditures. Overall, the evidence indicates that size-based regulatory thresholds can reshape corporate investment and post-IPO growth, with important implications for IPO-market policy design.
Management Disclosure and Media Coverage
Hamid Boustanifar & Sasan Mansouri
Journal of Financial and Quantitative Analysis, forthcoming
Abstract:
We examine how management disclosure affects media coverage by analyzing firms' responses in earnings call Q&A sessions. Using a machine-learning-based "non-answer" score, we find that evasive managerial responses reduce subsequent media attention, particularly from professional outlets generating original content. This supports a supply-driven view of media coverage: poor disclosure limits journalistic content creation. Reduced coverage, in turn, is associated with lower investor engagement and weaker stock performance. Our findings highlight the critical role of a firm's information environment in shaping the level and nature of subsequent media coverage, with implications for broader financial market outcomes.
Profit Persistence in the U.S. Audit Market
William Ciconte & Andrew Kitto
Journal of Accounting Research, May 2026, Pages 633-679
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.
Bidder Pools in Mergers and Acquisitions
Bruce Carlin et al.
NBER Working Paper, February 2026
Abstract:
Allocation mechanisms in M&A deals are complex, but a main feature is that a target board controls who to invite to the sale. In a theoretical model, we show that it is optimal for the target to invite fewer potential acquirers when they are more homogeneous (i.e., when their values for the target are more correlated). Furthermore, greater correlation (and hence a smaller optimal bidder pool) yields the target a higher surplus from the sale (i.e., higher premium). We test the model empirically and show that M&A deals with smaller bidder pools are associated with higher target returns. This is not a result of synergies in the deals: the target's share of the surplus is simply higher in deals with smaller bidder pools. Finally, we show that cash deals are associated with larger, whereas stock deals have smaller, pools of bidders.