This study investigates the effects of stock liquidity on earnings management. While prior research finds that liquidity has mixed effects on corporate governance, our baseline regression results show that an increase in stock liquidity is associated with an increase in discretionary accruals and revenues. To establish causality, we use two quasi‐natural experiments that exploit exogenous increases in stock liquidity resulting from regulatory changes to the minimum tick size. The results of our difference‐in‐differences approach indicate that stock liquidity increases accrual‐based earnings management. Additional analysis suggests that liquidity affects earnings management by magnifying the effects of takeover pressure and equity compensation.
This study investigates how the quality of information available within a firm affects patent-related innovative activities. Relying on recent theoretical and empirical research, we use externally observable information attributes to proxy for the quality of internal information. Our empirical results indicate that firms with higher internal information quality generate more patents and patent citations.Cross-sectional analyses show that this positive effect is greater when firms are susceptible to greater internal information frictions due to firm decentralization, short management team tenure, and long product development cycles. We also document that firms experience an increase in patents and patent citations following an improvement of internal information quality proxied by internal control weakness remediation. Overall, our results suggest that the positive relation between internal information quality and task performance extends to patent-related innovation, a non-routine type of task that may rely on information originating from sources other than firms' formal internal information systems. K E Y W O R D S coordination, internal information quality, patent-related innovation, uncertainty J E L C O D E S M41, D8, O32
We investigate the impact of financial misreporting on peer firms’ operational efficiency, defined as a firm’s efficiency in converting investments into revenues. We find that, on average, peers’ operational efficiency declines after rival firms misstate their financial performance. However, we also find that the impact of financial misreporting is not homogeneous across peer firms. The negative effect is mainly driven by non‐misstating firms that had high performance. For firms that had lower past performance, the negative effect is significantly weaker, suggesting that the perceived competition induced by misreporting has a more positive effect. In addition, we document that the effect of misreporting is influenced by peer firms’ external financing need, industry leadership status and information environment.
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