Institutions that intermediate between investors and companies are crucial to the proper functioning of capital markets. These institutions provide marketplaces for and facilitate the transaction activity of investors, gather and disseminate information, and record the property rights of securities holders. The effectiveness of these institutions should be valuable to economies as they allow investors to effectively exercise and maximize the rights of ownership (La Porta et al., 2002; Claessens and Laeven, 2003; Hail and Leuz, 2006; Dixit, 2009). This thesis contains two essays that examine the value of different institutions involved in such intermediation. In the first essay, I examine the effect of securities transfer agents. Transfer agents are used to intermediate between the company and company-registered shareholders. Their primary responsibility is the proper maintenance of shareholder records, and the administration of shareholder transactions. Recent compliance failures by transfer agents, including reported acts of malfeasance by transfer agent staff, have increased regulatory scrutiny of the industry. Follow these events, the Securities and Exchange Commission (“SEC”) has released draft updates to the existing transfer agent regulatory requirements designed to improve the quality of transfer agent services and prevent further failures. Given concerns regarding the effect of this regulation on the costs of operating securities transfer agencies and competition, I examine two questions relevant to the regulatory discussion: Do transfer agents differ in quality? And, do these quality differences matter to investors? In the second essay, I examine the effect of the minimum price requirements (“MPRs”) of the NASDAQ and New York Stock Exchange (“NYSE”). MPRs permit exchanges to delist firms with stock prices persistently below $1.00. Proponents of MPRs argue they allow exchanges to maintain the quality of listed companies. Critics of the requirements argue they lack fundamental basis, limit access to capital, and harm investors. The merits of MPRs are likely rooted in the quality of firms subject to MPRs, the response of firm managers to (potential) breaches of MPRs, and the steps taken in the event of forced delisting. In this essay, I focus on the actions of firms in response to noncompliance with MPRs and examine whether these noncompliant firms respond by increasing news flow to the market.

Following the subprime mortgage crisis of 2007-2008, credit rating agencies (CRAs) faced scathing criticisms from the media and regulators for their role in the unfolding of the Global Financial Crisis (FC). The ensuing reputational damage and the changes to the regulation of CRAs led them to make numerous changes to their rating standards. Several prior studies have since examined the impact of these changes on rating quality, documenting tighter rating standards, lower ratings, and a change in rating quality after the FC. Despite these findings, however, little is understood about how a change in rating quality affects rated firms, and how firms respond to such a change. Using the tightening of rating standards in the wake of the FC as the main setting, this thesis seeks to explore these questions. Given the private lenders’ frequent use of ratings in performance pricing provisions and setting interest rates, the first study explores the changes in two dimensions of debt contracting: the use of rating-based performance pricing provisions, also called rating triggers, and loan spreads. Results suggest that the decline in the use of rating triggers in the post-FC period as documented in deHaan (2017) is muted in cases where the increase in rating quality was likely to be high, and is stronger in loans originated by lenders that had high reputational concerns. Closer inspection of pricing grids reveals that, consistent with lenders perceiving ratings to be more informative after the FC, rating downgrades/upgrades move loan spreads to a greater extent in the post-FC period. Evidence from tests on initial loan spreads provides support to this finding, but is generally weaker. These findings contribute to our understanding of how an increase in rating quality affects rated firms through its impact on debt contracting. That higher rating quality is associated with more likely downgrades suggests that firms have incentives to respond to an increase in rating quality due to the importance of ratings for firms’ debt policy. Accordingly, in light of the theoretical guidance and related empirical evidence, the second study examines whether rated firms increase misreporting in response to an increase in rating quality. In empirical tests, I find that accrual-based earnings management increased in rated firms in the post-FC period, and that this increase was driven by firms with rating triggers. In tests motivated by the CRAs’ adjustments to firms’ earnings, I also find that firms facing stronger CRA monitoring managed financial numbers that feed into these adjustments to a greater extent in the post-FC period. Considering the information used by CRAs in the rating process comes primarily from financial statements, this study informs regulators regarding the unintended consequences of regulatory reforms that aim to improve overall rating quality. The final study continues exploring other dimensions of firms’ responses to increased rating quality with an emphasis on real firm decisions. Results from tests examining real earnings management proxies indicate no change in the post-FC period for any of the numerous proxies examined. In tests motivated by the S&P’s rating criteria, however, I find that rated firms increased their excess cash holdings to a greater extent than non-rated firms after the FC. Results suggest this effect was stronger for firms placed under negative credit watch. Taken together, these findings expand our understanding of firms’ responses to an increase in rating quality by providing evidence on the impact of increased rating quality on real firm decisions.

In this thesis, I investigate the effectiveness of incentives for creative tasks. While organizations value and pursue creativity, they must also promote the efficient use of limited resources. Prior research finds that incentives, despite being a key control mechanism, are ineffective for simultaneously encouraging both creativity and efficiency. However, this relatively recent literature has not yet examined how critical attributes relating to individuals, tasks, and incentives may influence incentive efficacy. I conduct two studies to examine the differential effects of combined creativity and quantity incentives for (1) individuals with different creative capacities, (2) distinct types of creative tasks, and (3) varying strengths of incentives. In the first study, I focus on individual creative capacity, which is a crucial, yet unexplored characteristic of individuals engaged in creative tasks. Using an experiment, I hypothesize and find that combined creativity and quantity incentives lead to sustained high creative performance for individuals with high creative capacity. Thus, contrary to prior beliefs that combined creativity and quantity incentives are ineffective, I show that they can be effective for the type of individuals typically employed for creative work. In the second study, I examine creative tasks with pre-specified problems, which is a prevalent task type that is under-studied in the prior literature. Contrary to expectations, my experiment results show that combined creativity and quantity incentives can be detrimental to creative tasks with pre-specified problems. Comparing my study with prior studies on pre-specified problems, I note that incentive efficacy appears to be sensitive to incentive strength. Therefore, I design a follow-up experiment to examine the effect of different incentive strengths on the performance in a pre-specified task. I find that, for pre-specified tasks, combined creativity and quantity incentives are detrimental to performance, regardless of incentive strength, although the effect is predictably lower with weak incentives. This shows that combined creativity and quantity incentives are not just ineffective, as found in the prior literature, but can impede creative performance in tasks with pre-specified problems. Furthermore, weaker incentives may alleviate some of the negative effects of incentives on performance. Overall, my thesis highlights the importance of having a more granular understanding of incentive design in the creativity sphere. It extends prior research by demonstrating that incentives can lead to higher or lower creative performance depending on characteristics of individuals, tasks, and incentives. This highlights the importance of future studies on the use of performance management and rewards to elicit creative performance.

This thesis investigates the strategic financial reporting of target firms in mergers and acquisitions (M&As). Specifically, this thesis finds that M&A target firms manage GAAP earnings and non-GAAP earnings during selected periods of the M&A process to portray improved performance with related share price effects and M&A consequences. This thesis sheds light on how target firms, as key players in M&As, communicate with outsiders with implications for market participants, regulation, and research that heretofore has focused largely on M&A acquirers.

The regulatory landscape for non-GAAP reporting has been evolving due to changes in the U.S. SEC’s interpretations of regulations affecting non-GAAP disclosures. My dissertation, which is structured around the following essays, focusses on the influence of these changes in the regulatory landscape on specific aspects of non-GAAP disclosures. In the first essay, I examine how a 2010 change in the regulatory landscape for non-GAAP reporting affects the use of non-GAAP measures used for executive compensation contracting. In the second essay, I examine how a 2016 change in the regulatory landscape affects how managers make non-GAAP exclusion decisions. The results from this research provide evidence to regulators of the intended and unintended consequences of their rulemaking. Essay 1: I examine whether the regulation of non-GAAP disclosures constrains efficient compensation contracting. I use the regulatory shock of the January 2010 update by the U.S. SEC to its interpretive guidance on non-GAAP disclosures, which some believe relaxed the bar for non-GAAP reporting. Using a difference-in-differences estimation approach, I find that firms with strong incentives to use non-GAAP measures in CEO incentive plans started using more of these measures after the guidance update to those that did not. I also find that this increase was more pronounced among firms with a higher propensity to fail a non-GAAP regulatory test in fiscal years 2010-11, which was relaxed after the update. Based on the history of regulations affecting the use of non GAAP performance metrics and their specific applicability to non-GAAP measures used for contracting and valuation, I conclude that these effects are largely an unintended consequence of SEC rulemaking. Essay 2: I examine how managers make non-GAAP exclusion decisions depending on the type of regulatory guidance provided and their disclosure motivations. I use the U.S. SEC’s May 2016 interpretive guidance update, in which it provided specific examples of types of non-GAAP disclosures that could be misleading, to vary the level of detail in the guidance. Results of a 2 x 2 between-subjects experiment on 132 managers having an accounting/finance background provide strong evidence that managers choose to exclude an ambiguous charge in constructing a non-GAAP measure when provided with a more detailed type of guidance relative to a broader one since it lowers their decision uncertainty. I also find some evidence that managers choose to exclude the ambiguous charge when given an informativeness goal by top management as compared to an opportunism goal since the informativeness goal triggers their epistemic motivation. One of my key results is that these inferences hold only at low levels of process accountability. Finally, I also find that managers with a goal of informativeness make more ‘normative’ exclusion decisions when given a more detailed guidance as opposed to a broader one. I do not find similar or contrary evidence for managers with a goal of opportunism.

The economic consequences of legal and regulatory frictions are important for policymakers, practitioners, and academics to understand, due to the critical role the legal and regulatory environment plays in the development of capital markets and thus resource allocation. This thesis, comprised of two essays, explores the economic consequences of landmark court rulings that affect the US market for corporate control—a market which represents over $1 trillion in annual transaction value—shedding new light on how legal frictions impact target managers’ disclosure decisions in mergers (in Essay 1) and on how legal frictions affect merger activity (in Essay 2).

This thesis investigates how the presence of an analyst affects the corporate information environment when both the analyst forecast and the manager’s report are endogenously determined. I build two stylized models in which the manager has hidden price incentives in issuing his report to investors, and the analyst has two signals, one about the firm’s fundamental value and the other about the manager’s hidden price incentives. In the first setting, the analyst’s objective is to forecast both reported earnings and firm fundamentals. I find that the analyst’s forecasting strategy depends on the manager’s incentives, even when the analyst does not care about the manager’s report, calling into question Beyer’s (2008) suggestion that the dependence is due to the interaction between the analyst and the manager. Further, I find that the investor’s total information at hand after both the forecast and the report are released is non-monotonic in the quality of the analyst’s information, increases with the manager’s weight on being close to firm fundamentals in his incentives, and decreases with his weight on being close to the analyst forecast. The second setting differs from the first in that the analyst’s objective is to care about the client’s trading profits and forecast accuracy. I find that the properties of the analyst forecast and the manager’s report depend on the analyst’s incentives to boost the client’s trading profits, complementing Beyer’s (2008) finding that the analyst’s forecasting strategy depends on the manager’s incentives due to the interaction between the two. Further, I find that both the forecast distortion and the forecast accuracy are non-monotonic in the quality of the analyst’s value information.

This thesis consists of three distinct papers that examine different aspects of voluntary disclosure. In addition to contributing to the voluntary disclosure literature, this thesis also contributes to three other research areas: debt contracting, corporate governance and revenue-expense mismatching. Essay 1 tests the effects of voluntary and mandatory disclosure quality on the cost of public debt. Essay 2 tests the effects of audit committee oversight over management guidance. Essay 3 tests different explanations for why managers issue sales guidance.

This thesis comprises of three essays which examine how management controls are used by organizational leaders to influence the behaviors of employees. It is grounded in a combination of economic and psychological theories such as reciprocity (Blau, 1964; Akerlof, 1982), relational contracting (Bull, 1987; Gibbons and Henderson, 2012) and theories on organizational culture and work norms (e.g., Ouchi, 1979; Van den Steen, 2010; Graham, Harvey, Popadak and Rajgopal, 2017).

A firm’s information environment develops as a consequence of the interplay among information providers such as management, investors and intermediaries (e.g., analysts) in the capital market. New information from these producers influences stock prices, hence price informativeness – the extent that the information is reflected in price. By exploiting an exogenous shock to short-selling constraints – Reg SHO, I investigate how short-sellers (informed investors) affect the informativeness of firms’ stock price as well as management disclosure decisions. The challenge in examining the effects of short-selling on price informativeness and management decisions is that short-selling activities develop endogenously as a result of many factors, including a firm’s economic performance. Reg SHO provides a useful setting to examine how an exogenous change in short-selling constraints affects the informativeness of stock prices along with firms’ disclosure policies. By exploiting Reg SHO, this dissertation sheds light on these two aspects of a firm’s information environment. The first paper shows that short-sellers are predominantly populated by those who possess private information of upcoming news, supported by evidence that in the presence of short-sellers the informativeness of firms’ stock price increases (decreases) prior to (during) earnings announcements. The second paper argues that being aware that short-sellers partially possess management’s information of upcoming news, managers are encouraged to increase their disclosure of bad news, and in a more timely manner.

This thesis includes three essays and examines how management control mechanisms influence the behaviors of lower-level employees. Drawing on the psychology, management, and economic literature and based on field data from a large Chinese organization, this thesis documents that formal and informal controls in organizations function as an integrated system in motivating employee performance. This thesis not only contributes to the management accounting literature, but also has important implications for managerial practices.

Equity crowdfunding (ECF) has transformed the way many businesses raise capital and how the general public can take part in small and early stage firms. In the ECF market, firms promote their equity offerings to potential investors through the Internet. Regulatory oversight on ECF firm disclosure is relatively relaxed, with a greater focus on lowering compliance costs for small and early stage firms. However, holding ownership in emerging unlisted companies comes with risk. Regulators must balance investor protection against increasing the ability of businesses to raise capital from the public. While earlier research in accounting and finance has mostly focused on regulated markets, the less-regulated environment in the ECF market implies that managers have greater discretion over their disclosure. Using a novel dataset, my thesis, which includes three essays, investigates managerial discretion through use of disclosure and the resulting impacts in the ECF market. The first study examines a disclosure strategy for enhancing ECF success. ECF firm disclosure is subject to lower regulatory oversight. Nevertheless, ECF investors prefer greater requirements on firm disclosure (Cumming and Johan 2013). The market implications of ECF firm disclosure are unclear ex ante. Based upon the contracting role of disclosure, disclosure quality is hypothesized to be positively associated with ECF success. I find that high disclosure quality not only improves funding success but also accelerates speed of capital allocation. I also document a positive, non-linear relation between length of voluntary disclosure and ECF outcomes. The second study investigates the interplay between disclosure and investors’ sophistication. Due to the relatively lower regulatory oversight on ECF firm disclosure, managers may use tone (biased language) to mislead investors, particularly those who have lower levels of financial knowledge. In contrast to the prior findings in regulated markets, results indicate that ECF investors react negatively to use of net positive words in offer documents. I further demonstrate that the use of biased language is associated with poor post-fundraising outcomes, suggesting that tone is misleading. Investors see through use of tone, although the negative response appears to be stronger for investors who are more sophisticated. The last study explores disclosure decisions made by managers of ECF who return to the market to promote new offerings. Unlike in traditional markets, returning ECF firms comprise those with both previously funded and unfunded offerings, and their disclosure and the outcomes of all ECF attempts are observable. This study is the first to examine how ECF firm disclosure evolves over time. Results suggest that the disclosure strategies for subsequent offerings depend on past ECF outcomes. In the second offerings, returning firms with previously funded offerings make more changes in their offer documents, employ costly disclosure, and become increasingly conservative in their disclosure while using less biased language.