We test whether earnings management spreads between firms via shared directors. We find that a firm is more likely to manage earnings when it shares a common director with a firm that is currently managing earnings and is less likely to manage earnings when it shares a common director with a non-manipulator. Earnings management contagion is stronger when the shared director has a leadership or accounting-relevant position (e.g., audit committee chair or member) on its board or the contagious firm's board. Irregularity contagion is stronger than error contagion. The board contagion effect is robust to controlling for endogenous matching of firms with directors, fixed firm/director effects, incidence of M&A, industry, and contagion via a common auditor or geographical proximity. These findings support the view that board monitoring plays a key role in the contagion and quality of firms' financial reports. JEL Classifications: M40; M41; M49; G34; G39; D83. Data Availability: Data are available from sources identified in the text.

We study how institutional investor attention to a firm affects the timeliness of analysts’ forecasts for that firm. We measure abnormal institutional attention (AIA) using Bloomberg news search activity for the firm on earnings announcement days. We find that analysts issue more timely forecasts when AIA is high on the earnings announcement day. Analyst responsiveness to AIA is stronger when analysts have more resources and experience and weaker when the AIA of other covered firms is high. Analysts who respond more to AIA are more likely to be named all-star analysts and less likely to be demoted to a smaller brokerage. We address endogeneity concerns using a measure of expected AIA that is unaffected by concurrent information. Our findings suggest that responsiveness to institutional attention influences the production of analyst research and analysts’ career outcomes. This paper was accepted by Brian Bushee, accounting.

When reporting after-tax non–generally accepted accounting principles (GAAP) earnings, firms are required to adjust for the tax effects of exclusions. Since 2010, the Securities and Exchange Commission (SEC) has issued and updated compliance and disclosure interpretations (C&DIs), which specifically require firms to disclose the tax effects of exclusions. We assemble a detailed, hand-collected data set of S&P 1500 firms’ disclosures to provide the first large-sample evidence on the reporting of the tax effects of non-GAAP exclusions. We find three key results. First, echoing the SEC’s concern, a significant proportion of non-GAAP reporting firms do not follow the C&DI guidelines (i.e., they do not disclose the tax effects of exclusions). Second, among firms that disclose the tax effects of exclusions, we find that managers strategically select the tax rates applied to exclusions to achieve after-tax earnings targets. Third, manager-reported non-GAAP earnings are less persistent for future operating earnings and cash flows relative to non-GAAP earnings calculated by applying various benchmark tax rates to exclusions. This evidence suggests that managers’ strategic behavior in selecting the tax rates applied to exclusions pollutes reported non-GAAP earnings and reduces their usefulness for predicting future performance. Overall, our results shed light on a specific channel through which firms use non-GAAP reporting to meet or beat earnings expectations. This paper was accepted by Brian Bushee, accounting. Funding: N. (X.) Chen appreciates financial support from the University of Houston. T. Shevlin acknowledges financial support from the Paul Merage School of Business at the University of California–Irvine. P.-C. Chiu acknowledges the financial support received from the Hong Kong Research Grant Council [Grant RGC14522716]. Supplemental Material: Data files and the online appendix are available at https://doi.org/10.1287/mnsc.2022.4433 .

This study examines whether voluntary disclosure enhances investment efficiency through its information-leveling role in the capital markets. We argue that investment efficiency improves with the quality of managers’ past earnings forecasts because past forecast quality alleviates information frictions that inhibit firm access to investment capital. Our empirical results are consistent with this argument. To start, we document a baseline positive association between management forecast consistency and investment efficiency. Building on this result, we find that the consistency effect strengthens when cross-sectional attributes indicate higher information frictions and when industry-wide accounting quality is negatively shocked. In addition, we find that consistency effects are stronger for financially constrained firms and that consistency is associated with lower bid-ask spreads and positive changes in equity issuance. Overall, we show that building a reputation for high-quality management earnings forecasts can help firms overcome information frictions that contribute to suboptimal investment.