With Jeppe Christoffersen, Mike Minnis, Maximilian Muhn, and Thomas Plenborg
ABSTRACT: Do firms know how well they are performing? In this paper, we examine the role of peer information on firms’ self-assessed performance using a field experiment with more than 4,500 private firms in Denmark, where financial information is publicly available for all limited liability firms. We randomly provide treatment firms with aggregated information on key financial metrics of their industry peers. Relative to a set of control firms that did not receive this peer information, we find a notable shift in firm satisfaction with their own performance post-intervention. Treatment firms put more weight on their relative performance and less on their absolute performance. We also show that while control firms fixate on the zero-earnings benchmark when assessing their own performance, treatment firms do not, suggesting that the absence of an appropriate benchmark might underlie the zero-earnings discontinuity observed for private firms. Taken together, our results suggest that public disclosure does not ensure the full utilization of information and still leaves private firms using simple heuristics to assess their own performance. They also suggest that the underutilization of peer financial information among private firms can lead to skewed performance perceptions.
Presented at University of Chicago, ESSEC Business School, 2024 EAA Annual Congress, 2024 SPARK Meeting, and 2024 AAA Annual Meeting.
With Jeppe Christoffersen and Thomas Plenborg
ABSTRACT: We use owner-managed firms, free from external pressure from shareholders, analysts, and media, to examine the role of intrinsic motivations (psychologically based, non-economic) in earnings benchmark beating. We observe benchmark beating as instances where owner-managers decrease their salaries to transform a loss into a profit. Two key findings emerge. First, even when accounting for various extrinsic motivations, such as reporting pressures from debt-holders, employees, and suppliers, we find that benchmark beating is highly prevalent when these motivations are negligible. Owner-managers who can beat the benchmark via salary decreases are 70% more likely to reduce their salaries than others without this potential. Second, managers’ earnings benchmark beating correlates with their private, non-economic benchmark beating. Our findings indicate that reference-dependent preferences from psychology literature complement economic arguments in explaining benchmark beating.
Presented at the 2022 EAA Annual Congress, Aarhus University, and Hanken School of Economics.
With Bjorn Jorgensen
ABSTRACT: This paper investigates how resilient auditor processes are to the hospitalization of the audit partner. Specifically, we analyze the impact of sudden hospitalization of the engagement partner when auditing primarily happens—between the fiscal-year end date and the audit report date—on the audit quality of their clients. We provide suggestive evidence that, overall, engagement partner hospitalizations have some impact on audit quality. However, these events lead to lower audit quality at non-Big 4 audit firms, whereas audit quality at Big 4 firms remains unaffected. This suggests that Big 4 audit firms have effective contingency plans in place to mitigate the effects of sudden absences of engagement partners. In summary, our study contributes to understanding the role of audit partners in audit quality outcomes.
Presented at the 2025 Hawaii Research Conference, 2025 Auditing Section Midyear Meeting, and the 2025 International Accounting Section Midyear Meeting. The work is supported by the Carlsberg Foundation under grant CF23-1746.
ABSTRACT: This paper investigates whether employees with criminal records assist CEOs with criminal records in altering financial reporting. Using proprietary administrative data from Denmark on all employees’ criminal records, two main findings emerge. First, CEOs with criminal records tend to employ people with criminal records, which is consistent with homophily in CEOs’ hiring practices. Second, the association between CEOs’ criminal records and financial reporting quality is more pronounced when a high proportion of employees have criminal records. This suggests that employing like-minded employees can help CEOs with criminal records alter financial reporting. The results illuminate one channel through which CEOs influence firm outcomes.
Presented at the Hawaii Research Accounting Conference 2022, Aarhus University, 2021 Nordic Accounting Conference, 2021 the EAA Annual Congress, and 2019 "The Three Star Symposium” at University of Southern Denmark.
ABSTRACT: This paper examines whether employee sickness absences are informative about future financial performance. Although most firms do not disclose this metric, employee sickness absences can be reliably measured across firms, inform about the health of a company’s workforce, and could signal firm prospects. I use Danish proprietary administrative panel data on long-term employee sickness absences, which cover all employees in a nationwide sample of firms. A one standard deviation increase in employee absence days corresponds to a decrease in the one-year-ahead operating return on assets of 1% of its sample mean. The effect is more pronounced for high-paid and long-tenured employees, as well as for young firms. Moreover, an increase in employee sickness absences predicts a decrease in growth and increases in debt and employee turnover. The findings suggest that employee sickness absences are informative about future financial performance. This could be relevant to users of financial statements and regulators of nonfinancial disclosure standards.
With Jeppe Christoffersen
With Kasper Nielsen and Kasper Regenburg