With Jeppe Christoffersen, Mike Minnis, Maximilian Muhn, and Thomas Plenborg
SSRN link: https://dx.doi.org/10.2139/ssrn.5204024
ABSTRACT: Do firms know how well they are performing? We examine how peer information influences managers’ performance perceptions and decisions using a field experiment with over 4,500 private firms in Denmark, where firms’ financial information is publicly available. We randomly provide treatment-firm managers with aggregated financial information from industry peers. Relative to control-firm managers, treated managers revise their satisfaction with their firm’s performance, especially among firms performing below the industry median and when managers face higher information-processing costs. While control managers fixate on the zero-earnings benchmark, treatment managers do not, suggesting that the absence of an appropriate benchmark might contribute to the zero-earnings discontinuity. We find suggestive evidence of downstream responses, including revised forward-looking beliefs and increased investments, but no improvement in realized firm performance. Our findings indicate that information-processing costs can lead private-firm managers to rely on simple heuristics rather than peer information, limiting the spillover benefits of mandatory disclosure.
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.
The work is supported by the Carlsberg Foundation under grant CF23-1746.
With Kasper Nielsen and Kasper Regenburg
With Jeppe Christoffersen