Research

We examine the relationship between country-by-country disclosures and the internal information environments of multinational entities (MNEs). We argue that the introduction of U.S. country-by-country reporting (CbCR) increases affected firms’ need for effective internal information flows, as country-specific information is not readily available for disclosure. However, the disclosure mandate simultaneously adds complexity to firms’ reporting environments. Using a difference-in-differences design, we find that firms affected by U.S. CbCR make more efficient investment decisions, utilize existing resources more efficiently, and report fewer financial restatements than firms not affected by the mandate. These effects are concentrated in the first year following the introduction of U.S. CbCR. Our findings are robust across various placebo tests and alternative research designs. Supplemental regression discontinuity analyses reinforce our main results. Moreover, we find that improvements in internal information quality are concentrated in accounting items directly tied to U.S. CbCR, suggesting that firms improve information flows to meet the mandate’s specific disclosure requirements. Finally, we show that our findings depend on disclosure practices and organizational complexity prior to the mandate. Our results suggest that U.S. CbCR prompts MNEs to alter their internal information processing structures, improving financial reporting and operational efficiency.

We examine how individual accounting employee movements across firms impact the transfer of corporate disclosure practices. We employ a large dataset of employee movements across firms through employee disclosures sourced from a professional networking platform and apply GPT-4 to identify employees in accounting roles. We use narrative disclosures in 10-K filings to measure corporate disclosure practices, which offer rich and nuanced discretion within a disclosure. We first identify an increase in similarity between the qualitative disclosures of firms experiencing an employee movement relative to other firm pairs. This increase is observable for both rank-and-file and executive-level employees and varies in magnitude by employee tenure and the similarity of the old and new roles. Moreover, the increase in similarity is more substantial in firm pairs that are industry peers. In subsequent tests, we use a difference-in-differences design at the firm-year level to show that firms hiring employees with previous exposure to highly informative disclosures increase their disclosure informativeness. Collectively, we report evidence that individual accounting employees at all levels transfer disclosure practices across firms.