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We examine how state liability regimes within the United States affect auditor reporting decisions. We exploit variation across state-level common law in two aspects of auditor liability: the extent to which auditors can be held liable by third parties for negligence, and rules for apportioning liability across multiple defendants. We find that auditors are more likely to issue a modified going-concern (GC) report to financially distressed clients from high-liability states than to those from low-liability states. We sharpen inferences using a natural experiment that examines the causal effects of two exogenous shocks to auditor third-party liability standards, which dramatically restricted auditors' liability in New Jersey in 1995 and in California in 1992. Results from difference-in-differences tests imply that auditors' propensity to issue a modified opinion for client firms in New Jersey and California decreases significantly after the decline in auditors' litigation exposure, relative to control firms from other jurisdictions. These findings add to our understanding of how litigation risk affects auditor behavior and highlight an important source of variation in litigation risk within the U.S. that has seldom been studied to date.

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We show that managers increase the volume of public financial guidance in response to decreases in analyst coverage of their firms, particularly to decreases that are driven by exogenous reduction in brokerage firm size. Managers do not respond to increases in analyst coverage. The managerial guidance response to decreases in coverage reflects the trade-off between the marginal benefits from analyst coverage and the marginal costs of providing guidance. Specifically, the response is concentrated within firms engaging in equity issuance activities, firms with low stock liquidity, and firms with low current guidance levels. The response is also concentrated within firms whose remaining analyst pool is smaller in number and/or has a lower percentage of analysts who are positive about the firm or who belong to a large brokerage house. Overall, our results shed insights on the interaction between managers and analysts and on how the value of analysts, as perceived by managers, varies in the cross-section with underlying firm and analyst characteristics. Data Availability: All data used in this study are publicly available from sources identified in the text.

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Pension experts have long conjectured that pension accounting rules encourage firms to invest pension assets in risky asset classes Carcache 2003, Gold 2005). The recent passage of IAS 19 Employee Benefits (Revised) ("IAS 19R") marks a fundamental shift in pension accounting on the income statement, by removing the use of the expected rate of return (ERR) on plan assets to determine a "smoothed" pension expense. We exploit the quasi-experimental setting created by this shift in a difference-in-differences research design. We demonstrate that a sample of Canadian firms affected by IAS 19R reduces risk-taking in pension investments post-IAS 19R, both over time, and compared to a control sample of U.S. firms unaffected by IAS 19R. Within Canadian firms, we also find that firms expected to be relatively more impacted -namely those with economically substantial plans, for which ERR assumptions have a larger impact on the income statement -engage in more risk-reduction post-IAS 19R. Accounting regimes relying on expected returns to calculate pension expense allow sponsors to recognize in income the benefits of higher risk (via a higher ERR, which reduces pension expense) while not recognizing the costs (of higher volatility in actual returns). We provide evidence that such accounting regimes could tilt plan sponsors towards more risk-taking in pension investment. Our results also suggest that an ERR-based expense smoothing regime -the norm under current U.S. GAAP -could be a driver of pension asset allocation.

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