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Mr. Benda Yin
Ph.D. Candidate in Business Administration – Accounting
Fuqua School of Business
Duke University

This paper examines whether judgment-based standards, defined as standards that require a greater scope of managerial judgments and estimates, result in more firm-specific information in stock prices. Using fourteen judgment-related standards and leveraging the latest Large Language Model (LLM) techniques to read and interpret SAB 74 disclosures to identify the firm-specific impact of standards, I employ a “stacked-cohort” regression model to compare firm-specific information in prices between firms affected by the standards and those unaffected around the adoption of these standards. I find that, upon the adoption of these standards, affected firms requiring more judgment, on average, experience an increase in firm-specific information about firm fundamentals in prices, relative to unaffected firms. Exploring the mechanism, I find that this increase in information is attributable to more informative financial reports and more private information production by traders. Exploring the consequence, I document that liquidity improves for affected firms. These findings add to the understanding of required judgment in standard-setting and offer new perspectives on the role of accounting standards in facilitating efficient capital allocation.