DescriptionThe dissertation contains three essays that examine the market and audit consequences of earnings informativenss. In the first essay, I develop a new measure of earnings complexity based on the option market reaction both before and after the announcement of earnings. Motivated by previous theoretical work by Kim and Verrecchia (1991, 1994) and empirical findings in Patell and Wolfson (1979, 1981), I expect my measure to provide insights into the underlying information environment faced by investors around the earnings announcement. I apply three sets of validity tests and the results of these tests show that firms with high disclosure score as per my measure experience improved market liquidity, less informed trading in stock and option market, less profitability earned by insiders, and a stronger response by analysts. These results indicate me measure does capture disclosure transparency from perspective of uninformed traders. Overall, I construct a financial information measure that could be widely applied and shows that the ability to reduce uncertainty through financial reports plays a significant role in market trading. The second essay investigates the effect of financial statement comparability on corporate bankruptcy risk. Based on three different comparability measures developed by De Franco et al. (2011) and Barth et al. (2012) and expected default risk (EDF) based on Merton (1974)’s model, I document that financial statement comparability is negatively related to EDF in current and future periods with the relationship being stronger in the near term. Cross-sectional tests reveal that the marginal effect of comparability on default risk is most pronounced for companies with less visibility, more investment, less monitoring, and for companies in high-tech industries, which is consistent companies with worse information environment and monitoring benefit more from comparable statements. Comparability could help to reduce default risk through improved information efficiency and more long-term oriented investors using path analysis. My results help to demonstrate that financial statement comparability might help both to explain and to reduce default risk. In the third essay, I examine how principles-based accounting standards affect auditor’s pricing decision and auditing efficiency. The debate over the effectiveness of principles-based and rules-based accounting in previous literature shows mixed evidence about the benefits for either policy. Using a firm-year level measure of the extent of principles-based accounting standards developed in earlier literature, I find robust results showing that firms with more principle-based accounting-policy pay less auditing fees. Further evidence shows the different level of audit fees charged on firms that rely on more principle-based standards might be partially explained by decreased litigation risk, misstatement risk, and auditing effort. Finally, I identify some factors that reduce the gap about rules-based standards: the relative advantage of principle-based standards decreases when firms do not have good governance to constrain earnings manipulation by managers, and when auditors have expertise in areas of those complex standards.