The Effects of Alternative Data on Misreporting

New data sources, such as transactional data from point-of-sale systems and store traffic data from satellite imagery, help reduce information asymmetry between managers and external stakeholders. I investigate whether these new sources of information influence managers' decisions to manipulate real activities and accounting reports, and whether this is driven by changes in investors' monitoring capabilities. To explore the impact of the adoption and use of alternative data by financial markets, I develop a novel measure based on employment data that captures sophisticated investors' investment in alternative data. My findings indicate that increased coverage of alternative data affects managerial behavior in treated firms, reducing the likelihood of real earnings management and leading to a shift toward some more aggressive accounting practices.