Journal of Contemporary Accounting & Economics最新文献

While prior literature examines the role of certain incentives in motivating top managers (CEOs and CFOs) to engage in corporate tax avoidance, there is little evidence on the specific actions that managers take in response to these incentives. Motivated by the premise that a manager can influence a firm’s tax activities by directing resources towards the tax function, I investigate whether four specific tax avoidance incentives studied in prior literature (financial constraints, equity risk incentives, hedge fund interventions, and analyst cash flow forecasts) induce managers to make investments in hiring personnel within the firm’s tax department. Using a dataset of tax department employees collected from the professional networking website LinkedIn, I find evidence that each incentive is significantly associated with an increase in the number of individuals employed within the tax department. This association is generally stronger among higher ranked employees and employees with prior tax department experience. Overall, my findings are consistent with the premise that managers invest resources in the tax function when they are incentivized to avoid taxes. My study also provides some assurance that the association between tax avoidance incentives and effective tax rates documented in prior studies is reflective of intentional tax avoidance behavior.

This study investigates the impact of trying economic times, i.e., periods of economic decline and uncertainty, on managerial ability. We find that trying economic times positively moderate the association between managerial ability and firm profitability. Consistent with these primary findings, we also find that the positive moderating role of economic decline and uncertainty on the ability-performance relationship is most salient in procyclical industries. Our results are robust across multiple measures of economically trying times and managerial ability. Further analyses indicate that in trying times more capable managers generate stronger performance through both improved asset turnover and profit margins.

We examine how acquirers’ political connections affect takeover bargaining that involves significant regulatory uncertainties, when the target’s options of putting itself to another bidder are restricted. Opposite to prior takeover theories, we show that a politically connected acquirer pays a lower (rather than higher) takeover premium to and shares a smaller portion of the takeover gains with the target in the context of antitrust reviews, consistent with a bargaining benefit for the connected acquirer. Corroborating this bargaining argument, we find that the results are more pronounced in situations where: (1) the antitrust concerns are more severe; (2) the targets have fewer outside options other than the connected acquirers; and (3) the acquirers’ political connections are more valuable. Our results highlight the value of political connections to shareholders in takeovers, affecting not only the likelihood of completion but also the bargaining outcomes of the deal under the shadow of costly regulation.

Previous research indicates that historical institutions are crucial to the functioning and development of an economy. However, little is known about whether and how a historical institution affects current entrepreneurial activities. In ancient China, the Civil-service Examination (CSE), also known as keju, was the most important institution for selecting scholar-officials and had long-lasting effects. Using the variation in the historical success in keju across prefectures, this paper empirically examines the impact of the CSE on local corporate innovation. We find that the density of jinshi, which is the highest achievement in keju, is positively correlated with the innovation productivity of local firms as measured by patent applications and citations. To determine causality, we employ an instrumental variable and a quasi-experiment in early Qing period. Further tests suggest that the CSE promotes corporate innovation by fostering a forward-looking stance in firms, enhancing firms’ human capital level, and increasing local social capital. Overall, our results indicate that the CSE has a real and long-lasting impact on today’s firm innovation.

This study examines the impact of firms’ participation in an emissions trading scheme (ETS) on their debt financing. Using a unique quasi-natural experimental setting in China, we find that the cost of debt increases and firm access to debt decreases when firms participate in an ETS, which indicates that lenders interpret firms’ participation in an ETS as a potential risk compared to nonparticipation. Further analyses show that the negative effect of participation in an ETS on firm debt financing is more significant for ETS participants that are less able to pass costs on, that operate in regions with less financial marketization, and that are less innovative. For firms that are covered by the national ETS, the restricted access to debt is alleviated for those with experience in a pilot ETS.

This study investigates whether analysts exhibit accrual-related biases in forecasting earnings in the presence of conflicts of interest arising from business group affiliation. Our findings reveal that chaebol-affiliated analysts are more likely to overreact to accruals than do independent analysts by overestimating the persistence of accruals. Notably, affiliated analysts’ accrual-related biases are not reduced with analysts’ experience but intensify when analysts have stronger incentives to provide favorable forecasts for member firms. This suggests a possibility that in the presence of conflicts of interest analysts do not fully incorporate the implications of accruals into their forecasts, potentially with an intention to benefit group interests. In additional analyses, we find that the presence of affiliated analysts does not exacerbate accrual mispricing, which suggests that investors do not take affiliated analysts’ biased forecasts at face value. We also provide evidence that despite issuing less accurate forecasts than unaffiliated analysts, affiliated analysts do not necessarily encounter more career disadvantages.

Theoretical studies question the ability of financial statement information to provide evidence about a firm’s economic performance, as the mathematical relation between a firm’s accounting and economic returns becomes intractable when economic depreciation is defined endogenously—as a function of the firm’s cash flow stream—and when its internal rate of return (IRR) and investment growth rate have not been constant. This paper derives a new equation, called the average internal rate of return (AIRR) estimation model, in which a firm’s AIRR is estimated as a function of its current-year accounting return, its current-year asset growth rate, a measure of accounting conservatism, and a term that identifies the firm’s historical investment growth rate trend. Because the model allows economic depreciation to be defined exogenously, non-constant returns and growth rates can be aggregated across investment cohorts, allowing a firm’s accounting return to be reconciled to its average economic return. One such exogenous schedule—called competitive market depreciation—is used to illustrate the model’s implications. The AIRR estimation model empowers analysts to identify the direction and magnitude of the potential difference between a firm’s accounting and economic return created by fixed asset depreciation, accounting accruals, and the immediate expensing of intangible assets.

This paper provides evidence on US airlines’ responses to the U.S. Department of Transportation’s (DOT) mandated disclosure of non-financial performance. We find that while all three DOT measures are associated with customer complaints, airlines are more likely to improve on-time performance rather than mishandled bags and ticket over-sales following poor prior period performance. We also find that on-time performance is the only DOT measure that is associated with future accounting performance and is significantly associated with CEO compensation after controlling for financial performance and load factor. We also provide preliminary results to show that airlines incorporate the more informative component of the on-time measure in CEO compensation. Overall, we provide new understanding of how organizations react to the disclosure of non-financial performance and use incentives to improve these measures.

We provide evidence that the investment horizons of institutional shareholders affect firms’ financing decisions. We find that short-term institutional ownership positively affects firms’ likelihood of equity relative to debt issues, the size of equity issues, and the likelihood of long-term relative to short-term debt issues. Firms held more by short-term institutions have lower financial leverage and longer debt maturities. These results suggest that short-horizon institutions, backed by buy-side research, improve the transparency of the information environment, which allows firms to issue more information-sensitive securities. Our findings suggest that institutional investor horizons influence firms’ financing decisions by shaping their information environment.

This study examines whether brand capital is associated with debt maturity choice. For listed firms in the U.S. over the period from 1975 to 2019, we find that investment in brand capital through ongoing advertising outlays is positively related to the use of short-term debt. The result is consistent with the hypothesis that high brand capital firms use short-term debt because of beneficial signaling effects. We also find the positive effect of brand capital on the use of short-term debt is more pronounced for higher quality firms and firms with lower financial constraints, which provides further support for the signaling explanation. Finally, we show that brand capital decreases the extent to which investments are financed by using long-term debt and increases the extent to which investments are financed by using short-term debt and equity.