Journal of Accounting & Economics最新文献

Researchers often use regression-based x-Scores (e.g., conservatism C-Score, misstatement F-Score) from a stage 1 model as a dependent variable in stage 2. We argue that this x-Score analysis can cause coefficient biases and interpretation problems because (1) x-Score does not capture new sources of variation, and (2) the estimates often hinge on unacknowledged technical assumptions. Instead, we recommend that researchers include the test variables and the relevant controls in stage 1, obviating the need for an x-Score. In replication analyses, some important published findings change after we remove the coefficient bias caused by the use of x-Score as a dependent variable.

This study empirically examines whether firms reclassify related-party payments to avoid the base erosion and anti-abuse tax (BEAT) of the Tax Cuts and Jobs Act (TCJA). We leverage the BEAT filing threshold and use both a difference-in-differences design among U.S. firms and a triple-difference design utilizing the parent company's location to provide evidence that firms reclassify related-party payments to avoid the BEAT. This effect is stronger in firms with greater pre-TCJA income shifting incentives. We estimate a $6 billion aggregate reduction in U.S. taxes for our sample firms in 2018. We also examine the consequences of reclassifying related-party payments and find some evidence of an increase in tax reserves and a reduction in internal information quality for firms that engage in cost reclassification to avoid the BEAT. These findings help explain observed BEAT collection shortfalls, contribute to the current policy debate about international tax reform, and document spillover effects of tax policy.

A CEO's short horizon and associated myopic actions are typically viewed as detrimental to the firm. In contrast, studying a voluntary disclosure model wherein capital market and product market strategic considerations are in play, we show that the CEO's myopic behavior can improve a firm's long-term value. In particular, the disclosures of a long-horizon CEO are seen as being entirely focused on the firm's interests and thus as being exploitative of customers. A short-horizon CEO myopically focused on short-term stock price is less aligned with the firm and, consequently, her disclosures are more customer friendly. As a corollary, when no disclosure is forthcoming, customers are less skeptical that the myopic CEO is withholding information to exploit them. This improves customers' willingness to pay with a myopic CEO, leading to higher firm profitability. The paper also layers in compensation design to derive the optimal degree of managerial short-term focus to induce.

The patent system grants inventors temporary monopoly rights in exchange for a public disclosure detailing their innovation. These disclosures are meant to allow others to recreate and build on the patented innovation. We examine how the quality of these disclosures affects follow-on innovation. We use the plausibly exogenous assignment to patent applications of examiners who differ in their enforcement of disclosure requirements as a source of variation in disclosure quality. We find that some examiners are significantly more lenient with respect to patent disclosure quality requirements, and that patents granted by these examiners include significantly lower-quality disclosures and generate significantly less follow-on innovation. Overall, our evidence suggests that high-quality patent disclosures create knowledge spillovers that spur follow-on innovation.

This study examines whether the implementation of industry-specific accounting standards helps capital market participants in making decisions about providing capital to firms. We predict and find an, on average, increase in firms’ capital growth in years following implementation of the relevant industry standard. The increase in capital growth arises primarily from equity issuances and is attributable to the implementation of the standards rather than industry-specific trends or economic shocks. We explore heterogeneity in industry standards and find more pronounced effects for (i) industry standards that reveal new information, provide explicit guidance, or increase accounting uniformity, and (ii) small firms, firms with greater information asymmetry, and firms with greater capital constraints before implementation of the standards. We also find evidence consistent with two channels explaining the documented increase in capital flows: reduction of information asymmetry and increase in financial statement comparability.

We provide the first evidence that prudential principles shape bankers' executive compensation, a phenomenon we call “pay for prudence” (PfP). We conjecture that PfP incentivizes bankers to balance shareholders' preference for risk with regulators' preference for prudence. Although PfP terms are often used in bank compensation contracts, we find that the use of detailed and concrete PfP terms are positively associated with equity incentives for risk-taking. Furthermore, detailed and concrete PfP terms are associated with lower tail risk, fewer bad loans, and lower likelihood of regulatory downgrades. While we do not find evidence that PfP is associated with lower profitability, PfP is associated with more diversified loan portfolios and reduced exposure to real estate. Our results shed light on a new dimension of bankers' pay and suggest that PfP-based incentives complement widely studied equity-based incentives for risk-taking by acting as guard rails that guide managers’ pursuit of investment opportunities.

Theoretical research demonstrates the important role of uncertainty in shaping a firm's cost elasticity. We contribute to this literature by analyzing the inherent tension between the effects of uncertainty about unit contribution margin (CM) and sales volume on cost elasticity. We identify the occurrence of words implying uncertainty in managerial forward-looking statements and employ a novel methodology to construct distinct measures of the managerial perceptions of overall, unit CM, and volume uncertainty. We find a significantly positive (negative) association between the uncertainty about unit CM (volume) and cost elasticity. These associations vary predictably with firm and industry characteristics. Our empirical evidence supports the theoretical argument that managerial perceptions of uncertainty and its components differentially influence their resource allocation decisions and suggests that any analysis of the relation between uncertainty and a firm's cost elasticity should specify the type of uncertainty as well as the firm and industry characteristics.

This study examines whether recent mergers between small and midsize accounting firms influence competition by increasing the number of firms that can compete with larger rivals in the U.S. public company audit market. I find that in-market mergers generate efficiencies that are reflected in a post-merger reduction in audit hours but not in reduced audit quality. For both in-market and out-of-market mergers, clients switching to post-merger firms are more likely to be accelerated filers and are significantly larger in terms of several proxies for size and complexity. Lastly, I find that an increase in market-level merger activity is associated with lower profitability of Big 4 firms operating in the same market but only in the smaller client segment. These findings suggest that recent mergers have actually increased competition in some segments of the audit market despite already high concentration and concerns about a lack of sufficient competition.

Advertising is a critical competitive tool that shapes interactions among firms in the product market. Using third-party tracked data on advertising outlet costs, I find that a nontrivial portion of public firms, even those with intense advertising activities, do not disclose advertising expenses in their financial statements, indicating significant disclosure discretion. I further use product category-level advertising data to develop a firm-specific measure of advertising rivalry. I predict and find that advertising rivalry is negatively associated with the likelihood of disclosing advertising expenses. This negative association is more pronounced when firms advertise on less trackable media outlets or have more mature products. These findings suggest that firms consider their advertising expenses proprietary and that concerns about advertising competition discourage the disclosure of advertising expenses.

We examine the impact of increasing whistleblowing bounties on whistleblowers' strategy and regulatory efficiency in detecting fraud. Our analysis shows the regulator extracts information about the incidence of fraud from whistleblowers' actions, and the quality of such information depends on the size of whistleblowing bounties. With a larger bounty, upon receiving a whistleblowing report, the quality of the regulator's information about fraud deteriorates, whereas upon observing no whistleblowing, the information quality about no fraud improves. Although the informational improvement upon no whistleblowing has not been widely discussed, we demonstrate it is a key determinant of the optimal whistleblowing program. We show, considering the informational value of whistleblowing and no whistleblowing, the regulator should set the bounty to encourage more whistleblowing when the prior belief of fraud is stronger and the insider is better informed. Our analysis generates policy and empirical implications for designing and studying whistleblowing programs.