ONE HAT TOO MANY: KEY EXECUTIVE PLURALITY AND SHAREHOLDER WEALTH

Tracing backward the career paths of the key executives of Business Week’s 1990 listing of the 1000 most valuable publicly held companies, we empirically examined the impact of announced changes in key executive plurality on stockholder returns. We found the more complete the position consolidation, the more negative were the shareholder responses. To attempt to gain further understanding, the additional variables of executive’s origin, the size of the board of directors of the firm, the proportion of outsiders on the board, and prior firm performance were examined. © 1997 by John Wiley & Sons, Ltd.     

Audit risk in a client portfolio context*

Abstract. This paper examines the portfolio problem of an auditor who controls the level of audit quantity and then combines investments in general market securities with investments in risky audits. We note that an auditor cannot simply choose audits to add to the portfolio but, rather, that a portfolio is constructed indirectly through a process of bidding against competitors. Thus, our analysis yields a bidding function that provides an estimate of the minimum fee an auditor is willing to accept to serve a potential new client, given existing investments. We develop propositions concerning the effects of various portfolio characteristics on the fee bid. Finally, we discuss the possible impact of a portfolio view of audit risk upon the structure of the auditing industry.     

Last‐Chance Earnings Management: Using the Tax Expense to Meet Analysts' Forecasts*

We assert that the tax expense is a powerful context in which to study earnings management, because it is one of the last accounts closed prior to earnings announcements. Although many pre‐tax accruals must be posted in the year‐end general ledger, managers estimate and negotiate tax expense with their auditors immediately prior to earnings announcements. We hypothesize that changes from third‐ to fourth‐quarter effective tax rates (ETRs) are negatively related to whether and how much a firm's earnings absent tax expense management miss analysts' consensus forecast, a proxy for target earnings. We measure earnings absent tax expense management as actual pre‐tax earnings adjusted for the annual ETR reported at the third quarter. We provide robust evidence that firms lower their projected ETRs when they miss the consensus forecast, which is consistent with firms decreasing their tax expense if non‐tax sources of earnings management are insufficient to achieve targets. We also find that firms that exceed earnings targets increase their ETR, but this effect is less significant. By studying the tax expense in total, rather than narrow components of deferred tax expense, our results provide general evidence that reported taxes are used to manage earnings.     

Corporate Taxes and Financing Methods for Taxable Acquisitions*

We examine the influence of corporate taxes on U.S. firms' financing methods for taxable acquisitions of 100 percent of a target corporation's stock. We conduct tests of acquirer firms' use of debt or internal funds as the funding source for these acquisitions over the period 1987‐97. Our results provide the first empirical evidence that U.S. firms' use of debt to fund acquisitions significantly declines as foreign tax credit limitations reduce the marginal tax benefits received from borrowing. This finding is consistent with earlier speculation that U.S. foreign tax credit provisions could materially affect the capital costs of U.S. companies in debt‐financed acquisitions. We also find that these firms are generally high‐tax‐rate corporations whose financing choices are not significantly influenced by whether they acquire target‐firm tax loss carryovers. Our findings contribute to the accounting literature on the influence of taxes on the structure and financing of corporate acquisitions.     

Dealer Networks

Dealers in the over‐the‐counter municipal bond market form trading networks with other dealers to mitigate search frictions. Regulatory data show that this network has a core‐periphery structure with 10 to 30 hubs and over 2,000 peripheral broker‐dealers in which bonds flow from periphery to core and partially back. Central dealers charge investors up to double the round‐trip markups compared to peripheral dealers. In turn, central dealers provide immediacy by matching buyers with sellers more directly and prearranging fewer trades, especially during stress times. Investors thus face a trade‐off between execution cost and speed, consistent with network models of decentralized trade.     

Inventory Accounting Method and Earnings-Price Ratios*

Lee (1988) finds that LIFO firms have higher earnings-price (EP) ratios than non-LIFO firms despite the income-reducing effects of LIFO, a result contrary to economic intuition that Lee describes as a “puzzle.” This paper attempts to resolve this puzzle by introducing refined measures of variables that are related to both EP ratios and inventory costing method choices. The improved proxies are analysts' expectations of future growth rather than realized growth, beta computed using a procedure designed to reduce measurement error rather than the usual OLS beta, and leverage as a supplemental risk measure. Further, we control for expected earnings changes, since transitory earnings shocks that are not expected to persist in future earnings affect the numerator of the EP ratio. After controlling for these factors, we find that EP ratios for LIFO firms are actually lower than those of non-LIFO firms, a result consistent with economic intuition and the result expected by Lee.     

看好中国广告的大趋势

在全球经济危机的大环境下，要说广告不会受到冲击是不现实的，相对于许多广告公司和媒体，达科与广告的渊源还是要浅一些的，毕竟我们主推的解决方案除了商业广告还有体育行业，以及一些大型的市政、公用设施等。     

俄亥俄州立大学哥伦布分校和印第安那大学商学院公司治理和破产

很多公司治理专家和机构都提议，董事会应该有更大比例的独立董事以及CEO不应该拥有董事长职位这样一个二重身份。但是，实践中也有一些证据支持内部人控制董事会以及CEO二重身份的董事会。我们选择50个失败的公司和50个起点状况和它们差不多的有代表性的公司的数据，比较它们董事会的结构要素，确实发现缺少独立性的董事会是公司失败的最重要原因。我们的研究表明，二重身份CEO以及内部人控制的董事会更容易造成僵化，即僵化概率远高于外部人控制的董事会。     

Do Joint Audits Improve or Impair Audit Quality?

Conventional wisdom holds that joint audits would improve audit quality by enhancing audit evidence precision because “Two heads are better than one.” Our paper challenges this wisdom. We show that joint audits by one big firm and one small firm may impair audit quality, because, in that situation, joint audits induce a free‐riding problem between audit firms and reduce audit evidence precision. We further derive a set of empirically testable predictions comparing audit evidence precision and audit fees under joint and single audits. This paper, the first theoretical study of joint audits, contributes to a better understanding of the economic consequences of joint audits on audit quality.