Is there a case for replacing parking charges by road user charges?

The price of parking is often considered an important tool with which to influence transport choice but, since many local authorities have limited control over off-street charges and since parking charges have no direct impact on through traffic, its influence on overall travel demand may be limited. Road user charges, on the other hand, do appear to offer an effective means of influencing overall demand. The problem is that public acceptance of such charges is low unless some obvious “carrot” can be identified. This paper explores the possibility that the removal of parking charges might be that “carrot”. Our analysis suggests that, although the removal of parking charges would reduce revenues and dilute the reduction in demand caused by the introduction of road charges, the combined effect might, in certain circumstances, be more beneficial to the local economy and might still yield a net increase in revenue. Given the incidence of impacts, it also appears that a combined scheme would be more equitable and might stand a greater chance of achieving public acceptance than a more conventional road charging scheme. The paper identifies the circumstances in which a combined scheme might work well and outlines the detailed analysis that would be necessary to confirm this.     

Have SFAS 166 and SFAS 167 improved the financial reporting for securitizations?

Critics have alleged that securitization accounting prior to 2010 was among the causes of the recent financial crisis. In response to this criticism, the Financial Accounting Standards Board (FASB) implemented two new accounting standards, SFAS 166 and SFAS 167, to improve the financial reporting for securitizations. Bank regulators have stated their belief that SFAS 166/167 will result in a consolidated balance sheet (and risk-based capital ratios based thereupon) that better reflects a bank's exposure to risk related to securitized assets. We document that, by ceding retained power or influence through the servicing/special servicing functions to third parties, SFAS 166/167 resulted in real effects to the extent that banks (particularly those that were weakly capitalized) achieved their accounting objectives in the post-SFAS 166/167 period through legitimate transaction structuring in line with the intent of the new rules. Further, we use capital market participants’ assessments of risk retention by sponsoring banks as a benchmark, and provide evidence consistent with bank regulators’ beliefs. In particular, following SFAS 166/167, equity investors of sponsoring banks do not consider (consider) as risk relevant securitized assets that receive off-balance sheet (on-balance sheet) treatment. Securitized assets that are consolidated under SFAS 166/167 exhibit the same risk relevance as assets that are not securitized, despite contractual provisions that would seem to imply substantial risk transfer.     

Deciphering Tax Avoidance: Evidence from Credit Rating Disagreements

This study investigates the role of tax avoidance in the credit‐rating process and whether differences exist in how rating agencies account for the risk relevance of tax avoidance. Using a sample of initial credit ratings assigned to public debt issuances during 1994–2013, our evidence is consistent with Moody's Investors Service and Standard & Poor's assessing the costs and benefits associated with tax avoidance differently from one another, resulting in more frequent and pronounced rating agency disagreement. Rating agency disagreement over tax avoidance is most evident when it is accompanied by relatively high levels of uncertain tax positions, foreign activities, research and development activities, or tax footnote opacity. We also find evidence that decreases (increases) in tax avoidance or tax footnote disclosure opacity are positively (negatively) associated with the convergence of split ratings. This suggests that firms can exacerbate or mitigate rating agency disagreement subsequent to bond issuance. Our study complements prior research by examining why sophisticated information intermediaries disagree about the risk relevance of tax avoidance. It also sheds light on how firms can influence rating agencies’ understanding of tax avoidance.     

Do managers withhold bad news from credit rating agencies?

Research documents that managers, on average, withhold bad news and emphasize good news in their public disclosures. We ask whether the same is true in their private communications with credit rating agencies. We study how rating agencies anticipate and react to public information events as a function of their access to rated firms’ private information. We show that, in terms of ratings downgrades, rating agencies exhibit relatively more anticipation and less reaction to negative (compared to positive) public information events when they have more access to private information. Our results are strongest when firms are most optimistic in their public disclosures and are not due to rating agencies focusing their efforts on downside risk. Overall, we find consistent evidence that rated firms provide less optimistic information to rating agencies in their private communications and that this information is reflected in credit ratings.

     

State Pension Accounting Estimates and Strong Public Unions

Concerns are commonly raised that strong public unions extract generous pension benefits from state governments and are the cause of states' burdensome pension obligations. Prior research (Anzia and Moe 2015) finds evidence supporting such concerns. Consistent with incentives to minimize such perceptions, our findings suggest that state pension plans with stronger public unions select higher discount rates to improve reported funding levels. While riskier asset allocations are used to support the higher discount rates (which equal the expected return on the plan assets), most of the higher rates appear opportunistic. In addition, consistent with a desire to avoid drawing attention to persistent plan underfunding, our evidence indicates that stronger union plans are less likely to select longer amortization periods to recognize pension deficits when underfunding is larger. We do not, however, find evidence for asset smoothing periods being used to delay the recognition of investment losses on plan assets. Together, our findings suggest that stronger union plans take steps to make their pension obligations look less burdensome to the public.     

Firms' use of accounting discretion to influence their credit ratings

This paper examines whether firms that deviate from an empirically modeled (“expected”) credit rating engage in earnings management activities, as measured by abnormal accruals and real activities earnings management. We find evidence that firms use income-increasing (-decreasing) earnings management activities when they are below (above) their expected ratings. We then test whether such actions are successful in helping these firms move toward their expected credit ratings. The results suggest that firms below or above their expected credit ratings may be able to move toward expected ratings through the use of directional earnings management.