Do Analysts' Cash Flow Forecasts Encourage Managers to Improve the Firm's Cash Flows? Evidence from Tax Planning

Recent research finds that analysts' cash flow forecasts have meaningful financial reporting ramifications, but, to date, the identified effects are unlikely to yield meaningful cash flow benefits. This study examines whether analysts' cash flow forecasts encourage managers to enhance the firm's cash flow position through tax avoidance activities. We evaluate the change in cash tax avoidance after analysts begin issuing cash flow forecasts relative to a propensity score matched control sample of firms without cash flow forecasts. Consistent with analysts' cash flow forecasts encouraging tax avoidance that enhances the firm's cash flow health, we find a negative association between cash tax payments and analysts' cash flow coverage. Additional analysis suggests this association is driven primarily by strategies to permanently avoid rather than to temporarily defer tax payments and that increased cash tax avoidance activity represents a nontrivial component of the overall increase in reported operating cash flows after the initiation of analysts' cash flow coverage.     

Does Government Intervention Affect Banking Globalization?

Using data from British and American banks, we provide empirical evidence that government intervention affects the global activities of individual banks along three dimensions: depth, breadth and persistence. We examine depth by studying whether a bank's preference for domestic, as opposed to external, lending (funding) changes when it is subjected to a large public intervention, such as bank nationalization. Our results suggest that, following nationalization, non-British banks allocate their lending away from the UK and increase their external funding. Second, we find that nationalized banks from the same country tend to have portfolios of foreign assets that are spread across countries in a way that is far more similar than those of either private bank from the same country or nationalized banks from different countries, consistent with an impact on the breadth of globalization. Third, we study the Troubled Asset Relief Program (TARP) to examine the persistence of the effect of large government interventions. We find weak evidence that upon entry into the TARP, foreign lending declines but domestic does not. This effect is observable at the aggregate level, and seems to disappear upon TARP exit. Collectively, this evidence suggests that large government interventions affect the depth and breadth of banking globalization, but may not persist after public interventions are unwound.     

How Does Social Trust Affect Economic Growth?

This article connects two strands of the literature on social trust by directly estimating the effects of trust on growth through a set of potential transmission mechanisms. It does so by modeling the process using a 3SLS estimator on a sample of 85 countries for which a full data set is available. The results indicate that trust affects schooling and the rule of law directly, thereby raising economic growth rates. The article closes with a short discussion of the relevance of the findings.     

Does Oil Wealth Affect Democracy in Africa?

This paper uses recent data on historical oil wealth to provide new evidence on the effect of oil wealth on democracy in Africa from 1955 to 2008. We find that oil wealth is statistically associated with a lower likelihood of democratization when we estimate the relationship in a pooled cross‐sectional and time‐series setting. In addition, when estimated using fixed effects and IV‐2SLS methods, the strong negative statistical association continues to hold. Indeed, this result is robust to the source of oil wealth data, the choice and treatment of the variables set, and the sample selection. Our results also show other interesting and important results. The cross‐country evidence examined in the study confirms that the ‘Lipset/Aristotle/modernization hypothesis’ (that prosperity stimulates democracy) is a strong empirical regularity. Also, the propensity for democracy rises with population size, population density, ethnic fractionalization, having British legal origin or colonial heritage, and having a supportive institutional environment in the form of maintenance of the rule of law. However, apart from oil wealth, democracy tends to fall with linguistic fractionalization and rough (mountainous) terrain. Moreover, consistent with the data, North Africa consistently fails to favor democratic development.     

Do Analysts Matter for Corporate Tax Planning? Evidence from a Natural Experiment

We exploit an exogenous shock to analyst coverage as a result of brokerage house mergers and closures to examine whether financial analysts influence the tax‐planning activities of the firms they cover. Using a difference‐in‐differences design, we find that, on average, firms affected by broker mergers and/or closures experience a reduction in their GAAP (cash) effective tax rates (ETR) of 2.5 percent (2.6 percent), relative to control firms, translating into average tax expense (cash tax) savings of $34 ($35) million. The treatment effect is more pronounced among firms with lower pre‐event analyst coverage. To explore how analysts affect tax planning, we further document that the treatment effect is greater among firms that lose an analyst who provided an implied ETR forecast in the past, suggesting that analysts influence tax planning via their tax‐specific research efforts. In addition, we find that after merger/closure, weakly governed firms increase their use of aggressive tax strategies, and financially distressed firms experience a larger reduction of cash effective tax rates, relative to control firms. Overall, we provide evidence that a shock to analyst coverage sufficiently changes the cost‐benefit trade‐off of tax planning.     

Does FIN 48 Improve Firms' Estimates of Tax Reserves?

This paper examines whether the increased accounting guidance and reporting requirements of FIN 48 impact the adequacy and accuracy of tax reserves and the effect of auditor‐provided tax services on tax reserves. While we do not find FIN 48 affected the adequacy or accuracy of tax reserves on average, FIN 48 eliminated the differences in the tax reserve adequacy of firms with and without auditor‐provided tax services that existed prior to its adoption. We also find evidence of less premature releasing of tax reserves post‐FIN 48. Our evidence is consistent with an increase in the comparability of reserves for firms that do and do not purchase auditor‐provided tax services, consistent with one of the FASB's objectives for FIN 48.     

Does the Group Leader Affect Repayment Performance Differently?

Theoretical models of group lending assume that all group members are identical in terms of their effect on repayment performance. In practice, however, this may not be true. We use a unique data set obtained from a survey of 160 borrowing groups in Jordan to investigate the impact of joint liability, screening and monitoring activities, and social ties of the group leader and other group members on repayment performance as measured by the intensity of default using a negative binomial II model. Our results suggest that the joint liability and screening activities of the leader are more strongly related to repayment performance than the same variables for the rest of the group members. Social ties of all members have a significant effect on repayment, while monitoring activities have no effect.     

Supply Chain Collaborative Production Planning Based on Demand Forecast Revision

In this paper, we establish a probability model to analyze the impact of information sharing and demand forecast revision on ordering cost and optimal order quantity for different parties along the supply chain. The value of coordinated production planning can be measured by calculating the cost difference between distinct cases characterized by the extent of collaboration.     

Does Corruption Affect suicide? Econometric Evidence from OECD Countries

The question to what extent corruption influences suicide still remains unanswered. This paper examines the effect of corruption on suicide using a panel data approach for 24 OECD countries over the period 1995?C2004. Our results show that suicide rates are lower in countries with lower levels of corruption. We also find evidence that this effect is approximately three times larger for males than for females. It follows from these findings that corruption has a detrimental effect on societal well-being and its effect differs based on the social position of genders.     

Does Air Pollution Affect Consumption Behavior? Evidence from Korean Retail Sales*

Using monthly regional panel data on air quality and large retail store sales in Korea, we empirically examine the effect of air pollution on retail sales. We account for regional heterogeneity in air pollution and control for various macroeconomic and climatic factors that can affect retail sales. We also use the air quality indicator in the west coastal islands (affected by trans‐border pollution but uncorrelated with the economic activity in the mainland) as an instrumental variable. The estimation results show that, in general, 1 additional day of PM₁₀ level higher than 80 μg/m³ reduces monthly retail sales by approximately 0.1 percent. Nonetheless, an adaptive pattern emerges over time, particularly when the level of air pollution in the previous month was severe.     

How Does FDI Affect Private Firms' Financing Constraints?——Firm-Level Evidence from China

本文首先从理论上阐述了外商直接投资缓解民营企业融资约束的微观机制,并运用企业层面的统计数据佐证了上述机制的存在性,接下来基于面板数据就外商直接投资对民营企业的融资效应进行计量检验.实证研究发现:在产品市场,外商直接投资通过产业集聚效应缓解了民营企业的融资约束,其融资效应由合资企业、处于产业集聚区的非合资企业和未处于产业集聚区的非合资企业依次递减;而在信贷市场上,FDI对不同类型民营企业却起到截然相反的融资效应,对于合资民营企业起到明显的融资缓解效应,却加剧了非合资企业原本的融资困境.     

Does Chinese Environmental Policy Affect Income Inequality? Evidence from the Central Environmental Protection Inspection

This paper investigates the effect of environmental policy on income inequality. It focuses on the central environmental protection inspection led by the central government in China. Using a difference-in-differences approach, it finds evidence that environmental regulation decreased the per capita income and enlarged the gap between urban and rural income while showing an insignificant effect on employment. Although the policy can reduce pollution levels and bring environmental benefits in aggregate, the findings of this study suggest that the regulations appear to have reduced the proportion of manufacturing industry and hindered general innovation and investment from entrepreneurs, which resulted in greater inequality. Rural residents suffered more from environmental regulation due to relatively high migration costs and their disadvantaged human resources on the aspects of health, education level, and skills. The local government's execution incentive can also play a key role in the effectiveness of environmental policy. Regions with lower GDP growth targets and younger government leaders were affected significantly with regard to the income growth of local residents and the urban–rural income gap.     

How Does Trade Openness Affect Regional Demographic Transitions? Evidence from China's Provincial Panel Data

This paper investigates the effect of trade openness and other variables on the demographic transition in China using the instrumental variables regression method based on provincial panel data for the period between 1981 and 2013. The results indicate that trade openness is one of the determinants of China's demographic transition and has two distinct effects: (i) an income effect that accelerated the demographic transition by increasing per capita income; and (ii) a human capital effect that suppressed the demographic transition by reducing human capital accumulation. The effects of trade on demographic transition vary across different regions. This study identifies the important determinants of demographic transition in China's regions, and has rich policy implications for demographic transition and the upgrading of trade structure.     

How Does the Regional Comprehensive Economic Partnership Affect the Restructuring of Global Value Chains?

This paper quantifies the way in which the Regional Comprehensive Economic Partnership (RCEP) affects the restructuring of global value chains (GVCs). It incorporates an input– output structure into a general equilibrium model, highlighting important differences between intermediates and final goods. Using tariff reduction schedules for the RCEP agreement and Asian Development Bank Multi-Region Input–Output database, it evaluates the impact of the RCEP's tariff cuts on vertical specialization and the GVC position index of members. It shows that the RCEP significantly increased vertical specialization and the weighted average number of stages for members for primary factors of production and final consumption, which led to more complex and longer production chains. This was mainly due to the trade creation in intermediates imported from member countries and those outside it. This is an important finding, distinct from traditional trade models without an input–output structure.     

Will Social Welfare Expenditures Survive Tax Competition?

Increasing economic openness creates demands for social welfareprogrammes designed to cushion the impact of economic changes,but may also encourage governments to reduce tax rates to attractmobile economic resources. Competitive tax reductions couldthen prevent governments from being able to finance significantwelfare spending. Alternatively, economic globalization mightimprove the ability of governments to afford social welfareprogrammes—and several considerations point in this direction.First, taxes on internationally mobile activity represent onlysmall fractions of total revenue collections; personal incometaxes, value-added taxes, and social insurance contributionsfinance most social welfare spending. Second, internationalcompetition need not reduce taxes, and indeed, over the past25 years, corporate tax collections have remained high as fractionsof GDP and total taxes. Third, the vitality of a country's economylargely determines its level of social spending. To the extentthat incomes rise as a result, greater economic openness shouldstrengthen provision of social welfare. Footnotes ¹ E-mail address: jrhines{at}umich.edu     

Does Life Expectancy Affect Private Educational Investment in China？

In this paper, we emphasize the interactive effect between life expectancy and human capital accumulation, and test the positive feedback of longevity to educational investment in China. This is very important for understanding the pressure from the aging population and the increase in private educational investment in China. We first show in an extended human capital investment model that life expectancy growth acts as a driving force for educational investment. We then build a difference‐in‐difference‐in‐differences empirical framework and use cross‐province data to examine the effect in China. We use the maternal mortality rate (MMR) to identify the difference in life expectancy between genders, and the illiteracy rate or average years of education by gender for educational investment. The empirical results comply with the theory, in that increases in life expectancy significantly lower illiteracy rates and improve the average schooling years in China. This content of the present paper is closely related to crucial issues like population aging, human capital accumulation and gender discrimination. Policy implications are discussed based on the empirical results.