An Empirical Analysis of the Effects of Online Trading on Stock Price and Trading Volume Reactions to Earnings Announcements*

This study provides evidence regarding the effects of online trading on stock price and trading volume reactions to quarterly earnings announcements. We test for differences in stock price and volume reactions to quarterly earnings announcements between a period with a significant amount of online trading (1996‐99) and a period without online trading (1992‐95). We conjecture that online trading has increased the proportion of naive investors in the market. We predict that this will result in (1) a decrease in the average precision of investor information prior to earnings announcements leading to higher earnings response coefficients (ERCs), (2) an increase in differential interpretation of earnings leading to higher trading volume reactions that are unrelated to price change, and (3) a decrease in differential prior precision leading to a decrease in the association between trading volume and absolute price change. We find evidence consistent with all three predictions. Our findings are relevant for assessing the validity of concerns about online trading expressed by regulators and the validity of theoretical models of trade with asymmetrically informed investors.     

The Stock Market Reaction to the Reserve Quantity Disclosures of U.S. Oil and Gas Producers*

Abstract. The purpose of this study is to examine the information content of the components of the annual change in the quantity of proved reserves reported by U.S oil and gas (O&G) producers. In particular, it investigates the contemporaneous association between the unexpected portions of discoveries, production, net purchases, and revisions of prior quantity estimates and unexpected security returns during the release week of the 1984 to 1988 annual reports or forms 10-K of these firms. The empirical results suggest that (1) disaggregating the net change in the quantity of proved reserves into its components conveys additional information beyond that contained in the net change in total proved reserves itself, (2) discoveries are highly associated with security returns even after controlling for production, and (3) revisions, net purchases, and production have a modest influence on security returns. The findings of this study are interpreted within the context of the economic environment of the O&G industry during the test period. Résumé. L'auteur examine le contenu en information des éléments du changement annuel de la quantité de réserves prouvées dont font état les producteurs pétroliers et gaziers des États-Unis. Il s'intéresse en particulier, pour la période 1984–1988, à l'association que l'on établit maintenant entre, d'une part, la portion inattendue des découvertes, la production, les achats nets et la révision des estimations antérieures de quantité et, d'autre part, les rendements imprévus des titres au cours de la semaine de publication des rapports annuels ou des formulaires 10-K des entreprises. Les résultats empiriques donnent à penser que (1) la décomposition en ses différents éléments du changement net dans la quantité des réserves prouvées livre davantage d'information que le changement net global lui-même, (2) les découvertes sont associées de très près aux rendements des titres, même une fois contrôlée la variable production, et (3) les révisions, les achats nets et la production ont une modeste influence sur les rendements des titres. Les résultats de cette étude sont interprétés dans le contexte économique du secteur pétrolier et gazier au cours de la période d'analyse.     

Institutional Pressures to Provide Social Benefits and the Earnings Management Behavior of Nonprofits: Evidence from the U.S. Hospital Industry

This study examines the relationship between institutional pressures to provide social benefits and the discretionary accrual behavior of nonprofit firms. I examine this issue within the context of U.S. nonprofit hospitals, an economically significant and politically rich setting where firms face considerable institutional pressure to provide an important social benefit: charity care. I argue that institutional pressures on nonprofits to provide higher levels of social benefits imply that lower profits should be reported. I develop theory and provide evidence which suggests that, due to competing private incentives to report higher profits, nonprofit managers strategically use discretionary accruals to increase accounting earnings when the social benefits their firms have provided in the current period exceed external stakeholders' normative expectations. The findings from this study inform the ongoing political debate regarding the appropriateness of tax exemptions for U.S. nonprofit hospitals and should therefore be of interest to both regulators and policymakers. In addition, this study provides timely insights for researchers regarding how institutional pressures can affect managers' reporting behaviors in other settings where similar competing reporting incentives exist between managers' private benefits and stakeholder expectations related to social benefits.     

Foreign Holding Companies and the US Taxation of Foreign Earnings: Evidence from the Tax Increase Prevention and Reconciliation Act of 2005*

I analyze US multinationals' (MNCs) use of foreign holding companies in their organizational structures and the impact of holding companies on internal capital markets. The look-thru rule in the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) reduces the after-tax cost of foreign intercompany financing transactions. I use TIPRA as a natural experimental setting to test whether a shift in US tax policy that reduces the cost of moving foreign capital increased firms' reliance on foreign holding company subsidiaries. I find that MNCs responded to TIPRA by creating more foreign holding companies. Furthermore, consistent with the policy objectives of TIPRA, I document that MNCs that rely on holding companies gained tax efficiencies in their post-TIPRA foreign internal capital markets, reducing domestic taxation on foreign earnings and easing financial constraints. Overall, my results expand our understanding of foreign organizational structure decisions and their internal financing benefits. I contribute to the tax literature by documenting a response to TIPRA that sheds light on the growing complexity of foreign subsidiary ownership structures.     

Rent-Seeking and U.S. Corporate Income Tax Laws*

Abstract. Rent-seeking by U.S. corporations, through tax accounting rules, is examined with respect to tax law changes in the 1980s. Results are supportive of theory. Campaign contributions by firms' Political Action Committees (and by their officers, directors, and employees) to tax-writing members of Congress, prior to two tax law changes, are functions of industry concentration and anticipated (specific) tax accounting rule changes, the latter were drawn from footnotes of firms' financial statements. Other uses of the data for financial accounting research are discussed. Résumé. Les auteurs se penchent sur le cas des sociétés qui, aux États-Unis, cherchent à promouvoir leurs propres intérêts, en s'efforçant d'influer sur le contenu des règles de comptabilité fiscale, relativement aux modifications qui ont été apportées à la loi fiscale dans les années 80. Les résultats obtenus confirment la théorie. Les contributions versées aux campagnes par les comités d'action politique des entreprises (et par leurs dirigeants, leurs administrateurs et leurs employés) aux membres du Congrès responsables de l'élaboration de la loi fiscale, avant les deux modifications apportées à cette loi, sont fonction de la concentration sectorielle et des changements anticipés dans l'apport de modifications (précises) des règles de comptabilité fiscale. Les mesures de cet apport ont été tirées des notes aux états financiers des entreprises. Les auteurs étudient d'autres usages possibles des données recueillies aux fins de la recherche en comptabilité financière.     

Tax‐Avoidance Activities of U.S. Multinational Corporations*

This paper investigates whether economies of scale exist for tax planning. In particular, do larger, more profitable, multinational corporations avoid more taxes than other firms, resulting in lower effective tax rates? While the empirical results indicate that, ceteris paribus, larger corporations have higher effective tax rates, firms with greater pre‐tax income have lower effective tax rates. The negative relation between effective tax rates (ETRs) and pretax income is consistent with firms with greater pre‐tax income having more incentives and resources to engage in tax planning. Consistent with multinational corporations being able to avoid income taxes that domestic‐only companies cannot, I find that multinational corporations in general, and multinational corporations with more extensive foreign operations, have lower worldwide ETRs than other firms. Finally, in a sample of multinational corporations only, I find that higher levels of U.S. pre‐tax income are associated with lower U.S. and foreign ETRs, while higher levels of foreign pre‐tax income are associated with higher U.S. and foreign ETRs. Thus, large amounts of foreign income are associated with higher corporate tax burdens. Overall, I find substantial evidence of economies of scale to tax planning.     

A Simple Approach to Better Distinguish Real Earnings Manipulation from Strategy Changes*

Researchers typically infer real earnings management when a firm's operating and investing activities differ from industry norms. A significant problem with classifying deviations from industry averages as myopic earnings management is that companies can change their operating and investing decisions for strategic business reasons rather than to mislead stakeholders. Using principal components analysis, we systematically evaluate existing measures and develop a comprehensive real activities measure to better capture earnings manipulation. Our measure reflects (i) deviations from industry averages across multiple activities and (ii) other signals of manipulation. This approach is promising because, although there are many sources of abnormal activities, manipulation is more likely the cause when managers engage in multiple income-increasing abnormal activities that coincide with other signals that indicate an elevated risk of manipulation. This simple approach results in a metric that associates negatively with future operating performance and earnings persistence, yields high-power tests, and captures manipulation reasonably well across most life-cycle stages. Importantly, this approach performs better than the standard real earnings management metrics across all dimensions. Specifically, it generates the expected reduction in future earnings and reduced earnings persistence in 82% of the tests compared to 36% and 46% in common alternatives. Also, because this innovation does not require a long time-series or rely on future period realizations for classification, it can be useful in more research settings than other recent innovations in the literature.     

A Study of Major Impact: Assortative Mating and Earnings Inequality Among U.S. College Graduates

This research has two goals: to measure the extent of assortative (non-random) mating by college major in the United States, and to assess the extent to which assortative mating by college major increases earnings inequality among college-educated couples. Assortative mating of college graduates with other college graduates has been extensively studied, but research on assortative mating by field of study is rare. The analysis uses a large sample (659,732 couples) from five years of the American Community Survey public use files to group college degrees into nine categories, compute the frequency of all marital pairings, and compare these frequencies to a random assignment of pairings. The results show that assortative mating by college major is common for all majors and both genders, and that these results are robust to division of the sample by age group. Because high-earning majors tend to be married to spouses from the same high-earning major group, and likewise for low-earning majors, assortative mating increases earnings inequality among two-earner college-educated couples. The extent of this increased earnings inequality is calculated with both dollar measures and standard aggregate measures of inequality. Thus college-educated Americans tend to marry persons with similar college majors and this tendency measurably increases earnings inequality among college-educated couples.

     

Discontinuities and Earnings Management: Evidence from Restatements Related to Securities Litigation*

A heated debate exists as to whether discontinuities in earnings distributions are indicative of earnings management. While many studies attribute discontinuities in earnings distributions to earnings management, other studies argue that earnings discontinuities are artifacts of sample selection and research design. Overall, there is limited direct evidence of a connection between earnings discontinuities and earnings management. In this study, we provide direct evidence linking earnings management to earnings discontinuities for a sample of firms that settle securities class action lawsuits and restate earnings from the alleged GAAP violation period. We compare the distribution of restated (“unmanaged”) earnings to originally reported (“managed”) earnings. We find that discontinuities are not present in the distribution of analyst forecast errors and earnings changes using unmanaged earnings but are present using managed earnings. The discontinuity in the earnings level distribution is attenuated, but not eliminated, on an unmanaged basis. These shifts among our sample of firms are caused by earnings management and cannot be explained by sample selection or research design issues. Our findings are important because many studies use earnings discontinuities as a proxy for intentional earnings manipulations and we provide the first direct evidence of a link between these two phenomena.     

The Contribution of Associate's Degree Holders to U.S. Earnings,Labor Quality,Productivity, and Overall Economic Growth

There is substantial evidence on the importance of education as a driver of earnings, productivity, and economic growth. However, knowledge of the specific role of associate's degrees in U.S. economic growth is limited. We analyze the sources of U.S. economic growth and identify the contribution of associate's degree holders to improvements in earnings, labor quality, productivity, and overall economic growth. We find evidence that substitution toward workers with associate's degrees has increased U.S. earnings, aggregate labor quality, and productivity, and that these effects are concentrated in the health care, trade, and government sectors. While the average educational attainment of people entering the labor force has plateaued, our results suggest that shifting workers from some college to associate degrees could improve earnings, the quality of the workforce, productivity, and growth, potentially without more time spent in school.     

美国医改怎么改

在中国百姓看来，奥巴马政府“让人人都能享有医疗保险”的医改方案，值得拍手叫好。但在美国，却招致半数以上的民意反对，原因何在     

The Timeliness of the Bond Market Reaction to Bad Earnings News

We find that bond price quotes impound bad earnings news on a more timely basis than good earnings news and that the bond market impounds bad news on a more timely basis than the stock market. We also find that the timeliness of the bond market reaction to bad news is concentrated primarily among speculative‐grade bonds, consistent with earnings news having a larger effect on bond price quotes when default risk is high. In addition, we find that a portion of the bad news impounded by the bond market reverses following the earnings announcement. Overall, our findings are consistent with bondholders’ asymmetric payoff function having important implications for the valuation role of accounting information in the bond market. Specifically, our findings indicate that bond quotes impound bad earnings news much earlier in the pre‐earnings announcement period than stock prices. In addition, bondholders appear to overreact to the bad earnings news initially and correct this overreaction subsequent to the earnings announcement.