Risk-based forecasting and planning and management earnings forecasts

This study examines the association between a firm’s internal information environment and the accuracy of its externally disclosed management earnings forecasts. Internally, firms use forecasts to plan for uncertain futures. The risk management literature argues that integrating risk-related information into forecasts and plans can improve a firm’s ability to forecast financial outcomes. We investigate whether this internal information manifests itself in the accuracy of external earnings guidance. Using detailed survey data and publicly disclosed management earnings forecasts from a sample of publicly traded U.S. companies, we find that more sophisticated risk-based forecasting and planning processes are associated with smaller earnings forecast errors and narrower forecast widths. These associations hold across a variety of different planning horizons (ranging from annual budgeting to long-term strategic planning), providing empirical support for the theoretical link between internal information quality and the quality of external disclosures.     

Hardening soft accounting information: Games for planning organizational change

This study provides theory and field evidence on the social process of hardening soft accounting information to make it persuasive for planning organizational change. Accounting information intended to support organizational change is often soft, that is, there is lack of interpersonal agreement about its quality. For example, employees can lack agreement about the quality of accounting information (e.g., activity-based costing) because the information is constructed from subjective information obtained from interviews and surveys. This information can contain unintentional errors as well as intentional distortions that are intended to avoid revealing embarrassing inefficiencies and/or to resist painful organizational change. We use concepts from applied game theory and social psychology to identify from the accounting literature four multi-person games that may be played to harden soft accounting information. These hardening games are characterized in terms of payoffs, players, the comparability of soft accounting information, and the rules of the games that are expected to emerge. We interpret the field evidence as indicating that the hardening games that emerge depend on who the players are and the comparability of their soft accounting information. In addition, we provide evidence on how the rules of the games that harden the information emerge from the players’ social interactions. Finally, we provide evidence on how an organization learns by trial-and-error how to harden soft accounting information by changing the players and the comparability of the soft accounting information.     

A two-state analysis of estate taxes and charitable bequests from the most generous decedents

This study uses Censored Quantile Regression (CQR) and probate records for the years 2000–2005 to analyze charitable bequests of the most generous decedents from two states, Virginia and Louisiana. We focus on the most generous decedents because they account for a large portion of total charitable bequests. The most generous decedents' charitable bequest tax price (i.e., one minus the marginal tax rate) elasticity is not significantly greater than one in both our full sample and the subsample of the decedents filing federal estate tax returns. Our finding suggests that allowing charitable bequests to be deductible is not a treasury efficient policy for the most generous decedents. We also find that the tax price and wealth effects for the most generous decedents are overestimated by the Tobit model that has been traditionally utilized by prior studies. Furthermore, filers' charitable bequests are predicted to decrease if the estate tax is repealed.     

Crossing the River by Touching Stones?: The Reform of Corporate Ownership in China

The privatization of Chinese enterprises in a low-legal-protection environment raises the question as to how minority shareholders are assured that their capital will not be expropriated. This paper sheds some light on this issue by examining the influence of controlling shareholders on the corporate performance of listed firms from 1997 to 2006. The first main finding is that firms controlled by local governments are more valuable to minority shareholders, whereas firms controlled by individuals are less valuable. The second main finding is that the post-WTO-accession relinquishment of control from local governments to private shareholders appears to have reduced corporate performance.     

The Value of Investment Banking Relationships: Evidence from the Collapse of Lehman Brothers

We examine the long‐standing question of whether firms derive value from investment bank relationships by studying how the Lehman collapse affected industrial firms that received underwriting, advisory, analyst, and market‐making services from Lehman. Equity underwriting clients experienced an abnormal return of around ?5%, on average, in the 7 days surrounding Lehman's bankruptcy, amounting to $23 billion in aggregate risk‐adjusted losses. Losses were especially severe for companies that had stronger and broader security underwriting relationships with Lehman or were smaller, younger, and more financially constrained. Other client groups were not adversely affected.     

Political Connections and the Informativeness of Insider Trades

We analyze the trading of corporate insiders at leading financial institutions during the 2007 to 2009 financial crisis. We find strong evidence of a relation between political connections and informed trading during the period in which Troubled Asset Relief Program (TARP) funds were disbursed, and that the relation is most pronounced among corporate insiders with recent direct connections. Notably, we find evidence of abnormal trading by politically connected insiders 30 days in advance of TARP infusions, and that these trades anticipate the market reaction to the infusion. Our results suggest that political connections can facilitate opportunistic behavior by corporate insiders.     

Properties that Sell at or above Listing Price: Strategic Pricing,Better Broker or Just Dumb Luck?

The Journal of Real Estate Finance and Economics - A surprisingly large number of houses sell above listing prices in a wide range of markets and in all market conditions. The question is: why do...     

Yield curves from different bond data sets

Review of Derivatives Research - It is well known that zero coupon rates are not observable variables. Their estimation process may be cumbersome and time consuming. We explore the extent to which...     

Judicial interpretation of the will of the state: A Hegelian perspective in the context of taxation

This paper draws upon Hegelian dialectic theory to understand the nature of the interrelationship between state, taxpayer, and the accounting profession. The paper proposes that this has been reconstructed from one founded upon neo-Kantian liberalism towards one in which components of political and civil society are co-opted by the state to minimize tax avoidance. Empirical evidence in the form of general anti-avoidance rules, court decisions, and judicial statements is provided to illuminate a process of fundamental redefinition of the roles of the judiciary and the accounting profession vis a vis the state. One of the principal functions of critical accounting theory is to question the political legitimacy of regimes of accounting; the implications of this redefinition are hypothesized in terms of this function, critiquing the changing relationship between the state and the taxpayer in the context of tax policy. The paper theorizes the consequences of this process for the accounting profession.