Business Commons^™

Essays On Tax Impacts On Corporate Finance, Corporate Governance And Regional Disparity, Mei Li

Dissertations, Theses, and Capstone Projects

This dissertation consists of three chapters that cover topics on tax impacts on corporate finance, regional disparity and corporate governance.

Chapter 1 - How Do Net Operating Loss Carryforwards Affect Tax Impact on Corporate Capital Structure? This paper examines the impact of net operating loss (NOL) carryforwards on the tax implications of corporate capital structure. Leveraging the Tax Cuts and Jobs Act of 2017 (TCJA), the largest tax reform in four decades, this paper investigates the effect of NOL carryforwards on firms' sensitivity to tax reforms. As NOL carryforwards have become increasingly significant since 2000, but not widely researched due …

Bearer Negotiable Instruments: Addressing A Financial Intelligence Gap And Identifying Criminogenic Weaknesses, Hollis B. Kegg

Dissertations, Theses, and Capstone Projects

Bearer Negotiable Instruments (BNI) are a long-standing category of financial instruments used to transfer large amounts of money in ways that may not be subject to regulation, reporting, tracking, review, or oversight. There is limited information available on BNIs, and no evidence that any studies have been undertaken on BNIs alone, much less reported. Increasingly, BNIs are being used for illegal purposes including money laundering. This study gathers information about their characteristics, nature, purpose, legal status, and numbers. It also focuses on the crime risks associated with BNIs, the crime opportunities they facilitate, and the criminal weaknesses in the financial …

Bondholders’ Influence On Corporate Disclosure: Evidence From Capital Expenditure Forecasts As A Firm’S Commitment, Sae Young Yoon

Dissertations, Theses, and Capstone Projects

This paper addresses how firms cater to bondholders’ demand for additional information by examining capital expenditure (capex) forecasts prior to bond issuance. While bondholders’ demand for additional information incentivizes firms to be more transparent, the importance of macroeconomic factors and comparable bonds outstanding in bond pricing might, however, decrease the benefit of additional disclosure. Using the difference-in-differences approach, I document that firms provide more capex forecasts prior to bond issuance. This increase in capex forecasts is detected when bonds are issued for capital expenditure purposes or when investment-restricting covenants protect bondholders. Next, I find that firms provide more conservative capex …

Economic Policy Uncertainty And Non-Gaap Reporting, Ryan H. Wynne

Dissertations, Theses, and Capstone Projects

This study investigates the impact of economic policy uncertainty (EPU) on non-GAAP reporting. Prior research documents that numerous factors influence the frequency and quality of non-GAAP earnings disclosures, but the expected association between EPU and non-GAAP reporting is unclear. On the one hand, greater EPU may increase investor demand for additional financial information, while on the other hand, more EPU may lead to less non-GAAP disclosure by making core or recurring earnings more difficult to predict. Additionally, greater EPU may provide increased opportunity for managers to use non-GAAP reporting to mislead investors. I document a significantly positive association, on average, …

Climate Change And Corporate Behaviors, Lei Lei

Dissertations, Theses, and Capstone Projects

This dissertation consists of several chapters that span corporate disclosures on climate change-related impacts, environmental performance, common institutional ownership, and financial analyst coverage.

Chapter 1 This chapter briefly introduces this dissertation, including the motivation and structure.

Chapter 2 In this chapter, I exploit the oral and communicative nature of earnings conference calls to explore whether the discussions on climate change influence corporate environmental performance. I find strong and robust evidence that communications make firms engage more actively in environmentally beneficial investments, and thus, have better environmental profiles. Further evidence shows that mandatory disclosure may unexpectedly crowd out communications, and this …

Contracting In Direct Asset Sales, Xin Yuan

Dissertations, Theses, and Capstone Projects

Using a unique, hand-collected dataset of direct asset sales agreements in the SEC filings, I provide the first large-sample evidence on how contracting mechanisms are used to mitigate information frictions in these important transactions. The conflict of interests is unique because the scarcity of asset-specific financial information makes target assets difficult to value and monitor, especially when such transactions are usually consummated in a short period. I first show an extensive use of representations and warranties, covenants, and special payment arrangements in these contracts when severe information asymmetry exists between buyers and sellers. Importantly, further results suggest that these contracting …

Quid Pro Quo? The Sec Oversight Enforcement And Corporate Lobbying, Daeun Lee

Dissertations, Theses, and Capstone Projects

Due to the private nature of its internal investigations, research on the SEC oversight enforcement is limited. By distinguishing between enforcement staff’ decision to open an investigation (investigation decision) and commissioners’ authorization of an enforcement action (enforcement decision), this study is the first to examine how these two decisions interplay to overcome the political capture while fulfilling the SEC’s mission to protect investors. First, I do not find evidence that investigation decision is influenced by firms’ political connections, whereas enforcement decision is affected by firms’ lobbying efforts. Collectively, my results imply that there exists a misalignment …

How Much Does Imprecision In Accounting Measurement Enhance Value?, Ying Liang

Dissertations, Theses, and Capstone Projects

Theory on real effects suggests that more precise accounting does not necessarily improve investment efficiency. However, with investment efficiency mostly unobservable, empirical assessment of the theory is rare. This paper develops an empirical framework based on Kanodia et al. (2005) to structurally estimate the effect of imprecision in accounting measurement on investment efficiency. My estimates suggest that imprecision in accounting measurement has mitigated over-investment in capital expenditures and R&D by 28.6% and 4.9%, respectively. On average, firms still over-invest relative to the first-best full-information benchmark. In counterfactual analyses, my estimates suggest that the optimal investment efficiency could be achieved by …

Cost Stickiness And Supply Chain Bargaining Power, Binghao (Jimmy) Zhao

Dissertations, Theses, and Capstone Projects

Given the essential role of supply chains in the economy, furthering our understanding of the interactions between trade partners is important. In this paper, I study the relation between cost stickiness and bargaining power over supply chain partners. I document evidence consistent with the argument that firms wield supply chain bargaining power to avoid cost stickiness by shifting high adjustment costs onto their trade partners. In particular, I show that the level of SG&A and COGS stickiness is negatively associated with firms’ bargaining power over their suppliers and customers. My results are robust to using industry competition as an alternative …

The Impact Of Local Broadband Coverage On U.S. Firms’ Information Environment, Zhiyuan Tu

Dissertations, Theses, and Capstone Projects

This study investigates the impact of local broadband coverage on the information environment of firms located in the United States. I hypothesize that more intensive local broadband coverage improves the overall quality of a firm’s information environment by allowing more locally generated firm-specific news to be more broadly disseminated via the Internet. I use the Federal Communication Commission (FCC)’s form 477 data to measure the intensity of local broadband coverage. I find that more intensive local broadband coverage near a firm is associated with a firm having smaller earnings surprises, and lower abnormal information asymmetry around quarterly earnings announcements. These …

Externalities Of Cds Trading: The Effect On Industry Peer Firms’ Cost Of Debt, Sunqian Ren

Dissertations, Theses, and Capstone Projects

This paper documents externalities associated with the introduction of credit default swaps (CDS) in the corporate bond market. I find that firms without traded CDS contracts (non-CDS firms) experience lower cost of debt when there are more peer firms with traded CDS contracts (CDS firms). This effect is stronger when non-CDS firms are more closely related to a CDS-firm and when the outstanding CDS contracts are more liquid. My findings are consistent with the view that CDS trading provides hedging opportunities and information for bond investors of non-CDS firms. This study provides evidence that CDS trading on peer firms has …

Essays On Innovation, Analyst Coverage, And Corporate Finance, Yang Liu

Dissertations, Theses, and Capstone Projects

This dissertation consists of three chapters that encompass corporate innovation, analyst coverage, public firm disclosure, and institutional investors.

Social Capital And Analyst Forecasts, Jing Dai

Dissertations, Theses, and Capstone Projects

This study examines the effect of social capital on analyst forecast accuracy. Using a county-level measure of social capital, I find that firms headquartered in counties with high social capital have greater forecast accuracy than firms headquartered in low social capital counties. In addition, I conduct two cross-sectional tests under conditions where social capital facilitates analyst forecast information collection and where social capital provides more assurance of information reliability. I find that the effect of social capital is more pronounced when firms’ headquarters are close to analyst brokerage firms. This is because geographically proximate analysts may have more channels to …

Do Tax Directors Face Consequences From Tax Avoidance?, Liora Y. Schulman

Dissertations, Theses, and Capstone Projects

I examine the association between tax avoidance and tax director turnover. Specifically, I hand collect the names of tax directors and explore whether tax directors face consequences from making tax avoidance decisions. This unique dataset allows me to identify the tax director, who is directly responsible for taxes, which are one of the most significant accounts, and who prior literature has largely ignored due to a lack of availability of data. I find evidence that the tax director is more likely to face consequences, as measured by turnover, when their firm’s effective tax rate is above their industry median’s effective …

Essays In Corporate Responsibility And Finance, Mert Demir

Dissertations, Theses, and Capstone Projects

This dissertation consists of three chapters:

Chapter 1: The Effects of Corporate Social Performance and Social Norms on Market Valuation of Nonfinancial Disclosures Using a novel measure of the quality of corporate social responsibility (CSR) disclosures by global companies, this paper analyzes how CSR report quality affects firm value when mediating roles of social pressure and CSR performance are considered. I find that firms operating in socially controversial industries enjoy higher valuations when they issue high-quality CSR reports. I also find that for firms with poor CSR performance, higher-quality CSR disclosure is associated with a decline in firm value, while …

An Analysis Of The Relationship Between Ceo Compensation And Corporate Social Responsibility Disclosure Type And Quality, Nicole M. Heron

Dissertations, Theses, and Capstone Projects

The construct of corporate social responsibility (CSR) itself is comprised of three underlying components: environmental, social, and corporate governance. However, it is unclear from the extant literature whether and how these underlying components of CSR are related to CEO compensation. In the absence of a theoretical model of CSR that specifically considers its underlying components, I present in this paper an exploratory analysis of the relationships between CEO compensation and CSR disclosure type and quality. My CSR proxies are based on a firm’s environmental, social and corporate governance-related disclosure, as reported by Bloomberg. I calculate total CEO compensation as the …

Do Executives Have Fixed Effects On Firm-Level Stock Price Crash Risk?, Jiaxin Liu

Dissertations, Theses, and Capstone Projects

This paper investigates whether individual CEOs and CFOs have “styles” (i.e. manager’s fixed effects) in withholding corporate bad news, which is captured using firm-level future stock price crash risks. Tracking managers that move across firms and employing a manager fixed-effect model, I find that both CFOs and CEOs have fixed effects on firm-level stock price crash risks in the future using multiple crash risk measures adopted from previous studies (e.g. Kim et al.(2011a,b)). In addition, I find that CFOs’ managerial ability is positively associated with one crash risk measure. Lastly, I find systematic differences in CEO vis-à-vis CFO’s preferences in …

Earnings Management And Bargain Purchase Gains, Yan Yan

Dissertations, Theses, and Capstone Projects

This dissertation consists of two chapters that investigate earnings management through the recognition of bargain purchase gains in the banking industry and in other industries.

Chapter 1 In business acquisitions where the fair value of net assets acquired exceeds the consideration paid, acquiring firms recognize bargain purchase gains under ASC 805. The determination of the fair value of net assets at date of acquisition gives acquiring management considerable flexibility in judgments. In this chapter, I focus on bargain purchase acquisitions in the banking industry, and find that acquirer utilizes bargain purchase gains to avoid negative earnings and earnings decline. The …

Essays On Foreign Firms Following Deregistration From U.S. Exchanges, Kathleen Michelle Bakarich

Dissertations, Theses, and Capstone Projects

In 2007 the SEC introduced Rule 12h-6, which significantly reduced the requirements for cross-listed firms to leave U.S. markets. While the benefits and costs of cross-listing in the U.S. have been widely analyzed in prior literature, questions as to the impact of deregistration on firms, investors, and other parties have been raised given the increase in foreign firms leaving the U.S. over the past decade. In addition, the growing global adoption of International Financial Reporting Standards (IFRS) and worldwide regulatory developments over this time period have brought changes to the home markets to which deregistering firms return potentially influencing the …

An Evaluation Of The Standard Setting Performance Of The Fasb, Devon Rolleri

Dissertations, Theses, and Capstone Projects

This paper develops a framework for evaluating the effects of various organizational changes on the performance of a regulatory agency in standard setting. I apply this framework to examine whether numerous Financial Accounting Standards Board (FASB) modifications influence the performance of the Board during the standard setting process. These modifications include changes in FASB funding, voting, and Board member characteristics, particularly professional backgrounds and political affiliations. To analyze the performance of the Board, I follow the operations management literature to construct a set of variables that capture team effectiveness and managerial performance. A factor analysis on these variables produces three …

Two Essays: Changes In The Implementation Flexibility And Financial Statement Location Of Mandated Accounting Standards; And Does The Financial Statement Location Of Transition Adjustments Matter To Investors?, Ethan Kinory

Dissertations, Theses, and Capstone Projects

Essay 1: In the 20 years since Balsam et al. (1995b) found evidence that mandated accounting standards provide significant implementation flexibility, numerous structural and environmental changes have occurred to the accounting standards setting process. Using a more recent sample of 13 significant mandated accounting promulgations, I reexamine whether implementation flexibility continues to characterize accounting standards. I find that standards continue to avail firms with adoption timing options. However, it appears that the FASB’s previously documented proclivity to direct equity increasing (decreasing) adjustments to the income statement (balance sheet) temporarily abated in the early years of my study, but this behavior …

Essays On Disclosure And Individual Investors, Yakun Wang

Dissertations, Theses, and Capstone Projects

Essay 1: Using data from StockTwits.com, the most popular investment-dedicated social media network in the US, I develop new and direct measures of investors' aggregate attention to the stock market, and to individual stocks. I then examine the behavior of investors' aggregate attention and firm-specific attention. First, I show that investors' aggregate attention to the stock market is higher during earnings season than non-earnings season, but is not lower on Fridays compared to other weekdays. Second, I show that investors' firm-specific attention is positively related to Earnings Response Coefficients (ERCs) and negatively related to Post Earnings Announcement Drift (PEAD), indicating …

Auditor Size And Audit Quality: A Partner-Level Perspective, Yu Zhou

Dissertations, Theses, and Capstone Projects

This study examines the effect of auditor size on audit quality at the level of audit partners. Auditor size is defined by three criteria: the wealth of the audit partners; the size of the partners' client portfolios; and the number of audit partners in the firm. Using data from China, where disclosure of the identity of the engagement audit partner is required, I hypothesize and find that the personal wealth of an audit partner has two effects on audit quality: the income effect and the substitution effect. The Chinese audit market is particularly suited to study these two effects. Prior …

The Role Of Financial Reporting Quality In The Selection Of New Audit Committee Member, Dongliang Lei

Dissertations, Theses, and Capstone Projects

Prior studies investigating the selection of audit committee members (ACMs) often focus on board-level and director demographic characteristics. In this paper, I investigate whether boards select new ACMs from corporate environments with similar financial reporting quality. Using the appointee firm's financial report quality as a proxy for new ACMs' financial reporting attributes, I find that firms are more likely to appoint new ACMs with financial reporting attributes similar to firms' financial reporting culture for a sample of 275 new ACM appointments from 2007 to 2011. I find that firms appointing ACMs with relatively weak (strong) financial reporting attributes are more …

Essays On Non-Gaap Earnings Disclosure, Hangsoo Kyung

Dissertations, Theses, and Capstone Projects

Essay1: The U.S. Securities and Exchange Commission (SEC) issued new Compliance and Disclosure Interpretations (CDI) in 2010, relaxing enforcement of Regulation G and Regulation S-K. The nonbinding nature and opaque procedures behind interpretive guidance cast doubt as to whether SEC staff interpretations changed a firm's voluntary disclosure. In this paper, I find that firms more frequently disclose non-GAAP earnings after the issuance of new CDI, suggesting that nonbinding SEC staff interpretations influence corporate disclosure practice. Compared to the pre-CDI period, non-GAAP exclusions are of higher quality in the post-CDI period. The exclusion quality of firms who started to disclose non-GAAP …

Financial Reporting Differences And Debt Contracting, Anna B. Brown

Dissertations, Theses, and Capstone Projects

I examine the relationship between contracting parties' familiarity with one another's accounting information and the terms and structure of debt contracts. I use the differences in generally accepted accounting principles (GAAP) among contracting parties domiciled in different countries as a proxy for how familiar a lending bank will be with a borrower's accounting information. I find that a larger difference between the GAAP of the lender and the GAAP of the borrower is associated with a higher credit spread and higher fees. I also find that a larger difference between the GAAP of the lender and the GAAP of the …