Business Commons^™

The Disparate Effects Of Non-Reliance Restatements On Retail And Institutional Investor Trading, Jason T. Bangert

Doctoral Dissertations

The SEC seeks to mandate disclosures that effectively inform retail investor decision making. To evaluate these efforts, I investigate how retail investors, relative to institutional investors, process non-reliance restatements. I find that both retail and institutional investors revise expectations about firm value and modify investment decisions following these disclosures. However, in contrast to regulator efforts, the results suggest that the costs to process non-reliance restatements are disproportionately high for retail investors. Specifically, individuals tend to disagree regarding the implications of these disclosures for firm value, whereas institutions tend to draw similar inferences. Moreover, individuals take significantly longer than institutions to …

Firm Transparency Of Risk Oversight: An Examination Of Cybersecurity Governance Disclosures, Laurie E. Ereddia

Doctoral Dissertations

In this study, I examine factors associated with firm transparency of board oversight using the setting of cybersecurity risk. The SEC requires that, to the extent cybersecurity risks are material, firms must disclose the nature of the board’s role in overseeing the management of that risk, allowing investors to assess how the board is fulfilling its risk oversight duties. Using textual analysis, I identify 2,921 firms that report material cybersecurity risk factors in their annual reports. From these firms’ 2021 proxy statement filings, I hand collect data relating to 12 different elements of cybersecurity board oversight and create an overall …

Shareholder Beware? Examining Nol Poison Pill Adoptions, Danielle Stanley

Doctoral Dissertations

This study examines whether or not a specific and unilateral action taken by the board of directors, the adoption of a net operating loss (NOL) poison pill, promotes shareholder interests, by examining the factors that are influential in the adoption decision. NOL poison pill adoptions are unique in that the board of directors cites the need to protect a firm’s ability to use its NOL carryforwards in the future, rather than to protect the firm from a specific takeover threat. To address my research question, I examine the firm characteristics associated with NOL poison pill adoptions and find that the …

Do Big 4 Auditors Provide Higher Audit Service Quality Than Second-Tier Auditors In Small And Mid-Sized Initial Public Offerings?, Stefan K. Slavov

Doctoral Dissertations

Big 4 auditors perform most audits of companies that issue initial public offerings (IPOs). Regulators have expressed interest in increasing IPO audit market competition and a growing body of evidence suggests that Second-Tier auditors could provide IPO audit service quality comparable to that of Big 4 auditors. However, there exists limited empirical evidence on whether IPO audit service quality varies with auditor type. I investigate whether IPO audit service quality differs between Big 4 and Second-Tier auditors for a sample of small and mid-sized IPOs from 2005 through 2019. I find that Big 4 clients are associated with lower pre-IPO …

The Auditor’S Application Of Professional Judgment: Evidence From M&A-Related Critical Audit Matters, Xi Ai

Doctoral Dissertations

In this study, I examine the extent to which auditor attributes affect the auditor’s decision to communicate a Critical Audit Matter (CAM) in the expanded auditor’s report. I expect the CAM communication decision to be adversely affected by threats to independence and by auditor overconfidence. I focus on a sample of companies that completed material mergers and acquisitions because these are likely to be considered as potential CAMs by meeting the minimal requirements of a CAM (i.e., material accounts or disclosures that involve especially challenging, subjective, or complex auditor judgment). Contrary to expectations, I find that the auditor’s CAM communication …

The Impact Of Ceo Compensation Incentives On Financial Reporting Choices: Evidence From Potential Ghost Revenues Created In Mergers And Acquisitions, Jason A. Ashby

Doctoral Dissertations

When an acquirer purchases a target and assumes the target’s deferred revenue liability, accounting standards codification 805 requires that the acquirer recognize the target’s deferred revenue at its estimated fair value as of the acquisition date. If the target’s deferred revenue book value exceeds its fair value, the portion of deferred revenue written down will never be recognized as revenue for the acquirer under generally accepted accounting principles (GAAP). In this study, I investigate the impact of chief executive officers’ (CEOs’) compensation incentives on the fair value measurement of deferred revenue liabilities in acquisitions. If a larger proportion of CEO …

Determinants And Consequences Of Management Forecasts Of Key Performance Indicators: Evidence From The Airline Industry, Andrew Joseph Doucet

Doctoral Dissertations

In this study, I examine the determinants and consequences of quarterly management guidance of key performance indicators (KPIs). I use a novel dataset of 457 firm-quarter observations in the airline industry and hand-collect information on the existence and properties of quarterly KPI guidance. Specifically, I collect data on quarterly KPI guidance for three KPIs used in airline the industry: available seat miles, revenue per available seat mile, and cost per available seat mile. Consistent with managers using quarterly KPI guidance to reduce analyst uncertainty, I find that managers are more likely to provide quarterly KPI guidance when initial analyst earnings …

The Association Between Audit Committee Overboarding, Audit Committee Responses To Increased Workloads, And Financial Reporting Quality After Sox, John Kyle Castonguay

Doctoral Dissertations

The Sarbanes-Oxley Act (SOX) added a multitude of financial oversight responsibilities to the audit committee of public companies. These responsibilities increased the amount of time each audit committee member needed to devote to each committee served, leading to concerns amongst regulators and the investing community that audit committees that were overboarded and serving on multiple other board seats would be unable to effectively monitor the companies they represented. I find that these concerns are undue. More overboarded audit committees have adequately adjusted to their increased workloads in the decade since SOX to such a degree that they have lower misstatement …

Implicit Taxes In Imperfect Markets, Hannah Elizabeth Smith

Doctoral Dissertations

Implicit taxes are defined as the pre-tax rate of return disadvantage earned on an investment that is taxed preferentially. Implicit tax theory predicts that implicit taxes will fully offset any benefit from preferential tax treatment leading to no benefit from lower explicit taxes; however, implicit tax theory assumes perfect market competition. This paper relaxes the assumption of perfect market competition and finds that firms in industries with lower competition bear lower implicit taxes, and firms in industries with higher competition bear higher implicit taxes. These findings are consistent with firms in industries with less competition having price setting power. Further, …

The Impact Of Increased Tax Return Reporting On Financial Statement Tax Disclosure Quality: Evidence From Irs Schedule Utp, Michelle Kim Harding

Doctoral Dissertations

This study uses the 2010 implementation of IRS Schedule UTP (Uncertain Tax Position) to examine the impact of additional tax return reporting on financial statement tax disclosure quality. Using a hand-collected sample, I find that firms reduce the quality of their Financial Accounting Standards Board Interpretation No. 48 (FIN 48) disclosures for Accounting for Uncertainty in Income Taxes in response to increased proprietary costs of disclosure following the adoption of IRS Schedule UTP. Standard setters intended FIN 48 disclosures to benefit investors. Contrary to this intended outcome, I find that as tax return reporting increases, firms reduce discretionary FIN 48 …

Accounting Information Risk And Credit Ratings, Douglas Ray Ayres

Doctoral Dissertations

Using a sample of U.S. firms, this study explores whether accounting information risk has an impact upon corporate credit ratings, a long term measure of the cost of debt. Theory suggests that accounting information risk could impact shorter term measures of the cost of debt, but is unclear as to whether it will have measurable effects upon the long term cost of debt. This study employs SFAS 157 level three fair value disclosures as a proxy for accounting information risk. The findings suggest higher levels of accounting information risk negatively impact credit ratings. This is supported by both levels and …

Are Auditor And Audit Committee Report Changes Useful To Investors? Evidence From The United Kingdom, Lauren Carse Reid

Doctoral Dissertations

Recently, U.S. and international regulators have proposed significant changes to auditor and audit committee reporting with the stated intention of delivering more useful information to stakeholders. Whether new disclosure requirements achieve this intended benefit, however, is unknown. Exploiting the exogenous shock of the recent changes to auditor and audit committee reports in the United Kingdom, I find that information asymmetry significantly decreased following the implementation of the new disclosure regime. Furthermore, I find that reductions in information asymmetry are greater for firms with weaker information environments, suggesting that the new disclosure requirements particularly benefit investors in these firms. Additionally, I …

Do Non-Audit Fees Impair Auditor Independence? Using Goodwill Accounting To Help Reconcile The Debate, Jonathan Edward Shipman

Doctoral Dissertations

Prior literature’s inability to document an empirical relation between non-audit service fees and compromised auditor independence contradicts the significant and long-standing concerns expressed by regulators and the investing community. The purpose of this paper is to reconcile the lack of findings in prior research with regulators’ and investors’ concerns about non-audit services. Using a new measure – goodwill impairments – that alleviates many of the potential limitations that could have prevented prior research from documenting evidence to support the proposed relation between non-audit services and auditor independence, I find that the level of non-audit fees of a client is negatively …

The Importance Of Executive Effort, Lee Edward Biggerstaff

Doctoral Dissertations

Agency theory stipulates that managerial effort is important to shareholders and costly for managers to provide. Executives may provide sub-optimal levels of effort because shareholders cannot easily observe the day-to-day actions of managers and therefore have difficulties properly monitoring the effort provided by firm management. Researchers also face the challenge of measuring executive effort. In this dissertation, I use an observable measure of leisure consumption to proxy for the effort provided by executives to study the impact of executive effort on firm outcomes.

In the first essay, I focus on Chief Executive Officers (“CEOs”) and the impact of their effort …

Deferred Tax Assets And Credit Risk, Scott David White

Doctoral Dissertations

This paper examines the impact of deferred tax assets on firm creditworthiness. Specifically, I investigate whether the proportion of a firm’s total assets that are composed of deferred tax assets is associated with Standard & Poor’s credit ratings. The benefits associated with deferred tax assets are primarily realized through deductions from future taxable income. If declines in financial performance lead to a subsequent default, deferred tax assets may provide no value to creditors seeking recovery of their investment. I document a significant negative association between deferred tax assets and credit ratings. The evidence is consistent with credit market participants incorporating …

Client Responses To Non-Compliant Audits: An Analysis Of Clients Targeted By Pcaob Inspection, Quinn Thomas Swanquist

Doctoral Dissertations

PCAOB inspectors are afforded privileged insight into the quality of audits selected for inspection. Using inspection reports from 2005-2012, I create a unique sample of audits that were inspected by the PCAOB (i.e., all of an auditor’s clients were selected for inspection). By tracing inspection findings to specific engagements, I directly identify compliant and non-compliant audits. I examine the contributing factors of ‘audit quality’ and provide evidence that higher audit fees and greater human capital are positively related to compliant PCAOB inspections. When PCAOB findings can be linked to a specific engagement, I also find that, on average, the client …

Do Clients Avoid ‘Contaminated’ Offices? The Economic Consequences Of Low Quality Audits, Robert Lowell Whited

Doctoral Dissertations

This study investigates whether local audit offices suffer financially following their association with low-quality audits. The announcement of a restatement indicates that the contracting auditor failed to detect and correct a material misstatement. Therefore, I predict that office reputation suffers following restatements of previously audited financial information. As the frequency of restatement announcements increases, the perceived pervasiveness of systematic audit failures (‘contamination’) within the office will increase accordingly. I document that contaminated offices (Big 4 and non-Big 4) suffer a decline in market share relative to their peers. Furthermore, when examining auditor retention decisions at the individual client level, I …

Investor And Client Responses To The First Pcaob Sanction And Part Ii Disclosure Of A Big N Auditor, Leah Elena Muriel

Doctoral Dissertations

I examine investor and client responses to the first PCAOB sanction and the first release of “Part II – Issues Related to Quality Controls” of a Big N auditor. I examine the following: the stock market reaction to the Part II disclosure, investors’ perceptions of earnings quality after both events using the earnings response coefficient (ERC), and client dismissals after the sanction. I find that December year-end clients that operate in highly litigated industries or those with auditor tenure greater than three years are more likely to dismiss Deloitte in the post-sanction period. For the sample of U.S. highly litigated …

Collaborative Tenure, Audit Committee Chair Changes, And Earnings Management, Nelson Milan Carrasco Abarca

Doctoral Dissertations

In a recent concept release the Public Company Accounting Oversight Board (PCAOB) highlighted concerns regarding auditor independence and auditor objectivity. They expressed concern that auditors may have a bias to accept management’s views, particularly in long auditor tenure relations, and asked for public comments on the idea of mandatory auditor rotation. Prior research has focused primarily on the auditor side of the relation, however, my study considers the collaborative effect of the three parties involved in the financial reporting process (management (Chief Executive Officer (CEO), the auditor, and the audit committee).I find that longer collaborative tenure between the CEO and …

Optimal Tax Risk And Firm Value, Rebekah Daniele Mccarty

Doctoral Dissertations

I use the tax reserve data available from FIN 48 to investigate whether equity market value and tax risk exhibit a concave association, consistent with an optimal level of tax risk from an equity valuation standpoint. I find a concave association between tax risk and firm value which suggests firm value is increasing in tax risk at a diminishing rate until an optimal level is reached, after which firm value is decreasing in tax risk. I do not find evidence of excessive risk taking in the context of tax avoidance. Instead almost all firms in my sample are below the …

Clawback Provisions: How Sharp Are The Claws? An Analysis Of The Deterrence Effectiveness Of Voluntary Clawback Provisions, Allison Kristina Beck

Doctoral Dissertations

This paper investigates the effectiveness of voluntary clawback provisions as a deterrent for earnings management behavior. The Dodd-Frank (DF) Bill signed into law July 21, 2010 mandates that the SEC adopt a rule requiring all U.S.-listed companies to implement clawback provisions that recapture excess compensation received by executives on the basis of a faulty financial statement filing with the SEC that later must be restated. Implicitly, the DF regulation assumes that clawbacks will successfully constrain financial misreporting and that a “one-size-fits-all” approach is best. In contrast with prior research that has investigated factors associated with a firm’s decision to adopt …

Ceo Serps: Are They Related To Firm Risk And Who Approves Them?, Colin D. Reid

Doctoral Dissertations

This paper investigates whether CEO supplemental executive retirement plans (SERPs) are associated with firm risk. Sundaram and Yermack (2007) show that CEOs manage their firms more conservatively as their debt incentives increase. Using new executive compensation disclosures mandated by the SEC, I find a negative association between CEO SERPs and firm risk but only for unsheltered SERPs. I find that when a CEO SERP is protected by a lump sum payment or by a trust (i.e. sheltered), the negative association between SERPs and firm risk is greatly diminished and even eliminated in some models. Furthermore, I show that having a …

Is All Goodwill Created Equal? An Analysis Of The Association Between Agency Conflicts, Board Monitoring, And Goodwill In U.S. Mergers And Acquisitions, Matthew L. Hoag

Doctoral Dissertations

The objective of this study is to examine the association between goodwill and governance structures – specifically, potential agency conflicts and internal and external board monitoring mechanisms – over a four-year period (2004-2007). To do this, I perform two distinct analyses to test (1) whether governance structures appear to be determinants of aggregate goodwill, and (2) whether governance structures appear to moderate investors’ perceptions of aggregate goodwill. I then extend these tests to a sample of U.S. merger and acquisition (M&A) transactions where I calculate a more refined measure of residual goodwill and re-perform the tests using this alternative goodwill …

Can A Financial Statement Pronouncement Increase State Tax Compliance And Revenues? Understanding The Effect Of Fin 48 On The National Nexus Program, Ann Boyd Davis

Doctoral Dissertations

Since 1982, 40 states and the District of Columbia have offered amnesty programs. In December 1990, the Multistate Tax Commission (MTC) established the National Nexus Program (NNP), a permanent tax amnesty program. Prior literature has focused on amnesty programs and has shown that these programs do little to increase tax revenues and compliance when increased future enforcement is absent. I examine the impact of the NNP on state corporate tax revenues. From 1991 through 2008, state corporate tax revenues are significantly lower than revenues from 1973 through 1990. Further, I find that states joining the NNP have a negative impact …