Despite significant interest in corporate culture, there is little empirical research on its role in influencing corporate misconduct. Using cultural background information on key company insiders, I construct a measure of corporate corruption culture, capturing a firm's general attitude toward opportunistic behavior. Firms with high corruption culture are more likely to engage in earnings management, accounting fraud, option backdating, and opportunistic insider trading. I further explore the inner workings of corruption culture and find evidence that it operates both as a selection mechanism and by having a direct influence on individual behavior.

We hypothesize that corporate income taxes distort firms’ incentives to innovate by reducing their pledgeable income. Using a differences-in-differences methodology, we document that large corporate income tax cuts boost corporate innovation. We find a similar but opposite effect for tax increases. Most of the change in innovation occurs 2 or more years after the tax change, and there’s no effect before the tax change. Exploring the mechanisms, we show that tax cuts have a stronger impact on innovation for firms with weaker governance, greater financial constraints, fewer tangible assets, smaller patent stock, and a greater degree of tax avoidance.

[Using a sample of fifty-six companies going public in 1996-2000 in which top executives received allocations of other hot initial public offerings (IPOs) from the bookrunner, a practice known as spinning, we examine the consequences of spinning. The fifty-six IPOs had first-day returns that were, on average, 23% higher than similar IPOs. The profits collected by these executives were only a small fraction of the incremental amount of money left on the table by their companies when they went public. These companies were dramatically less likely to switch investment bankers in a follow-on offer: only 6% of issuers whose executives were spun switched underwriters, whereas 31% of other issuers switched. These findings suggest that the spinning of executives accomplished its goal of affecting corporate decisions.]

We develop a theory of initial public offering (IPO) underpricing based on differentiated underwriting services and localized competition. Even though a large number of investment banks compete for IPOs, if issuers care about non-price dimensions of underwriting, then the industry structure is best characterized as a series of local oligopolies. We test our model implications on all-star analyst coverage, industry expertise, and other non-price dimensions. Furthermore, we posit that venture capitalists (VCs) are especially focused on all-star analyst coverage, and develop the analyst lust theory of the underpricing of VC-backed IPOs. Consistent with this theory, we find that VC-backed IPOs are much more underpriced when they have coverage from an all-star analyst.

Using a sample of fifty-six companies going public in 1996–2000 in which top executives received allocations of other hot initial public offerings (IPOs) from the bookrunner, a practice known as spinning, we examine the consequences of spinning. The fifty-six IPOs had first-day returns that were, on average, 23% higher than similar IPOs. The profits collected by these executives were only a small fraction of the incremental amount of money left on the table by their companies when they went public. These companies were dramatically less likely to switch investment bankers in a follow-on offer: only 6% of issuers whose executives were spun switched underwriters, whereas 31% of other issuers switched. These findings suggest that the spinning of executives accomplished its goal of affecting corporate decisions.

ABSTRACT Does an equity analyst's trust in others impact the processing of information from outside sources? We investigate this question using a measure of trust based on surveys conducted in analysts' countries of origin. We find that more trusting analysts not only react faster to management guidance and earnings announcements, they also weight information from management and other analysts more heavily than less trusting analysts. This results in a nonlinear inverted-U relationship with forecast accuracy. Analysts with low trust place too little weight on outside information, while analysts with high trust place too much weight and are, thus, both less accurate than “medium” trust analysts. This effect on accuracy is weaker for those with more on-the-job experience, indicating that analysts rely less on their cultural trust beliefs as they learn more about the quality of information sources. JEL Classifications: M41; G17. Data Availability: Data are available from the sources cited in the text.