This paper provides evidence on the role of deferred taxes in the recent financial crisis among Japanese banks. Upon adoption of deferred tax accounting in FY1998, the major Japanese banks recognized net deferred tax assets of ¥6.6 trillion ($55 billion). Without these assets, the banks would have been insolvent. The evidence supports the conclusion that Japanese regulators used deferred tax accounting as part of a regulatory forbearance strategy, and that bank managers used these assets to bolster their banks’ regulatory capital. The results show how ostensibly similar accounting rules can be implemented very differently, and so have implications for IFRS.

Dividend-paying firms tend to manage earnings upward when their earnings would otherwise fall short of expected dividend levels. This behavior is evident only in firms with positive debt and is more aggressive prior to the Sarbanes-Oxley Act, subsequent to the 2003 dividend tax cut, in high-payout firms, in firms whose CEOs receive higher dollar dividends and have higher pay-performance sensitivities, and in firms that raise less outside equity. Moreover, this earnings management behavior appears to significantly impact the likelihood of a dividend cut. Our findings imply that managers treat expected dividend levels as an important earnings threshold.

We find that relative to fundamentals, dual-class firms trade at lower prices than do single-class firms, both at the IPO and for at least the subsequent 5 years. The lower prices attached to duals do not foreshadow abnormally low stock or accounting returns. Moreover, some types of CEO turnover are less frequent among duals, and in general CEO turnover is sensitive to firm performance for singles but not for duals. Finally, when duals unify their share classes, statistically and economically significant value gains occur. Collectively, our results suggest that the governance associated with dual-class equity influences the pricing of duals.

Commentary during the development of FASB Interpretation no. 48 suggests the interpretation could be costly for firms because new disclosure requirements could be used by the IRS to more effectively challenge uncertain tax positions. Stock returns around FIN 48 pronouncements suggest investors were not concerned about an increase in tax costs, and investors responded favorably to initial disclosures required under FIN 48. However, we document a significant negative market reaction to subsequent news of a Senate inquiry into these disclosures consistent with investors revising their beliefs over the potential for additional tax costs.

This paper finds that compared with non-state-owned firms, Chinese state-owned enterprises controlled by province, city, and county governments (local SOEs) are more likely to hire small auditors within the same region (small local auditors). In regions with less developed institutions, SOEs controlled by central government (central SOEs) also have such a tendency. However, the tendency of local and central SOEs to hire small local auditors is attenuated as the institutions develop. This auditor choice pattern is likely to be explained by SOEs’ lack of demand for large or non-local auditors, small local auditors’ superior local knowledge, and SOEs’ collusion incentives.