We hypothesize that, in their annual accounting reports, propertycasualty insurers allocate premiums from multistate policies to reduce total state taxes. To test this prediction, we exploit the industry's unique state tax disclosures. We examine firm-level data, collected from the publicly available, statutory reports filed with each state government. Reported premiums at the insurer-state level, scaled by incurred losses, are regressed on state tax measures. Consistent with tax-motivated income shifting, we find the premiumloss ratio is decreasing in state tax rates. The negative relation is greatest for insurers specializing in multistate lines of business.

This study compares samples of publicly and privately held bank holding companies to examine whether the high frequency of small earnings increases relative to small earnings decreases reported by public firms is attributable to earnings management. We expect public banks' shareholders to be more likely than private banks' shareholders to rely on simple earnings-based heuristics in evaluating firm performance, so we expect public banks to have more incentives to report steadily increasing earnings. Consistent with this expectation, we find that relative to private banks, public banks: (1) report fewer small earnings declines, (2) are more likely to use the loan loss provision and security gain realizations to eliminate small earnings decreases, and (3) report longer strings of consecutive earnings increases. These results suggest that the asymmetric pattern of more small earnings increases than decreases, first documented by Burgstahler and Dichev (1997), is attributable to earnings management and is not simply a reflection of the underlying distribution of earnings changes.

Many have argued that financial statements created under an accounting model that measures financial instruments at fair value would not fairly represent a bank's business model. In this study we examine whether financial statements using fair values for financial instruments better describe banks' credit risk than less fair-value-based financial statements. Specifically, we assess the extent to which various leverage ratios, which are calculated using financial instruments measured along a fair value continuum, are associated with various measures of credit risk. Our leverage ratios include financial instruments measured at (1) fair value; (2) U.S. GAAP mixed-attribute values; and (3) Tier 1 regulatory capital values. The credit risk measures we consider are bond yield spreads and future bank failure. We find that leverage measured using the fair values of financial instruments explains significantly more variation in bond yield spreads and bank failure than the other less fair-value-based leverage ratios in both univariate and multivariate analyses. We also find that the fair value of loans and deposits appear to be the primary sources of incremental explanatory power. Data Availability: All data are publicly available from the sources indicated in the paper.

Firms can report comprehensive income in either an income-statement-like performance statement or the statement of equity. Traditional theories of contracting incentives cannot explain this reporting location choice that only affects where comprehensive income data appear, because the contractible values of net income, other comprehensive income items, and comprehensive income are exactly the same regardless of the location where the firm reports comprehensive income. Drawing on theory, analysis of comment letters, and results of survey-based and behavioral research, we identify two factors—equity-based incentives and concerns over job security—that help explain why most firms do not follow policymakers' preference to report comprehensive income in a performance statement. Our empirical evidence on a broad cross-section of firms shows that managers with stronger equity-based incentives and less job security are significantly less likely to use performance reporting. Overall, our study suggests that even though the reporting location choice is inconsequential in a traditional rational markets view, managers act as if they believe that comprehensive income reporting location matters.