This study examines (1) whether network ties help explain variation in tax avoidance, and (2) how the relation between network ties and tax avoidance varies depending on the nature and context of those ties. We posit that information on a range of tax-avoidance strategies is shared among firms through their social network connections. Using board interlocks to proxy for these connections, we find that firms with greater board ties to low-tax firms have lower cash ETRs themselves. Ties to low-tax firms are more influential when the focal firm and its network partner are operationally and strategically similar, as are ties created by executive directors. Board ties to low-tax firms are also more influential when the focal firm and its network partner engage the same local auditor. Overall, our results suggest that the influence of firms' network ties on their tax-avoidance behavior depends on the character of those ties.

Corporate investment decisions require managers to forecast expected future cash flows from potential investments. Although these forecasts are a critical component of successful investing, they are not directly observable by external stakeholders. In this study, we investigate whether the quality of managers' externally reported earnings forecasts can be used to infer the quality of their corporate investment decisions. Relying on the intuition that managers draw on similar skills when generating external earnings forecasts and internal payoff forecasts for their investment decisions, we predict that managers with higher quality external earnings forecasts make better investment decisions. Consistent with our prediction, we find that forecasting quality is positively associated with the quality of both acquisition and capital expenditure decisions. Our evidence suggests that externally observed forecasting quality can be used to infer the quality of capital budgeting decisions within firms.

Seemingly self-serving attributions either attribute favorable performance to internal causes (enhancing attributions) or poor performance to external causes (defensive attributions). Managers presumably provide such attributions in earnings press releases to heighten (dampen) investors' perceptions of the persistence of good (bad) earnings news, thereby increasing (decreasing) the market reward (penalty) for good (bad) earnings news. Building on attribution theory and prior research on earnings commonality, this study investigates cross-sectional differences in investors' responses to quarterly earnings press releases that contain seemingly self-serving attributions. Using a random sample of press releases from 1999 to 2005, we find that firms that provide defensive attributions to explain earnings disappointments experience less severe market penalties when: (1) more of the their industry peers also release bad news, and (2) their earnings share higher commonality with industry- and market-level earnings. On the other hand, firms that provide enhancing attributions to explain good earnings news reap greater market rewards when: (1) more of their industry peers release bad news, and (2) their earnings share lower commonality with industry- and market-level earnings. Collectively, our results demonstrate that investors neither ignore seemingly self-serving attributions nor accept them at face value, but rely on industry- and firm-specific information to assess their plausibility. Data Availability: Data are publicly available from the sources identified in the text.

This paper investigates the effect of investments in internal investor relations (IR) departments on firm outcomes. We find that companies initiating internal professional IR experience increases in disclosure, analyst following, institutional investor ownership, liquidity, and market valuation relative to a matched sample of control firms. We also examine the differential impact the exogenous shock of Regulation Fair Disclosure (Reg FD) had on firms with an established professional IR department. We find these IR firms more than doubled their level of public disclosure post-Reg FD. Despite IR firms losing a potential communications channel following Reg FD adoption, we find they did not suffer adversely and instead show a post-Reg FD increase in analyst following, institutional investors, and liquidity relative to a control sample of similar non-IR firms. This implies that the effectiveness of professionalized internal IR increased post-Reg FD consistent with IR firms being relatively better positioned to navigate the more complicated regulatory environment. JEL Classifications: D82; M41; G11; G12; G14; G24 Data Availability: Data are publicly available from the sources identified in the paper with the exception of the membership data from the National Investor Relations Institute, which is a proprietary dataset.

Firm disclosures often reach only a portion of investors, which results in information asymmetry among investors and, therefore, lower market liquidity. This issue is particularly salient for firms that are not highly visible, as they tend not to receive broad news dissemination via traditional intermediaries, such as the press. This paper examines whether firms can reduce information asymmetry by more broadly disseminating their news. To isolate the impact of dissemination, we focus our analysis on firms' use of Twitter and exploit the 140-character message restriction. Specifically, using a sample of technology firms, we examine the impact of using Twitter to send market participants links to press releases that are provided via traditional disclosure methods. We find this additional dissemination of firm-initiated news via Twitter is associated with lower abnormal bid-ask spreads and greater abnormal depths, consistent with a reduction in information asymmetry. Moreover, this result holds mainly for firms that are not highly visible, consistent with them being in greater need of this additional dissemination channel. We also examine the impact of dissemination on a volume-based measure of liquidity, and find that dissemination is positively associated with liquidity. Data Availability: All data are publicly available from the sources indicated in the paper.

Views Icon Views Article contents Figures & tables Video Audio Supplementary Data Peer Review Share Icon Share Facebook Twitter LinkedIn Email Tools Icon Tools Get Permissions Search Site Cite View This Citation Add to Citation Manager Citation Raffi J. Indjejikian, Michal Matějka, Jason D. Schloetzer; Target Ratcheting and Incentives: Theory, Evidence, and New Opportunities. The Accounting Review 1 July 2014; 89 (4): 1259–1267. https://doi.org/10.2308/accr-50745 Download citation file: Ris (Zotero) Reference Manager EasyBib Bookends Mendeley Papers EndNote RefWorks BibTex toolbar search Search Dropdown Menu toolbar search search input Search input auto suggest filter your search All ContentThe Accounting Review Search Advanced Search

We investigate analytically and empirically the relationship between demand uncertainty and cost behavior. We argue that with more uncertain demand, unusually high realizations of demand become more likely. Accordingly, firms will choose a higher capacity of fixed inputs when uncertainty increases in order to reduce congestion costs. Higher capacity levels imply a more rigid short-run cost structure with higher fixed and lower variable costs. We formalize this “counterintuitive” argument in a simple analytical model of capacity choice. Following this logic, we hypothesize that firms facing higher demand uncertainty have a more rigid short-run cost structure with higher fixed and lower variable costs. We test this hypothesis for the manufacturing sector using data from Compustat and the NBER-CES Industry Database. Evidence strongly supports our hypothesis for multiple cost categories in both datasets. The results are robust to alternative specifications. Data Availability: All data used in this study are available from public sources.

When the fair value of an investment security falls below amortized cost and there is significant doubt that the firm can hold the security until the fair value recovers, an other-than-temporary impairment (OTTI) is recognized in net income. Thus, an OTTI is a disclosure about the prospect of recovering an unrealized loss. Our findings suggest that investors priced banks' OTTI recognition during and after the financial crisis. Investors were unable to fully anticipate reported OTTIs, and priced OTTIs incrementally to reported unrealized gains/losses. After banks were required to bifurcate OTTIs, investors priced only the portion of OTTI recognized in earnings. Our results suggest that reporting unrealized losses in earnings via an OTTI changes how investors price the losses. The results inform recent standard-setting initiatives to expand disclosure about changes in fair value. JEL Classifications: M41; M42; M44. Data Availability: Data are available from sources identified in the paper.