Internal controls influence information quality, thus affecting the ability of supply chain partners, who rely on collaborative systems of information sharing, to reliably contract. Using SOX-related internal control assessments as a proxy for internal control quality and U.S. GAAP-mandated major customer disclosures, we find that supplier internal control quality influences supply chain relationship duration. Specifically, our evidence demonstrates that: (1) poor internal control quality increases the likelihood of subsequent customer-supplier relationship termination; (2) timely control weakness remediation attenuates termination likelihood; and (3) weaknesses affecting customer contracting drive the effect of internal control quality on relationship termination. Our results control for supplier operational quality and performance, and are robust to propensity score matching techniques, controls for reverse causality, and alternative proxies for relationship termination and internal control quality. Overall, our findings are consistent with customers viewing strong supplier controls as important, albeit overlooked, contracting elements with significant implications for supply chain relationships.

This study examines the tax avoidance behavior of firms prior to the issuance, and following the resolution, of SEC tax comment letters. We find that firms that appear to engage in greater tax avoidance are more likely to receive a tax-related SEC comment letter. We also find that firms receiving a tax-related SEC comment letter, relative to firms receiving a non-tax comment letter, subsequently decrease their tax avoidance behavior consistent with an increase in expected tax costs. Additionally, we document evidence consistent with other firms that do not receive a comment letter reacting to multiple publicly disclosed tax-related comment letters within their industry by increasing their reported GAAP ETR, consistent with an indirect effect of regulatory scrutiny on certain types of tax avoidance.

Product market power provides firms with comparative advantages through more persistent profitability and insulation from competitive threats. These advantages likely provide firms with the ability to engage in greater tax avoidance. We present evidence consistent with this hypothesis. We also show that firms mimic the tax outcomes of their product market leaders. Among firms with greater product market power and comparatively high cash tax avoidance, we find stock prices to be less informative and that investors require additional compensation for the risks associated with comparatively high cash tax avoidance. Our results survive numerous robustness tests. Overall, our results suggest that industry dynamics, particularly related to a firm's competitive position, play a meaningful role in corporate tax policy.