We examine whether mandatory tax information exchange agreements between governments have real effects on firms’ physical trade in tangible goods. We posit that some of the physical trade in tangible goods flowing through low-tax jurisdictions is intended to facilitate income shifting. As such, shocks to enforcement via mandatory information exchange agreements could cause firms to change the physical flow of goods. Using firm-level shipping container data, we find that adoption of bilateral tax information exchange agreements (TIEAs) between the U.S. and foreign jurisdictions is associated with significant decreases in the volume of imports by U.S. firms from those jurisdictions. We also find reallocation effects: U.S. firms increase imports from jurisdictions in the same subregion as the treated jurisdiction, resulting in minimal overall change in total imports. To our knowledge, ours is the first study to document a connection among enforcement-related tax disclosure, income shifting, and physical trade flows. Data Availability: The data used in this study are available from the sources cited in the paper.

Recruiting talent is a major issue for the accounting profession and is especially salient for small firms with limited resources and brand recognition. In this study, we examine the challenges small accounting firms face when recruiting from universities and the strategies they use to overcome them. Drawing on interviews with 34 stakeholders (primarily recruiting specialists and human resource managers), we develop a process model of small-firm recruiting and present evidence related to each phase: (1) targeting certain universities and students, (2) engaging in university recruiting activities, (3) extending offers, and (4) aiming to evaluate recruiting outcomes. Guided by theory, our findings reveal that small accounting firms develop organizational familiarity and image with students while navigating fatalism and balancing imitation and differentiation in their recruiting strategies. We conclude with a call to reconsider the “biggest is best” assumptions that dominate mainstream accounting research and provide suggestions for future research. Data Availability: Data were obtained from interviews.

Pay gaps, like gender or racial gaps, violate the widely held belief that employees should receive equal pay for equal work. This study examines whether a common control choice—framing pay raise budgets in percentages—contributes to perpetuating pay gaps. We predict that when the pay raise budget is framed as a percentage (the percentage frame), it inadvertently nudges managers to anchor individual raises on that budget percentage, thereby impounding prior salaries, and thus, existing inequities, into pay raises. We further predict that framing the pay raise budget as an absolute amount (the dollar frame) can un-nudge this behavior. As expected, we find in two experiments that the dollar frame perpetuates pay gaps less than the percentage frame, and that this difference is robust to varying levels of ambiguity about the source of salary differences. Our study examines a simple, cost-effective way to limit the perpetuation of pay gaps. Data Availability: Contact the authors.

This paper examines whether U.S. domestic firms’ investment decisions are affected by their expectations of market leaders’ tax-motivated income shifting. Market leaders’ financial reports can help peers evaluate industry conditions and potential investment payoffs, but income shifting obscures the geographic source of profits and reduces the informativeness of these disclosures. Thus, when peers expect that leaders shift income, they face greater uncertainty about the outcomes of their own investments. Consistent with the theory of investment under uncertainty, we find that U.S. domestic firms are less responsive to investment opportunities as expectations of leaders’ shifting increase. This reduced responsiveness is concentrated among firms facing higher investment irreversibility and those whose market leaders provide less transparent geographic disclosures. Our findings identify a novel spillover cost of income shifting and suggest that policies enhancing the transparency of multinational firms’ geographic reporting or constraining income shifting could help improve domestic firms’ investment decisions.

Theory suggests that changes in corporate tax rates can alter the dispersion of after-tax project payoffs, thereby altering the exposure of firm-level risk transmitted to executives through compensation. Using state tax changes, we observe firms shifting away from option-based compensation following state corporate tax rate increases. This result is concentrated in compensation contracts that lack relative performance evaluation (RPE) features, which filter common shocks to performance and influence the type of risk executives are incentivized to take. We also find that firms are more likely to initiate RPE shortly after a state tax rate increase and that firms that adjusted compensation through reductions in equity risk incentives or used RPE were less likely to experience a subsequent increase in systematic risk following a state tax rate increase. Overall, our findings provide novel insight into how taxes can influence CEO compensation design and the transmission of firm-level risk to executives. Data Availability: Data are obtained from public sources identified in the paper.

We examine the consequences of the 2020 amendment to Exchange Act Rule 12b-2, which exempted low-revenue issuers from the ICFR audit requirement and reignited the debate among regulators, issuers, auditors, and academics about the costs and benefits of ICFR audits. We find that exempt issuers rarely obtain ICFR audits voluntarily, indicating they generally do not view such audits as cost beneficial. We also find that exempt issuers report fewer MWs than nonexempt issuers, although this effect is driven by a recent increase in MWs for nonexempt issuers rather than a decline in MW for exempt issuers. We find no evidence that exempt issuers misstate more frequently or that they have less informative control effectiveness disclosures. Overall, our findings suggest that the exemption was welcomed by affected issuers and did not materially impair reporting quality, informing the literature and ongoing policy discussions regarding the appropriate scope of ICFR audit requirements. Data Availability: Data are publicly available from the sources identified in the text.