We test whether tax avoidance strategies are associated with greater firm risk. We find that low tax rates tend to be more persistent than high tax rates and that measures of tax avoidance commonly used in the literature are generally not associated with either future tax rate volatility or future overall firm risk. Our evidence suggests that, on average, corporate tax avoidance is accomplished using strategies that are persistent and do not increase firm risk. We also find that the volatility of cash tax rates is associated with future stock volatility, suggesting that tax rate volatility and overall firm risk are related.

We investigate the effects of tangible versus cash rewards in a repeated tournament setting. Firms frequently use tangible rewards to motivate employees, but minimal research has examined their effects relative to cash rewards. We conducted a field experiment at a rug wholesaler that held two consecutive sales tournaments for its retailers. The top three retailers in each tournament received either cash rewards or tangible rewards (gift cards) to be distributed to sales staff. We do not find significant effects of reward type in the first tournament. However, in the second tournament, retailers eligible for tangible rewards significantly outperformed those eligible for cash rewards, and this effect is driven by Tournament One losers. Our results are consistent with the theory that Tournament One losers competing for tangible rewards increased sales effort in the second tournament significantly more than their counterparts competing for cash rewards. Our results have practical and theoretical implications.

Research documents significant management bias and opportunism around the discretionary inputs of audited complex estimates, including fair value measurements (FVMs), which raises questions about auditors' ability to test these estimates. We examine how the degree of quantification in client evidence and client control environment risk influence auditors' planned substantive testing of management's discretionary inputs to FVMs. We find that auditors allocate a lower proportion of effort to testing the subjective inputs to the fair value estimate when the degree of quantification in the client evidence and level of client risk are both high. Further, this tendency persists even after auditors receive a regulatory practice alert reminding them to focus more audit effort on testing fair value (FV) inputs that are susceptible to management bias, and despite the auditors increasing their overall audit effort. Qualitative analyses of the procedures auditors selected indicate that inapt attention to the degree of quantification in evidence is a potential root cause of the difficulty auditors encounter when testing complex estimates. Our results imply that in situations where both quantified and non-quantified data are important to the audit, there is the potential for management to manipulate the evidence they provide to auditors to distract auditors from testing the discretionary inputs to complex estimates that are susceptible to management opportunism. Data Availability: Contact authors for data availability.

This study examines the effect of the Jumpstart Our Business Startups Act (JOBS Act) on information uncertainty in IPO firms. The JOBS Act creates a new category of issuer, the Emerging Growth Company (EGC), and exempts EGCs from several disclosures required for non-EGCs. Our findings are consistent with proprietary cost concerns motivating EGCs to eliminate some of the previously mandatory disclosures, which increases information uncertainty in the IPO market, attracts investors who rely more on private information, and leads EGCs to provide additional post-IPO disclosures to mitigate the increased information uncertainty. Our results also are consistent with agency explanations, whereby EGCs exploit the JOBS Act provisions to avoid compensation-related disclosures, which results in larger IPO underpricing for such firms. Overall, we provide evidence on how reduced mandatory disclosure affects the IPO market.

In this study, we examine whether sell-side security analysts gain access to value-relevant information through political connections. We measure analysts' political connections based on political contributions at the brokerage-house level. We argue that if brokerages are able to obtain private information through their political connections, then analysts at politically connected brokerages should issue more profitable stock recommendations, and this increased profitability should be more pronounced for politically sensitive stocks. Our evidence is consistent with these predictions. Analyses of recommendations issued surrounding the Affordable Care Act further support our main inferences. Moreover, our findings hold after we employ numerous tests to address correlated omitted variables and endogeneity. Collectively, these results suggest that brokerages obtain value-relevant, nonpublic information from their political connections.