Despite decades of research on how, why, and when companies manage earnings, there is a paucity of evidence about the geographic location of earnings management within multinational firms. In this study, we examine where companies manage earnings using a sample of 2,067 U.S. multinational firms from 1994 to 2009. We predict and find that firms with extensive foreign operations in weak rule of law countries have more foreign earnings management than companies with subsidiaries in locations where the rule of law is strong. We also find some evidence that profitable firms with extensive tax haven subsidiaries manage earnings more than other firms and that the earnings management is concentrated in foreign income. Apart from these results, we find that most earnings management takes place in domestic income, not foreign income.

This paper analyzes the relation between equity prices and conditional conservatism and introduces a new measure of conservatism at the firm-year level. We show that the asymmetric properties of conservative accounting, the existence of non-accounting sources of information, and the properties of GAAP related to special items combine to generate a nonlinear relation between unexpected equity returns and earnings news (the shock to expected current and future earnings). Based on this model, we construct a conservatism ratio (CR) defined as the ratio of the current earnings shock to earnings news. CR measures the proportion of the total shock to expected current and future earnings recognized in current year earnings. Ranking firms according to CR, we show empirically that higher CR firms have more leverage, increased volatility of returns, more incidence of losses, more negative accruals, and increased volatility of earnings and accruals, consistent with the literature on conservative accounting.

Mergers and acquisitions improve market efficiency by capturing synergies between firms. But takeovers also impose externalities (both positive and negative) on the remaining firms in the industry. This paper describes a new equilibrium concept designed to explain and predict takeovers in this setting. We experimentally compare the new equilibrium concept to that of competing concepts in situations without and with externalities. Moreover, we examine the predicted dynamics of takeovers and outcome implications of those dynamics. Our experimental results support the predictions of the new equilibrium concept and provide implications for further empirical tests.

We use incremental and joint implementation of multiple SOX‐based control effectiveness disclosure and audit mandates to assess relative performance of alternatives for small U.S. public companies. Using data from several low‐ and high‐effort management disclosure and audit regimes implemented from 2003 to 2008, we find substantial and statistically significant increases in material weakness disclosure rates for small firms undergoing initial SOX 404(b) internal control audits, but find quantitatively and statistically similar increases for initial management reports of small firms exempt from such audits. As to audit cost, fees more than double for initial 404(b) audits in 2004 and remain high, while 404(b)‐exempt firms’ fees grow about 10% annually. Our results support the view that, for small firms, management internal control reports and traditional financial audits may be a cost effective disclosure alternative to full application of SOX 404(b). Also, our results suggest that, even without management reports on internal control, analysis of the cause of known accounting mistakes may yield substantial material weakness disclosures.

We examine the association between permissible non-audit services provided by auditors and the timeliness of earnings announcements. Although earnings announcements are unaudited, audit progress influences management’s ability to release earnings while maintaining confidence in reported results. We posit that non-audit services generate earnings announcement timeliness benefits by improving the efficiency and timing of audits through knowledge transfer. We find that tax non-audit services are associated with timelier earnings announcements while nontax non-audit services are not. These benefits are concentrated in the pre-regulatory period before changes in the mid-2000s. Following these changes, the association persists for firms with weaker information environments, poorer performance, and greater audit-related challenges. Overall, our findings show that auditor-provided tax services are associated with enhanced timeliness of unaudited disclosures and that these benefits vary across firms and over time, highlighting previously undocumented spillovers from non-audit services with implications for academic research and regulation.

Cryptocurrency has been the subject of heightened regulatory and investor attention in recent years, and regulators and policymakers across the globe are deliberating on how to account for, regulate, tax, and oversee digital assets and cryptocurrency marketplaces. Yet researchers have a limited understanding of key attributes of those who deal in crypto assets, such as whether their financial sophistication differs from that of other investors. Using U.S. administrative data, we provide evidence on (i) the attributes of taxpayers reporting cryptocurrency sales to the IRS, (ii) how these attributes are evolving, and (iii) how investors treat cryptocurrency versus other financial assets in certain settings. The results suggest that average reporting cryptocurrency sellers exhibit demographic attributes generally associated with less financial sophistication and are more likely to trade in meme stocks. Overall, we provide timely evidence that can inform cryptocurrency policy deliberations by highlighting the characteristics of taxpayers who appear to report cryptocurrency sales.

We build into a Ricardian model sectoral linkages, trade in intermediate goods, and sectoral heterogeneity in production to quantify the trade and welfare effects from tariff changes. We also propose a new method to estimate sectoral trade elasticities consistent with any trade model that delivers a multiplicative gravity equation. We apply our model and use our estimated elasticities to identify the impact of NAFTA's tariff reductions. We find that Mexico's welfare increases by 1.31%, U.S.'s welfare increases by 0.08%, and Canada's welfare declines by 0.06%. We find that intra-bloc trade increases by 118% for Mexico, 11% for Canada, and 41% for the U.S. We show that welfare effects from tariff reductions are reduced when the structure of production does not take into account intermediate goods or input-output linkages. Our results highlight the importance of sectoral heterogeneity, intermediate goods, and sectoral linkages for the quantification of the welfare gains from tariffs reductions.