Over the past three decades, academic research has sought to understand how cash shortfalls impact a firm's ability to take all available value‐increasing investment projects. We investigate whether firms facing greater financing constraints turn to tax strategies that generate lower cash effective tax rates (ETRs) to mitigate the adverse effect of these financing constraints. We use the Pension Protection Act of 2006 (PPA 2006) as an exogenous shock to financing constraints for pension firms, but not for other firms. Using a difference‐in‐differences research design, we predict and find that pension firms experience a decrease in their cash ETRs by 1.8%–2.4% after the PPA 2006, relative to other firms. These cash tax savings mitigate the investment shortfall brought about by financing constraints by 19%. We also predict and find that the decline in cash ETRs is greater among firms more adversely affected by the PPA 2006. Our paper sheds light on the direction, causality, and economic magnitude of the association between financing constraints and tax planning activities. We also provide insight into the role of tax planning activities within firms' broader corporate business strategies in responding to financing constraints.

We use publicly available information to estimate the country location of multinational firms’ cash holdings, examine why investors discount the value of cash held overseas, and examine whether that discount changes after the Tax Cuts and Jobs Act (TCJA) of 2017. We provide three main results. First, our firm-year foreign cash estimates are reasonably accurate, evidenced by high correlations with simulated data and proprietary country-level data, high adjusted R 2 when explaining a firm’s total cash holdings, and the ability to replicate prior findings. Second, we demonstrate that investors value foreign cash holdings more negatively than domestic cash holdings when the cash is held in high agency-cost countries. Finally, we find that investors no longer appear to discount foreign cash after the TCJA, when the U.S. moved from a worldwide to a quasi-territorial taxation system.

The vast majority of managers’ earnings forecasts are issued concurrently (i.e., bundled) with their firm’s current earnings announcement. We document a predictable bias in these forecasts—the forecasts fail to fully reflect the persistence of the current earnings surprise. Specifically, we find that managers issue (1) optimistically biased forecasts alongside negative earnings surprises and (2) pessimistically biased forecasts alongside large positive earnings surprises. Bayesian updating implies this bias could be unintentional, but we find that the bias is stronger when managers have greater incentives and fewer constraints to issue biased forecasts, suggesting that, to some extent, the bias might be intentional. Relatedly, although managers typically have better information about their firm’s earnings than analysts, we show that analyst reliance on these biased management forecasts represents a mechanism (and an alternative interpretation) for a similar analyst underreaction to current earnings attributed in the literature to analysts’ cognitive bias. We also find that, on average, investors do not appear to initially understand the bias in these forecasts but do unravel it over longer windows. However, investors more quickly unravel the bias when the manager has a history of issuing biased forecasts and when the firm has more sophisticated investors. Overall, we document that managers’ forecasts appear to repeatedly underweight the persistence of current earnings surprises, are biased in ways that improve investors’ perceptions of managers’ ability, and that this behavior concentrates in subsamples where outsiders have a harder time recognizing any bias.

We argue that volatility in a manager's disclosure tone across time should be a function of two components: (i) the firm's innate operating risk and (ii) the extent to which the manager's disclosure transparently reflects that risk. Consistent with this argument, we find that both operating risk and disclosure transparency are important determinants of disclosure tone volatility. We then examine whether investors incorporate the incremental information provided by disclosure tone volatility into their assessments of firm risk. If disclosure tone volatility primarily provides investors with incremental information about a firm's operating risk, we should find a positive association between tone volatility and market‐based assessments of risk. On the other hand, if disclosure tone volatility primarily provides investors with incremental information about a manager's disclosure transparency, we should find a negative association between tone volatility and market‐based assessments of risk. Consistent with an operating risk explanation, we find a positive association between disclosure tone volatility and market‐based assessments of firm risk after controlling for a comprehensive set of proxies for operating risk and transparency. We find little support for an information risk explanation, even when we examine multiple measures specifically designed to capture information risk. Taken together, our results suggest that although disclosure tone volatility is a function of both a firm's operating risk and a manager's disclosure transparency, investors appear to respond as if disclosure tone volatility only provides incremental information about a firm's operating risk.

Most research on non-GAAP financial measures focuses on earnings or earnings per share, although non-GAAP revenue disclosure has recently attracted SEC scrutiny. It is unclear ex ante what non-GAAP adjustments could improve revenue's usefulness because, unlike earnings, revenue is a top-line number related primarily to core (i.e., persistent) business activities. We present the first archival analysis of non-GAAP revenues using a large, hand-collected sample of disclosures from 2015 to 2018. Approximately one in five earnings announcements contains a non-GAAP revenue disclosure, focused on revenue growth. Our evidence suggests that firms disclose non-GAAP revenue when GAAP revenue is incomparable with prior periods, and not to compensate for poor GAAP performance. Furthermore, non-GAAP revenue growth predicts future revenue growth better than GAAP revenue growth, and the market responds to this information. Overall, non-GAAP revenue disclosures are motivated by economic fundamentals rather than opportunism, on average, and they provide investors with relevant information.

Efficient contracting predicts that ex ante severance pay contracts are offered to chief executive officers (CEOs) as protection against downside risk and to encourage investment in risky projects with a positive net present value (NPV). Consistent with this prediction, we find that ex ante contracted severance pay is positively associated with proxies for a CEO’s risk of dismissal and costs the CEO would incur from dismissal. Additionally, we show that the contracted severance payment amount is positively associated with CEO risk taking and the extent to which a CEO invests in projects that have a positive NPV. Overall, our findings imply that ex ante severance pay contracts are consistent with efficient contracting.

We examine the association between employee quality and financial reporting outcomes. Using the average workforce education level in MSA(s) where the firm operates as a proxy for employee quality, we find that firms with a high-quality workforce exhibit higher accruals quality, fewer internal control violations, and fewer restatements. These firms also issue superior management forecasts, in terms of frequency, timeliness, accuracy, precision, and bias. Employees located at the firm's headquarters primarily drive our findings. Our evidence suggests employee quality, particularly at a firm's headquarters, is associated with both mandatory and voluntary disclosure quality.