We examine whether public financial statement information is incrementally useful in forecasting confidential taxable income. More precise firm-level taxable income forecasts can improve policymakers' modeling of the tax system and the analysis of proposed changes in corporate tax law, while more accurate macro-level forecasts of corporate taxable income can improve estimates of corporate tax revenues, a significant component of the federal budget. We find the addition of financial statement information improves firm- and industry-level estimates of future taxable income by primarily providing more timely information, but also through accruals. Our results suggest that macroeconomic forecasts of taxable income may be further improved by the aggregation of firm-level forecasts that are generated using financial statement information. Importantly, our results are driven primarily by tax information in financial statements. We also contribute to the research on the information content of financial statement information for forecasting economic activity.

Recent evidence suggests that investors struggle to process complex financial disclosures. Relative to equity and public debt investors, banks have unique advantages in acquiring information and can impose contractual terms to mitigate information frictions. We investigate whether financial statement complexity is associated with firms' reliance on bank financing and the terms of bank loans. We focus on two aspects of complexity: the length of financial reports and the complexity of financial reporting rules. We document that both aspects of complexity are positively associated with firms' reliance on bank financing (i.e., level of debt and new financing). This result is consistent with banks' superior information processing capabilities. Next, we document that banks ameliorate information frictions using loan contractual terms that depend on the source of complexity. Overall, banks are an attractive source of financing for firms with complex disclosures, but banks also increase screening and monitoring for relatively complex borrowers. Data Availability: Data used in this study are available from public sources identified in the study.

Compensation committees face special difficulties when setting pay in the last years of a CEO's tenure. For example, incentives to manipulate earnings for the purpose of enhancing earnings-based compensation are greater in CEOs' terminal years. We predict that compensation committees are aware of these incentives and adjust the relative weights placed on earnings components in the cash compensation function to mitigate the problem. Consistent with our prediction, we find that in CEOs' terminal years, positive changes in discretionary accruals receive significantly less weight than other income components in determining cash compensation. This provides new evidence that not all gains flow through to compensation. We also find that in non-terminal years, managers' compensation is partially shielded from the negative effects of selling, general, and administrative expenditures (SG&A), but this effect reverses in the terminal period, consistent with the compensation committee discouraging investment in legacy assets by outgoing CEOs. Overall, our findings suggest that compensation committees treat components of earnings differently when setting pay in the terminal period.

We extend the literature on earnings management through real operating decisions by providing insight into the types of expenditures (core versus noncore and operating versus non-operating activities) affected by earnings management. We partition a sample of California nonprofit hospitals based on their earnings management incentives. We find that expenditures on non-operating and non-revenue-generating activities appear to decrease in hospitals with incentives to engage in such behavior, while core patient care activities remain unchanged. We also find evidence of earnings management in non-core operational expenses. Second, we analyze real earnings management related to pay-for-performance incentives and find that hospitals with stronger performance incentives exhibit a significant incremental decrease in expenditures. Finally, we examine two different kinds of behavior to discriminate between earnings management and good operational decisions and provide weak evidence to support opportunism rather than good management. Together, these results provide evidence of the use of real operating decisions to manage earnings.

We study the effects of cross-listings on audit fees. We first develop a model in which legal environments play a crucial role in determining the auditor's legal liability. Our model and analysis predict that auditors charge higher fees for firms that are cross-listed in countries with stronger legal regimes than they do for non-cross-listed firms and that the cross-listing audit fee premium increases with the difference in the strength of legal regimes between the cross-listed foreign country and the home country. We then empirically test these predictions. The results of our cross-country regressions strongly support our predictions. In addition, we find no significant cross-listing fee premium for firms that are cross-listed in countries whose legal regimes are. no stronger than those of their home countries. This suggests that cross-listing audit fee premiums are associated with increased legal liability and not with increased audit complexity per se. Our findings help explain why cross-listing premiums occur and what determines their magnitude.

Prior research has separately examined pretax earnings management activities that have current taxable income consequences (book-tax “conforming earnings management”) and those that do not have current taxable income consequences (book-tax “nonconforming earnings management”). Our study documents the prevalence of, and then investigates the firm-specific characteristics that impact the choice between, these earnings management strategies. We utilize a sample of firms that restated their earnings downward due to accounting irregularities and thus can be presumed to have managed earnings upward. We find that nonconforming earnings management is more prevalent and that firms trade off the net present value of tax benefits against the net expected detection costs associated with nonconforming earnings management. In particular, firms having NOL carryforwards, using a high-quality auditor, or engaging in the most egregious misstatements rely less on nonconforming earnings management strategies. We also find that book-tax differences are useful in predicting restatements.

This article presents the findings of the report of the committee, appointed by President Charles J. Gaa as a task committee operating under the Joint Committee on Education, to receive and review the Ford and Carnegie reports for the American Accounting Association. The two reports--"Higher Education for Business" by Gordon and Howell, and "The Education of American Businessmen" by Pierson were financed and sponsored by The Ford Foundation and the Carnegie Corporation of New York respectively. The authors of Ford and Carnegie reports, in their extensive surveys found glaring examples of bachelor's degrees given for programs of study, overloaded with business in general or with accounting in particular. The Committee urges that the faculty of each school should read the entire reports so that by carefully trying on each shoe of criticism they may find those, which fit their particular situations. It is also expected that the Ford and Carnegie reports will have an impact on collegiate education for business.

Using account‐level data on millions of U.S. middle‐class investors over 2006 to 2018, we characterize the share of investable wealth that they hold in the stock market over their working lives. Relative to the 1990s, this share has both risen by 10% and become age‐dependent. The Pension Protection Act (PPA)—which allowed target date funds (TDFs) to be default options in retirement plans—played an important role: younger (older) workers starting at a firm after TDFs became the default option post‐PPA invested more (less) in stocks, in line with the TDF glidepath. In contrast, contribution rates changed little following the PPA.

Using responses to a well‐known confidential survey, we study corporations' use of derivatives to “take a view” on interest rate and currency movements. Characteristics of speculators suggest that perceived information and cost advantages lead them to take positions actively; that is, they do not speculate to increase risk by “betting the ranch.” Speculating firms encourage managers to speculate through incentive‐aligning compensation arrangements and bonding contracts, and they use derivatives‐specific internal controls to manage potential abuse. Finally, we examine whether investors reading public corporate disclosures are able to identify firms that indicate speculating in the confidential survey; they are not.

We test the implications of Flannery's (1986) and Diamond's (1991) models concerning the effects of risk and asymmetric information in determining debt maturity, and we examine the overall importance of informational asymmetries in debt maturity choices. We employ data on over 6,000 commercial loans from 53 large U.S. banks. Our results for low‐risk firms are consistent with the predictions of both theoretical models, but our findings for high‐risk firms conflict with the predictions of Diamond's model and with much of the empirical literature. Our findings also suggest a strong quantitative role for asymmetric information in explaining debt maturity.