[This study examines empirically whether unfunded vested pension obligations that are not recorded in corporate balance sheets are viewed as a form of debt by the capital market participants when assessing firm risk. This is accomplished by using a model developed by Hamada [1972] which relates the systematic risk of a firm to its financial risk and business risk. The explanatory power of the model is improved when unfunded vested pension liabilities are included in the measurement of financial leverage. Furthermore, the effect of unfunded vested pension liabilities on market-perceived risk of the firm is not significantly (statistically) different from that of debt and other liabilities.]

This study examines empirically whether unfunded vested pension obligations that are not recorded in corporate balance sheets are viewed as a form of debt by the capital market participants when assessing firm risk. This is accomplished by using a model developed by Hamada [1972] which relates the systematic risk of a firm to its financial risk and business risk. The explanatory power of the model is improved when unfunded vested pension liabilities are included in the measurement of financial leverage. Furthermore, the effect of unfunded vested pension liabilities on market-perceived risk of the firm is not significantly (statistically) different from that of debt and other liabilities.

This paper examines the effect of the firm's capital structure on management's preference for alternative accounting standards. It is argued that an accounting standard which causes a reduction in reported earnings or equity and/or increases the volatility of reported earnings may put a firm into technical default on its loan agreements. Accordingly, it is hypothesized that highly leveraged firms would not favor such accounting standards. To test this hypothesis, the financial leverage of a sample of oil and gas producing firms which employ the full cost method of accounting for exploration expenses is compared with that of a sample of similar firms which use the successful efforts method. The results of this test are consistent with the hypothesized effect of the firm's capital structure on management's choice of accounting methods in that more highly leveraged firms tend to select the full cost method.

This study examines the effect of the book income adjustment provision in the 1986 alternative minimum tax (AMT) on financial accounting practices. A model is developed to identify firms that are more susceptible to the book income adjustment. The changes in financial accounting practices for firms affected by the AMT are then examined. Our results indicate that firms that are likely to be affected by the book income adjustment shift timing and permanent differences across years to reduce the impact of the AMT.

We examine whether tax incentives influence where U.S. multinationals locate their interest deductions worldwide. Our sample includes international bond offerings by U.S. multinationals during 1987–1997 denominated in the currencies of Australia, Canada, France, Germany, Italy, Japan, or the United Kingdom. Our results suggest that U.S. multinationals’ debt location decisions take into account the effect of jurisdiction‐specific tax‐loss carryforwards and binding foreign tax credit limitations on the value of debt tax shields. Our results are also consistent with U.S. multinationals locating interest deductions in different tax jurisdictions as a mechanism to achieve tax‐motivated income shifting.

We find that a firm's dividend yield has a positive impact on its common stock return that is decreasing in the level of institutional and corporate ownership, our indicator of whether the marginal investor in a firm's common stock is more likely to be a low-tax or a high-tax investor. These results suggest that (1) a dividend tax penalty is incorporated into the return on a firm's common stock and (2) both a firm's dividend policy and its ownership structure impact the size of the dividend tax penalty.

LIFO Liquidation, Tax incentives, Debt covenants, Inventory valuation

[The objective of this study is to examine the effect of the default risk of debt on the relation between accounting earnings and stock returns. Recent research suggests that measurements of equity beta do not capture all dimensions of riskiness of equity. The default risk of debt may help explain how accounting earnings are linked to stock returns because the default risk of debt may capture some elements of riskiness of equity that are not captured by equity beta. We document empirically that the coefficient relating unexpected changes in earnings to abnormal stock returns (the earnings response coefficient or ERC) is negatively related to the default risk of debt as measured by bond ratings.]

Examines the effect of the default risk of debt on the relation between accounting earnings and stock returns. Correlation between equity valuation and the earnings response coefficient (ERC); Cumulative abnormal returns; Equity beta; Earnings persistence; Unexpected earnings.