[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.

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.

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.

This paper examines the relationship between the ownership control status of firms and the accounting methods they adopt. The arguments of Watts and Zimmerman's positive theory are integrated with those of managerial economists to generate the prediction that management controlled firms are more likely than owner controlled firms to adopt accounting methods which increase reported earnings. This prediction is inconsistent with Fama's hypothesis that the market for managerial talent will prevent management controlled firms from acting differently than owner controlled firms. This paper compares the depreciation methods used by a sample of management and owner controlled firms for financial reporting purposes. The comparison considers and controls for the factors of firm size, leverage, and the depreciation method used for tax reporting purposes. The comparison reveals that there is a significant difference in the depreciation methods adopted by management controlled and owner controlled firms for financial reporting purposes.

Lee (1988) finds that LIFO firms have higher earnings‐price (EP) ratios than non‐LIFO firms despite the income‐reducing effects of LIFO, a result contrary to economic intuition that Lee describes as a “puzzle.” This paper attempts to resolve this puzzle by introducing refined measures of variables that are related to both EP ratios and inventory costing method choices. The improved proxies are analysts' expectations of future growth rather than realized growth, beta computed using a procedure designed to reduce measurement error rather than the usual OLS beta, and leverage as a supplemental risk measure. Further, we control for expected earnings changes, since transitory earnings shocks that are not expected to persist in future earnings affect the numerator of the EP ratio. After controlling for these factors, we find that EP ratios for LIFO firms are actually lower than those of non‐LIFO firms, a result consistent with economic intuition and the result expected by Lee.