Konchitchki and Patatoukas Journal of Accounting and Economics 57 (1-2), 76–88, (2014a) show that aggregate accounting earnings growth predicts future nominal gross domestic product (GDP) growth and that professional macro forecasters do not fully incorporate the information contained in aggregate accounting earnings. Based on results from prior literature, which find that accounting earnings reflect bad economic news in a timelier manner than good news, we condition Konchitchki and Patatoukas’s GDP growth forecast model on the sign of earnings changes. We show that negative changes in aggregate earnings predict future GDP growth while positive changes in earnings do not. Furthermore, we show that professional macro forecasters underreact to the information contained in negative changes in aggregate earnings about future GDP growth. Additional tests suggest our findings are a result of conservative accruals in earnings.

Our study examines the effect of corporate tax outcomes on forced CEO turnover. While prior research argues that firms often do not engage in tax avoidance due to reputational concerns, the empirical evidence suggesting the existence of reputational costs is scarce. In a broad sample of firms, we find evidence of a relation between the payment of low taxes and forced turnover. We also find that forced CEO turnover is more likely when the firm pays a high tax rate relative to its peers. Our results are consistent with the existence of previously unexplored individual reputational costs for not engaging in tax avoidance.

Recent accounting research provides evidence that similar profit‐based compensation incentives are used in for‐profit and nonprofit hospitals. Because charity care reduces profits, such incentives should lead for‐profit hospital managers to reduce charity care levels. Nonprofit hospital managers, however, may respond differently to the same incentives because they face a different set of institutional pressures and constraints. We compare the association between pay‐for‐performance incentives and charity care in for‐profit and nonprofit hospitals. We find a negative and significant association between charity care and our proxy for profit‐based incentives in for‐profit hospitals, and no significant association in nonprofit hospitals. These results suggest that linking manager pay to profitability does not appear to discourage charity care in nonprofit hospitals. Apparently, the nonprofit mission, institutional pressures, and ownership constraints moderate the potentially negative effects of profit‐based incentives. Because this evidence partially alleviates concerns over nonprofit compensation arrangements that mirror those used in for‐profit hospitals, it should be of interest to regulators and policymakers. In addition, this study provides insights into accounting researchers about institutional and organizational influences that affect managerial responses to financial incentives in compensation contracts.

This paper investigates the relation between executive compensation and corporate tax policies, with a focus on the Tax Cuts and Jobs Act of 2017 (TCJA). Using a pay-performance sensitivity framework, we analyze the differing compensation rewards associated with domestic and foreign pre-tax incomes. Our findings reveal that, before the TCJA, executives received significantly higher rewards for foreign income, encouraging them to shift income abroad. The TCJA reduced this disparity, bringing rewards for domestic and foreign income into closer alignment. A cross-sectional analysis shows that firms assessing CEO performance based on after-tax income exhibit greater sensitivity to changes in tax policy, establishing the presence of a tax mechanism. Additional tests eliminate alternative nontax explanations related to protectionist trade policies and changes in foreign market growth opportunities. These results highlight the significant impact of executive incentives on corporate tax behavior and the effectiveness of tax policy reforms.

This study examines the effect of the Tax Cuts and Jobs Act of 2017 (TCJA) on corporate defined benefit pension contributions. The TCJA decreases the corporate tax rate from 35 percent in 2017 to 21 percent in 2018 and thereafter. This change incentivizes firms to increase 2017 pension contributions to take advantage of tax deductions at a higher rate. Consistent with this incentive, we find firms increase defined benefit pension contributions by an average of 25 to 31 percent in 2017 compared with earlier years. We also find that taxpaying firms are the primary contributors. Further, taxpaying firms with high levels of pension‐related deferred tax assets contribute over three times as much as taxpaying firms with low levels of pension‐related deferred tax assets. We also find firms that increase pension contributions in 2017 reduce 2018 contributions, consistent with intertemporal income shifting rather than a permanent change in pension funding strategy.

Do commercial property taxes affect business microlocation decisions? Using precise geolocations for 2.8 million U.S. establishments, we employ a spatial discontinuity density design, comparing for-profit establishments to nonprofits, which are generally exempt from property taxes. Relative to nonprofit establishments, for-profit establishments disproportionately locate on the low-tax side of county borders. This effect strengthens with the size of the tax differential. At borders with differentials in the top decile (quartile), we estimate a 6–7 (5–6) percent shift in establishment location toward the low-tax side over a 10-km band. Businesses move from as far as 10 km away on the high-tax side but concentrate within 1 km on the low-tax side. Firms trade off tax savings with customer access: low-foot-traffic establishments respond more to tax differentials than high-foot-traffic ones. A survey of U.S. mayors finds that perceptions of property taxes’ importance for business location rise with cross-border tax differentials. Data Availability: Survey data are available upon request. All other data were obtained from publicly and commercially available sources described in the manuscript.

We examine whether the change in earnings announcement textual tone, aggregated across individual publicly traded firms, helps predict gross domestic product (GDP) growth. The literature finds that changes in aggregate accounting earnings do help predict GDP growth, but only when aggregate earnings changes are negative. Because conservative accounting rules limit managers' ability to communicate positive news promptly, we examine the tone of quarterly corporate earnings announcements as a possible source of timely positive information provided by firms. We find that the change in aggregate tone in the earnings announcements from the same quarter in the previous year predicts one‐quarter‐ahead GDP growth, but only when the change is positive. Our study contributes to the literature by investigating the relation between aggregate corporate disclosure tone and macroeconomic outcomes.