We investigate performance effects for China's listed firms when there is a change in the controlling shareholder. These changes include ownership transfers from one state entity to another state entity and from a state entity to a private entity. We find positive performance effects when control is passed to a private entity. In contrast, when the transfer is made to another branch of the state, there is little change in performance. The stock market responds positively to a change in control, with the largest effect observed for private transfers. Our results suggest the Chinese government should continue to sell down its share ownership in listed firms as the transfer of control to private owners enhances corporate profitability and efficiency. Moreover, to help ownership reform, China should encourage an active market for corporate control.

We investigate the relation between the internally generated cash flows and fixed asset investments of Chinese firms and find that it is U-shaped. Cash flow and investment are negatively related for low levels of cash flow but positively related for high levels of cash flow. We find that government controlled listed firms have greater investment–cash flow sensitivities than do privately controlled listed companies, especially on the left-hand side of the U-shaped curve where cash flow is negative. However, the difference in sensitivities appears only among firms that possess few profitable investment opportunities. We attribute this finding to the government having multiple socio-economic objectives, which leads to increased capital expenditures by the firms it controls when internal funds are abundant and when internal funds are negative. There is no evidence that access to finance and soft budget constraints explain the differences between the investment–cash flow sensitivities of government controlled and privately controlled listed firms.

This study investigates the financial and operational implications of enterprise systems (ESs) in corporate risk management. Using matched difference‐in‐differences analyses based on ES implementation events, we document a significant reduction in the volatility of operating cash flows following ES implementations. We further show that ES implementers have better post‐implementation operational efficiency than matched non‐ES firms and better manage sales, costs of sales, working capital, and operating expenses to reduce operating cash flow volatility. Consistent with the benefits of lower cash flow volatility documented in prior literature, we find ES implementers demonstrate higher investment efficiency, lower reliance on external financing, and higher debt capacity post‐ES‐implementation than the matched non‐ES firms. Our study sheds light on the economic benefits of utilizing ESs in corporate risk management and in so doing responds to the paucity of empirical research in this area.

Despite the significance of social networks in influencing firm behavior, research on their impact on corporate tax behavior is limited. In this paper, we construct social networks of CFOs from U.S. companies based on their employment history, education, and non-professional activities. We find that firms with more socially connected CFOs have lower effective tax rates (ETR) compared to firms with less socially connected CFOs. This effect is more pronounced when corporate governance is weaker and managers have higher incentives. Furthermore, a firm's ETR decreases as CFO centrality increases. We do not observe similar results regarding the connectedness of boards of directors. Additionally, firm pairs exhibit similar ETRs when their CFOs are socially connected, suggesting an exchange of tax-related information among CFOs through their social networks. We also find that the past ETRs of firms with central CFOs predict the ETRs of firms with non-central CFOs. This indicates that less socially connected CFOs tend to follow the tax planning strategies of their more socially connected counterparts. Overall, our findings indicate that more socially connected CFOs possess more relevant information and resources regarding tax planning, leading to the adoption of more aggressive tax strategies compared to their less socially connected counterparts.

Enterprise systems ( ES s) are widely used to support business processes along the enterprise value chain. It has been shown that ES s, by integrating business functions and making information about day‐to‐day activities available, enhance operational transparency and improve the internal information environment. However, while ES ‐based business infrastructures can offer many benefits, their prevalence and increased complexity have also brought new challenges to external auditors. Motivated by the prominence of this issue for auditors and regulators and by the scarcity of research jointly examining ES s and auditors’ work, we investigate whether the presence and extent of client firms’ ES implementations are related to the quality and efficiency of auditors’ work. Using proprietary archival data on ES implementations and controlling for self‐selection, we find that ES implementation improves the quality and efficiency of current and future years’ audit work. Specifically, there are fewer restatements, a greater likelihood of auditors issuing going‐concern opinions to firms that do not survive, higher accruals‐based auditing quality, a lower likelihood of Form 10‐K filing delays, and generally lower audit fees. We further show that the benefits of ES s generally increase with the scope of implementation and are generally greater when the ES includes accounting and finance systems. Inconsistent with improvement in the quality of auditors’ work, we find no evidence that ES s help auditors identify material weaknesses in advance of restatement announcements and we find that, even in the presence of ES s, auditors issue an excessive number of going‐concern opinions to clients that survive.

We investigate whether and how the public revelation of tax uncertainty affects supply chain relations by utilizing an exogenous shock to tax reporting under FIN 48, which mandates the disclosure of uncertain tax benefits (UTBs). Using a difference-in-differences research design, we find that firms disclosing UTBs experience a significant decrease in sales to major customers after FIN 48 relative to firms without tax uncertainty. Further mechanism analyses suggest a risk perception channel that the disclosure heightens customers' risk perception of the suppliers: the adverse effect is more pronounced for suppliers with higher tax uncertainty or ex ante corporate risk. However, we do not find evidence for a tax morale channel that customers are concerned about sourcing from a “bad corporate citizen.” In cross-sectional analyses, we find a stronger adverse effect when customers and suppliers are less likely to engage in private information sharing or tax coordination, when suppliers disclose higher-quality UTBs, or when customers have lower tax risk tolerance or switching costs. Overall, our findings document an externality of tax disclosure from the perspectives of supply chain partners, suggesting that the disclosure of tax uncertainty provides valuable information to corporate customers and affects a firm's trade relations.