How Do Experienced Users Evaluate Hybrid Financial Instruments?
Shana Clor-Proell (TCU), Lisa Koonce (UT) and Brian White (UT)
Journal of Accounting Research, December 2016, 54(5), pp.1267-1296
Clor-Proell, Koonce & White conducted a study with McCombs alumni who had 20 years of finance experience. They documented that these experienced professionals look to the underlying features of a financial instrument that has characteristics of liabilities and equity (rather than the balance sheet classification of that instrument) when evaluating companies who hold those instruments.
The Accuracy of Disclosures for Complex Estimates: Evidence from Reported Stock Option Fair Values
Brian Bratten (Kentucky), Ross Jennings (UT) and Casey Schwab (Georgia)
Accounting, Organizations and Society, July 2016, 52, pp. 32-49
We provide evidence that employee stock option footnote disclosures for as many as 20 percent of a large sample of public companies (a) are not internally consistent, and (b) the inconsistencies are likely due to unintentional errors that were not detected by their auditor. We also provide evidence that these errors make it more difficult for financial statement users, including sophisticated analysts, to forecast the stock option expense component of net income.
Military Experience and Corporate Tax Avoidance
Kelvin Law (Nanyang) and Lillian Mills (UT)
Review of Accounting Studies (forthcoming)
We find that managers with military experience pursue less tax avoidance than other managers, and pay an estimated $1-$2 million more in corporate taxes per firm-year. These managers also undertake less aggressive tax planning strategies with smaller tax reserves and fewer tax havens. Although they leave tax money on the table, boards hiring these managers benefit from reductions in other gray areas in corporate reporting. The broad implications are as follows: for employee selection, boards can consider employees’ personal characteristics as a control mechanism when outputs are difficult to contract ex ante or measure ex post.