Communicated Values as Informal Controls: Promoting Quality While Undermining Productivity?
Steven J. Kachelmeier (UT), Todd A. Thornock (Iowa State University), and Michael G. Williamson (Illinois)
Contemporary Accounting Research, Winter 2016, 33(4), pp. 1141-1434
We use experimentation to show that a statement emphasizing the importance of accuracy can actually lower the effectiveness of an incentive scheme to motivate accurate production. The likely reason is that too much emphasis on accuracy can suppress a more open production strategy that tolerates and corrects mistakes as a means to greater long-term efficiency.

Spring-loading when no one is looking? Earnings and cash flow management around acquisitions
Shuping Chen (UT), Jacob Thomas (Yale) and Frank Zhang (Yale)
Review of Accounting Studies, December 2016, 21(4), pp. 1081-1115
We find evidence that performance — reflected in earnings and cash flows — is transferred from targets to acquirers around acquisitions. Using a sample of 2,128 completed deals from 1985-2010, our results suggest that targets depress performance when investor attention declines once the deal parameters are set, and much of that performance understatement is transferred to boost post-acquisition acquirer performance. Evidence of variation across subsamples provides additional confirmation: transfers are more visible for large deals (with transfers large enough to be detected), and muted for pooling transactions (with lower incentives to transfer). We contribute to the earnings management literature by showing that earnings and cash flows are transferred not just within firms but also across firms, and to the mergers and acquisitions literature by documenting that performance is managed not only before but also after deals are announced.

IRS Attention
Zahn Bozanic (Ohio), Jeffrey L Hoopes (UNC), Jacob R Thornock (Brigham Young) and Braden Williams (UT)
Journal of Accounting Research, March 2017, 55(1), pp. 79-114
We study how public and private disclosure requirements interact to influence both a tax regulator’s enforcement activities and a firm’s disclosure activities. To capture the IRS’s activities, we introduce a novel dataset of the IRS’s acquisition of firms’ public financial disclosures, which we label IRS attention. We employ two exogenous changes to IRS attention: FIN 48, which increased public tax disclosure requirements but held constant private tax disclosure to the IRS; and Schedule UTP, which increased private tax disclosure but held constant public tax disclosure. We find that IRS attention increased following FIN 48, but subsequently decreased following Schedule UTP, consistent with public and private disclosure interacting to influence tax enforcement. We next examine how private tax disclosure requirements under Schedule UTP affected firms’ public disclosure responses. We find that, following Schedule UTP, firms significantly increased the quantity and altered the content of their tax-related disclosures, consistent with the relaxing of tax-related proprietary costs of disclosure. Our results suggest that changes in SEC disclosure requirements altered the IRS’s behavior with regard to public information acquisition, and relatedly, changes in IRS private disclosure requirements appear to change firm’s public disclosure behavior.

Corporate Governance, Accounting Conservatism, and Manipulation
Judson Caskey (California) and Volker Laux (UT)
Management Science, February 2017, 63(2), pp. 424 –437
We develop a model to analyze how board governance affects firms’ financial reporting choices, and managers’ incentives to manipulate accounting reports. In our setting, ceteris paribus, conservative accounting is desirable because it allows the board of directors to better oversee the firm’s investment decisions. This feature of conservatism, however, causes the manager to manipulate the accounting system to mislead the board and distort its decisions. Effective reporting oversight curtails managers’ ability to manipulate, which increases the benefits of conservative accounting and simultaneously reduces its costs. Our model predicts that stronger reporting oversight leads to greater accounting conservatism, manipulation, and investment efficiency.