Product Market Competition and Managerial Disclosure of Earnings Forecasts: Evidence from Import Tariff Rate Reductions
Ying Huang (UT), Ross Jennings (UT) and Yong Yu (UT)
The Accounting Review, May 2017, 92(3), pp. 185-207
Prior theoretical research in accounting concludes that companies facing strong competition from other companies will voluntarily disclose less information to the public than companies facing less competition because they do not want to provide information that can be used by their competitors. However, the prior empirical research on this issue has been mixed. We examine this issue empirically in a more powerful research setting than used in prior research: Large import tariff rate reductions that increase competition from foreign competitors. We find that companies in industries experiencing a sudden decrease in tariff rates significantly decrease their voluntary forecasts of future earnings. Management earnings forecasts are a common voluntary disclosure that has the potential to provide useful information to competitors, so this decrease in management forecasts following a tariff rate reduction that increases competition is consistent with the prior theoretical findings that companies generally try not to provide their competitors with helpful information
IRS and corporate taxpayer effects of geographic proximity
Thomas R. Kubick (Kansas), G. Brandon Lockhart (Clemson), Lillian F. Mills (UT) and John R. Robinson (A&M)
Journal of Accounting and Economics, April-May 2017, 63(2-3), pp. 428-453
We investigate whether geographic proximity between corporations and the IRS affects tax examinations and tax avoidance. Our tax compliance setting provides evidence on the effects of proximity-induced information asymmetry on adversarial parties. Corporations avoid more tax when located closer to IRS territory managers unless they are also close to an IRS industry specialist. The IRS is more likely to audit nearby firms, and assesses more tax per hour from nearby taxpayers, except during constrained budget years.
Insider versus Outsider CEOs, Executive Compensation, and Accounting Manipulation
Prasart Jongjaroenkamol (UT) and Volker Laux (UT)
Journal of Accounting and Economics, April-May 2017, 63(2-3), pp. 253-261
This paper examines the role of the financial reporting environment in selecting a new CEO from within versus outside the organization. Weak reporting controls allow the CEO to misreport performance information, which reduces the board’s ability to detect and replace poorly-performing CEOs as well as aggravates incentive contracting. We show that these adverse effects are stronger when the CEO is an outsider rather than an insider. Our model predicts that boards are more likely to recruit a CEO from the outside when the performance measures with which the new hire is assessed are harder to manipulate.