The Effects of Increased Book-Tax Difference Tax Return Disclosures on Firm Valuation and Behavior

ABSTRACT We use event study techniques to gauge market participants' ex ante perceptions regarding the benefits and burdens of the Schedule M-3, and structural break analysis to investigate whether managers make ex ante or ex post changes in book-tax differences as a result of this mandatory change in federal tax return disclosures. We find evidence suggesting investors believe ex ante the substantial increase in book-tax difference disclosures will increase future tax burdens and/or tax-compliance costs. Investors also appear to believe the M-3 may be more costly for firms having the types of book-tax differences that attract additional IRS scrutiny (e.g., discretionary permanent differences) and when such firms are weakly monitored. Further, we find evidence of a substantial reduction in our proxy for discretionary permanent book-tax differences prior and subsequent to the implementation of the M-3 and other regulatory events, suggesting both ex ante and ex post real effects on firm behavior. JEL Classifications: G14; H25; H26; M48. Data Availability: Data used in this study are available from public sources identified in the paper.

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Dividend policy and probability of extreme returns

International Journal of Managerial Finance ◽

10.1108/ijmf-01-2020-0023 ◽

2020 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Mohammed Bouaddi ◽

Omar Farooq ◽

Neveen Ahmed

Keyword(s):

Stock Returns ◽

Stock Price ◽

Dividend Policy ◽

Actual State ◽

Content Type ◽

Market Participants ◽

Dividend Payments ◽

Ex Post ◽

Ex Ante ◽

The Future

PurposeThis study examines the effect of dividend policy on the ex ante probability of stock price crash and the ex ante probability stock price jump.Design/methodology/approachWe use the data of publicly listed non-financial firms from France and the ex ante measures of crash and jump probabilities (based on the Flexible Quadrants Copulas) to test our hypothesis during the period between 1997 and 2019.FindingsOur results show that dividend payments are negatively associated with the ex ante probability of crash and positively associated with the ex ante probability of jump. Our results are robust across various sub-samples and across different proxies of dividend policy. Our findings also hold when we use ex-post measures of crash and jump probabilities.Originality/valueUnlike prior literature, we use ex ante measures of crash and jump probabilities. The main advantage of this forward looking measure is that it allows for more flexibility by modeling the dependence between market returns and stock returns as functions of their actual state. Our measure is also consistent with the behavior of investors and market participants in a way that the market participants do not know the future outcome with certainty, but rather they are anticipating the future.

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Entrepreneurial Stewardship: Why Some Profits Should Be Used to Benefit Others

Business Ethics Quarterly ◽

10.1017/beq.2019.51 ◽

2020 ◽

Vol 30 (4) ◽

pp. 525-551 ◽

Cited By ~ 1

Author(s):

Jooho Lee

Keyword(s):

Property Rights ◽

Social Welfare ◽

Moral Obligation ◽

Market Process ◽

Market Participants ◽

Welfare Maximization ◽

Social Welfare Maximization ◽

Ex Post ◽

Ex Ante ◽

The Difference

ABSTRACTEntrepreneurs should act as stewards of entrepreneurial rent. Entrepreneurial rent is the difference between the ex post value of a venture and its ex ante costs. It is the result of competition among buyers and sellers within the market process rather than the sole efforts of the entrepreneur. As a result, entrepreneurs should allocate entrepreneurial rent for the benefit of other market participants rather than consuming it for themselves. The moral obligation to steward entrepreneurial rent is consistent with traditional bases of property rights and the norm of social welfare maximization, and it applies to corporations and their shareholders, as well as individual entrepreneurs.

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Disclaiming the Future: Investigating the Impact of Cautionary Disclaimers on Investor Judgments Before and After Experiencing Economic Loss

The Accounting Review ◽

10.2308/accr-51924 ◽

2017 ◽

Vol 93 (4) ◽

pp. 81-99 ◽

Cited By ~ 14

Author(s):

H. Scott Asay ◽

Jeffrey Hales

Keyword(s):

Economic Loss ◽

Data Availability ◽

Safe Harbor ◽

Nonprofessional Investors ◽

Ex Post ◽

Investor Judgments ◽

Ex Ante ◽

Before And After ◽

The Impact ◽

Forward Looking

ABSTRACT We examine how cautionary disclaimers about forward-looking statements affect investor judgments both before making an investment and after having suffered an investment loss. In our first experiment, a cautionary disclaimer appears to effectively communicate to nonprofessional investors that forward-looking statements may not be reliable, but we find little evidence that the disclaimer alters the extent to which forward-looking statements influence nonprofessional investors' valuation judgments. In our second experiment, we shift our focus to ex post judgments and find that the disclaimer influences the extent to which investors feel wronged and entitled to compensation after an investment loss, consistent with investors attending to the disclaimer and acting as if it were, ex ante, effective. Notably, investors continue to feel more wronged and entitled to financial compensation when available evidence suggests that management knowingly issued false or misleading forward-looking statements—even if disclaimed. Together, these results provide support for recent judicial efforts to erode the sweeping safe harbor provisions currently granted to companies. Data Availability: Contact the authors.

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The Choice of Different Types of Subjectivity in CEO Annual Bonus Contracts

The Accounting Review ◽

10.2308/accr-10132 ◽

2011 ◽

Vol 86 (6) ◽

pp. 2023-2046 ◽

Cited By ~ 62

Author(s):

Felix Höppe ◽

Frank Moers

Keyword(s):

Data Availability ◽

Ex Post ◽

Optimal Contracting ◽

Ex Ante ◽

Different Types ◽

The Board Of Directors ◽

Optimal Action ◽

Performance Dimensions ◽

Discretionary Bonuses ◽

Action Choice

ABSTRACT In assessing the performance of the CEO, subjectivity by the board of directors is often present in one form or another. We specifically focus on: (1) the ex ante option to ex post override a formula-based contract (“discretionary bonus”), and (2) the ex ante absence of any formula in a contract (“subjective weights”). We argue that the two types of deviations are driven by different contracting problems, which relate to whether post-contract information does or does not affect the agent's optimal action choice. We refer to these different contracting problems as problems of risk and problems of noncongruity, respectively, and hypothesize that discretionary bonuses are used for risk-reduction purposes, while subjective weights on different performance dimensions are used for congruity-improvement purposes. Our results are consistent with our expectations, showing that the use of the different types of subjectivity is consistent with optimal contracting considerations. Data Availability: All data are publicly available from the sources identified in the text.

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