Firms have a lot to lose from the entry of competitors into their markets. Grounded in the research on interfirm rivalry and strategic communication, we proposed and tested hypotheses suggesting ...that, when the managers of incumbent firms perceive a high threat of entry, they are more likely to use vagueness in their corporate communications to make their strategies and actions harder to discern. This lessened interpretation results in fewer competitive entries by potential entrants. We used computerized content analysis to quantify the use of vague language in incumbent firms' annual reports and empirically tested our hypotheses through data from the U.S. domestic airline industry. We found robust support for our hypotheses. By revealing that strategic use of language shapes competitive interactions, our research sheds new light on the process through which information is delivered, received, and interpreted by rivals. This process is at the heart of competitive dynamics and strategy research.
Tax Aggressiveness and Accounting Fraud LENNOX, CLIVE; LISOWSKY, PETRO; PITTMAN, JEFFREY
Journal of accounting research,
September 2013, Letnik:
51, Številka:
4
Journal Article
Recenzirano
There are competing arguments and mixed prior evidence on whether firms that are aggressive in their financial reporting exhibit more or less tax aggressiveness. Our research contributes to resolving ...this issue by examining the association between aggressive tax reporting and the incidence of alleged accounting fraud. Relying on several proxies for tax aggressiveness to triangulate our evidence, we generally find that tax aggressive U.S. public firms are less likely to commit accounting fraud. However, we caution that our results are sensitive to how tax aggressiveness is measured. More specifically, four (two) of the five (three) proxies for firms' effective tax rates (book-tax differences) load positively (negatively) during the 1981—2001 period, implying that fraud firms are less tax aggressiveness. Our inferences persist when we isolate the 1995—2001 period in which accounting impropriety steeply rose and corporate tax compliance steeply fell. Moreover, we continue to find that tax aggressive firms are less apt to fraudulently manipulate their financial statements when we apply factor analysis to identify tax avoidance with a common factor extracted from the underlying proxies and match on propensity scores to ensure that the fraud and nonfraud samples have very similar non-tax characteristics.
Rent-sharing by workers can reduce the incentives for investment if some of the returns to sunk capital are captured in higher wages. We propose a simple measure of this "holdup" effect based on the ...size of the wage offset for firm-specific capital accumulation. Using Social Security earnings records for workers in the Veneto region of Italy linked to detailed financial data for their employers, we find strong evidence of rent-sharing, with an elasticity of wages with respect to potential rents per worker of around 4%, arising mainly at larger firms with higher price-cost margins. On the other hand, we find little evidence that bargaining lowers the return on investment. Instead, firm-level bargaining appears to split the rents after deducting the full cost of capital.
This paper examines the effect of CEO compensation contracts on misreporting. We find that the sensitivity of the CEO's option portfolio to stock price is significantly positively related to the ...propensity to misreport. We do not find that the sensitivity of other components of CEO compensation, i.e., equity, restricted stock, long-term incentive payouts, and salary plus bonus have any significant impact on the propensity to misreport. Relative to other components of compensation, stock options are associated with stronger incentives to misreport because convexity in CEO wealth introduced by stock options limits the downside risk on detection of the misreporting.
This article examines the determinants of financial covenant thresholds in bank loan agreements and information conveyed through the selection of tight financial covenants. We find that riskier firms ...and firms with fewer investment opportunities select tighter financial covenants. We also find that selection of tight covenants is associated with improvements in the covenant variable and declines in investment spending and net debt issuance. We observe these changes also for borrowers that do not breach their covenants, suggesting that they are not simply the result of creditor influence conditional on a technical default. Furthermore, we find that violations of tightly set covenants have significantly less of an impact on the borrower's investment spending and net debt issuance than violations of loosely set covenants. Overall, our results suggest that the selection of tight covenants conveys information concerning future changes in covenant variables, investment and financial policies, and the outcome of covenant violations.
Our paper explores a comprehensive sample of small and large corporate bankruptcies in Arizona and New York from 1995 to 2001. Bankruptcy costs are very heterogeneous and sensitive to the measurement ...method used. We find that Chapter 7 liquidations appear to be no faster or cheaper (in terms of direct expense) than Chapter 11 reorganizations. However, Chapter 11 seems to preserve assets better, thereby allowing creditors to recover relatively more. Our paper also provides a large number of further empirical regularities.
The main reason governments grant patent protection is to spur innovation. However, the size of the R&D stimulus from patent protection is far from clear because it depends on how effective patents ...are as a mechanism for appropriating returns. Drawing on real options investment theory, this paper highlights one mechanism through which patents may improve appropriability and stimulate R&D investment: patents reduce the effect of market uncertainty on the firm's investment decision. We find that firm-level R&D investment falls in response to higher levels of uncertainty, but that patent protection partially mitigates the influence of uncertainty.
We apply social network analysis methods to describe the evolution of the innovator network of Jena, Germany in the period from 1995 to 2001. We find this evolution to be directed towards an ...increasing focus on core competencies of the network. Further we analyse the network resulting from R&D cooperations and explain – by means of network regression techniques – that the job mobility of scientists and the technological overlap between the actors, rather than past cooperations, can best predict the resulting structure.
Identifying Sorting in Practice Bartolucci, Cristian; Devicienti, Francesco; Monzón, Ignacio
American economic journal. Applied economics,
10/2018, Letnik:
10, Številka:
4
Journal Article
Recenzirano
Odprti dostop
We propose a novel methodology to uncover the sorting pattern in labor markets. We identify the strength of sorting solely from a ranking of firms by profits. To discern the sign of sorting, we build ...a noisy ranking of workers from wage data. Our test for the sign of sorting is consistent even with noisy worker rankings. We apply our approach to a panel dataset that combines social security earnings records with detailed financial data for firms in the Veneto region of Italy. We find robust evidence of positive sorting. The correlation between worker and firm types is about 52 percent.
Using harmonized data for the years 1995-2001 from the European Community Household Panel, the authors analyze gender pay gaps by sector across the wage distribution in eleven countries. In ...estimations that control for the effects of individual characteristics at different points of the distribution, they calculate the part of the gap attributable to differing returns between men and women. The magnitude of the gender pay gap, thus measured, varied substantially across countries and across the public and private sector wage distributions. The gap typically widened toward the top of the wage distribution (the "glass ceiling" effect), and in a few cases it also widened at the bottom (the "sticky floor" effect). The authors suggest that differences in childcare provision and wage setting institutions across EU countries may partly account for the variation in patterns by country and sector.
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