Relative valuation roles of equity book value and net income as a function of financial health

Barth, Mary E.; Beaver, William H.; Landsman, Wayne R.

doi:10.1016/s0165-4101(98)00017-2

Cited by 766 publications

(578 citation statements)

References 24 publications

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“…I also find no evidence that firms' direct connections to prior COLI adopters via a shared auditor are related to the spread of COLI Barth et al (1998) and Barth et al (2005) b Control Group A is based on a size (assets) and industry match.…”

Section: Chapter 10 -Summarymentioning

confidence: 74%

“…27 I use industry classifications from Barth et al (1998) and further partition durable manufacturers and retail firms following Barth et al (2005). Control Group A includes all firms within the matched industry whose assets are within +/-25% of COLI firm's assets in year t-1.…”

Section: Control Samplesmentioning

confidence: 99%

“…I classify firm-years into industries based on the classification scheme used in Barth et al (1998) and Barth et al (2005). I estimate performance-matched discretionary accruals (PMDACC) as the difference between each observation's discretionary accrual measure and the median discretionary accrual measure for its ROA and industry decile, where medians are calculated excluding the observation.…”

Section: Logit Modelmentioning

confidence: 99%

“…Sample includes 44 COLI adopters with data to match based on market-to-book and assets and nonmissing auditor information. Industry classifications are based on Barth, Beaver and Landsman (1998). Auditor is determined using data item 149 from COMPUSTAT.…”

Section: Chapter 10 -Summarymentioning

confidence: 99%

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The Spread of Aggressive Corporate Tax Reporting: A Detailed Examination of the Corporate-Owned Life Insurance Shelter

Brown

2011

The Accounting Review

193

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This paper investigates the spread of aggressive corporate tax reporting by modeling a firm's decision to adopt the corporate-owned life insurance (COLI) shelter. I use a sample of known COLI participants to examine whether certain firm characteristics are associated with the decision to adopt a COLI shelter. I find some evidence that firms with higher performancematched discretionary accruals are more likely to adopt a COLI shelter, suggesting a positive relation between aggressive financial reporting and aggressive tax reporting. I also find that firms with greater capital market visibility are less likely to adopt a COLI shelter, consistent with a potential reputational cost for being associated with aggressive tax avoidance activities. Further, my results suggest that COLI adopters are generally R&D intensive firms with low leverage and few foreign operations. In addition to firm specific characteristics, I consider two explanations for the spread of COLI adoption motivated by theory on diffusion of innovations and institutional isomorphism. I investigate whether firms imitate prior COLI adopters and whether COLI adoption spreads through common auditors. My results are not consistent with an imitation vii explanation. Further, my results suggest that having the same auditor as a prior COLI adopter does not increase the likelihood that a firm will adopt COLI.viii Table of PART I 6Chapter The tax shelter industry also distorts allocation of economic resources. Tax shelter activity diverts resources away from the government toward accountants, lawyers and others who develop and promote tax shelters. Moreover, according to theories of corporate tax incidence, engaging in a tax shelter cannot make a corporation, per se, better off. The benefits from reducing the corporation's tax bill will ultimately accrue to its shareholders through higher stock prices, its employees through higher wages, or its customers through lower prices. Exactly how the benefits will be shared is unknown, but Slemrod (2004) Frank et al. 2006). 3 However, ETRs and book-tax differences are noisy measures of aggressive tax reporting. ETRs vary with profitability, industry differences in the reporting of revenue and expenses, and legitimate tax planning opportunities. Consequently, it is difficult to distinguish lower ETRs due to better tax planning from those due to aggressive avoidance or shelter activity. List of TablesTreasury's (1999) report suggests that the growing gap between financial statement income and 2 Many studies rely on Bankman's (2004a) working definition of a tax shelter as a "(1) tax motivated; (2) transaction unrelated to a taxpayer's normal business operations; that (3) under a literal reading of some relevant legal authority; (4) produces a loss for tax purposes in excess of any economic loss; (5) in a manner inconsistent with legislative intent or purpose." See also Bankman (1999).3 Graham and Tucker (2006) identify known tax shelter participants. However, their study focuses on firms' debt policy decisions, no...

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Section: Chapter 10 -Summarymentioning

confidence: 74%

Section: Control Samplesmentioning

confidence: 99%

Section: Logit Modelmentioning

confidence: 99%

Section: Chapter 10 -Summarymentioning

confidence: 99%

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The Spread of Aggressive Corporate Tax Reporting: A Detailed Examination of the Corporate-Owned Life Insurance Shelter

Brown

2011

The Accounting Review

193

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“…Estimation includes controlling for the level of deferred taxes and year, firm, and firm-year size fixed effects. Barth et al (1998). Sample and Compustat observations are selected for fiscal year 2009, which provides the largest contribution of observations (1,294) to the total estimation sample.…”

Section: Figure 1 Example Of the Effect Of Governance On The Tax Avoimentioning

confidence: 99%

Corporate governance, incentives, and tax avoidance

Armstrong

Blouin

Jagolinzer³

et al. 2015

Journal of Accounting and Economics

702

242

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We examine the link between corporate governance, managerial incentives, and corporate tax avoidance. Similar to other investment opportunities that involve risky expected cash flows, unresolved agency problems may lead managers to engage in more or less corporate tax avoidance than shareholders would otherwise prefer. Consistent with the mixed results reported in prior studies, we find no relation between various corporate governance mechanisms and tax avoidance at the conditional mean and median of the tax avoidance distribution. However, using quantile regression, we find a positive relation between board independence and financial sophistication for low levels of tax avoidance, but a negative relation for high levels of tax avoidance. These results indicate that these governance attributes have a stronger relation with more extreme levels of tax avoidance, which are more likely to be symptomatic of over-and under-investment by managers. Abstract: We examine the link between corporate governance, managerial incentives, and corporate tax avoidance. Similar to other investment opportunities that involve risky expected cash flows, unresolved agency problems may lead managers to engage in more or less corporate tax avoidance than shareholders would otherwise prefer. Consistent with the mixed results reported in prior studies, we find no relation between various corporate governance mechanisms and tax avoidance at the conditional mean and median of the tax avoidance distribution. However, using quantile regression, we find a positive relation between board independence and financial sophistication for low levels of tax avoidance, but a negative relation for high levels of tax avoidance. These results indicate that these governance attributes have a stronger relation with more extreme levels of tax avoidance, which are more likely to be symptomatic of over-and under-investment by managers.JEL: G34, H25, H26, K34, M41

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