Browsing by Subject "corporate governance"
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Item Are Tax and Non-Tax Factors Associated with FIN 48 Disclosures?(2011-10-21) McDonald, Janet L.This study examines the determinants of tax aggressiveness. I utilize the unrecognized tax benefits (UTB) disclosed by the adoption of Financial Interpretation No. 48, ?Accounting for Uncertainty in Income Taxes? (FIN 48) to proxy for firms? tax aggressiveness. I hand collect UTB disclosures for 562 calendar year-end firms in the S and P 1500. Controlling for firms? incentives and abilities to engage in aggressive tax positions (tax factors) and firms? discretion over recognizing the financial reporting benefits of aggressive tax positions, I examine whether firms? level of aggressive tax positions is influenced by (1) financial reporting aggressiveness, (2) choice of auditor, (3) analyst coverage, and (4) corporate governance quality. Using ordinary least squares regression, I examine the determinants of firms total UTB and its permanent and temporary components. I find that UTB and its permanent component are positively associated with firm size, presence of foreign operations, research and development activity, selling, general and administrative activity, firm value, and the probability that the firm engages in tax shelter activity. However, the temporary component is only increasing in firm size. Also, I find that UTB and its permanent component are positively associated with firms engaging in financial reporting aggressiveness and increasing auditor provided tax services, but negatively associated with analyst coverage, while the temporary component is only positively associated with financial reporting aggressiveness. Finally, I split the sample based on firms? use of discretion over recognizing the tax benefits of aggressive tax positions prior to FIN 48 adoption. I find that firms which aggressively recognize tax benefits prior to FIN 48 adoption (i.e. firms that increased UTBs at FIN 48 adoption) have UTBs that are positive and significantly associated with (1) the probability that a firm engages in tax shelter activity, (2) auditor provided tax services, and (3) their record of using last chance earnings management to meet or beat analyst forecasts. These associations are not significant for firms that did not aggressively recognize tax benefits prior to FIN 48 adoption, suggesting that firms? financial reporting aggressiveness is positively associated with firms? level of tax aggression.Item Conditional tests of corporate governance theories(Texas A&M University, 2005-08-29) Chi, JianxinAgency theories suggest that governance matters more when agency conflicts are potentially more severe. However, empirical studies often do not control for the potential severity of agency conflicts. I show that the marginal benefit of governance varies with the free cash flow level, a proxy for the potential severity of agency conflicts. As the free cash flow level increases, higher governance quality becomes incrementally more value-enhancing, and lower governance quality becomes incrementally more value-destroying. This is consistent with the hypothesis that better governance helps resolve the agency conflicts in investment decisions when a firm has more free cash flows (Jensen, 1986). This study highlights the importance of controlling for the potential severity of agency conflicts in governance studies and provides an improved method to estimate the marginal benefit of a governance mechanism.Item Corporate governance and long-term stock returns(Texas A&M University, 2005-08-29) Moorman, Theodore ClarkExtant literature finds that long-term abnormal stock returns are generated by a strategy based on corporate governance index values (Gompers, Ishii, and Metrick 2003). The result is inconsistent with efficient markets and suggests that information about governance is not accurately reflected in market data. Control firm portfolios are used to mitigate model misspecification in measuring long-term abnormal returns. Using a number of different matching criteria and governance indices, no long-term abnormal returns are found to trading strategies based on corporate governance. The effect of a change in governance on firm value is mixed, but some support is found for poor governance destroying firm value. These results have a number of implications for practitioners, researchers, and policy makers.Item Sell-in versus Sell-through Revenue Recognition: An Examination of Firm Characteristics and Financial Information Quality(2010-10-12) Rasmussen, Stephanie Jean BingerThis study examines revenue recognition methods used by high technology firms for sales to distributors. Revenue is either recognized when products are delivered to distributors (sell-in) or when distributors resell products to end-users (sell-through). This is the first empirical study to examine the firms that use these revenue recognition methods and the quality of financial information reported under the methods. I use a logistic regression to compare 479 firm-year observations in the computer and electronic equipment industries that use either the sell-in method or the sell-through method. I find that firms with higher growth opportunities and strong corporate governance are less likely to use the sell-in method. In addition, corporate governance strength moderates the association between use of the sell-in method and both capital requirements and management incentive compensation. Using ordinary least squares regression, I also examine two proxies for financial information quality: the ability of accounting information to predict future cash flows and the association between accounting information and stock returns. Results of these regressions suggest that financial information quality is higher under a deferred revenue recognition method (sell-through). Specifically, the ability of accounting information to predict future cash flows and the association between accounting information and returns are both higher for sell-through firms than for sell-in firms. The results of this study suggest that systematic differences exist between sell-in firms and sell-through firms and financial information quality differs between the two revenue recognition methods.Item The Impact of Stewardship on Firm Performance: A Family Ownership and Internal Governance Perspective(2012-02-14) Wesley, Curtis LeonusCurrent research in corporate governance focuses primarily upon minimization of agency costs in the shareholder-management relationship. In this dissertation, I examine a complimentary perspective based upon stewardship theory. The model developed herein leverages past research on socioemotional wealth to identify CEO attributes associated with stewardship behavior. I examine whether these attributes lead to positive firm performance. Moreover, I examine how family ownership and board of director characteristics influences the CEO stewardship ? firm performance relationship. A 3-year unbalanced panel dataset using 268 S&P 1500 firms is analyzed using generalized least squares regression. All covariates lag the dependent variable by 1-year; constructs are included to control for popular agency prescriptions used to monitor, control, and incentivize executives. I find no relationship between the hypothesized constructs related to CEO stewardship (board memberships, organizational identity, and board tenure) and firm performance (Tobin?s Q). However, results reveal family ownership positively moderates the relationship between the quantity of CEO board memberships and firm performance. Additionally, the presence of affiliated directors and community influential directors positively moderates the CEO board memberships-firm performance relationship. The presence of community influential directors also positively moderates the relationship between CEO organizational identity and firm performance. Results from this dissertation provide moderate support for stewardship theory as a compliment to agency theory in corporate governance literature. There is evidence that family ownership and board of director attributes strengthen the relationship between those CEO stewardship constructs and firm performance. However, lack of a direct relationship between the CEO stewardship constructs and firm performance suggest a need more fine-grained constructs that measure stewardship. A substantial amount of research exists in corporate governance using the principal-agent model. The research herein extends this research by using stewardship theory to compliment the dominant agency model. I hope this research encourages scholars to take an integrative approach by (1) taking a renewed look at alternate theories of corporate governance such as stewardship theory, and (2) continue work that focuses upon firm performance maximization through CEO stewardship as well as agency loss mitigation through monitoring and control of the CEO.Item THE ROLE OF INFORMATION ASYMMETRY IN MARKET REACTIONS TO BOND RATING DOWNGRADES: EXPLORING THE IMPACT OF CORPORATE GOVERNANCE(2012-04-19) Geddie, Mary; Newberry, Kaye; Werner, Steve; Lu, Tong; Sivaramakrishnan, KonduruThis study examines the link between corporate governance and the information content of bond rating downgrades. A downgrade event contains more news and should generate more market reaction when the amount of financial information publicly available prior to the event is less. The more complete the information set before the event, the less the market response to the new information. Certain corporate governance mechanisms, especially those related to the boards of directors, are designed to defend shareholders from agency conflicts that give managers incentives to manage earnings and financial reporting. However, academic research has found mixed evidence as to the relation of corporate governance and transparent financial reporting. Perhaps in some cases, stronger corporate governance is necessary because the nature of the firm makes transparency in financial reporting too costly. My study attempts to provide evidence on the circumstances in which corporate governance is most valued by the market and suggests that the level of information asymmetry should be an important consideration in corporate governance research. The data analyzed in the study are taken from the Mergent Fixed Income Security Database [FISD] for bond rating downgrades. The time period spans both the implementation of Regulation FD and the Sarbanes-Oxley Act of 2002. I control for differences in regulatory regimes during the period. I find no consistent evidence that corporate governance structures weaken market reaction to bond ratings downgrades. However, I do show that the contrast of market reactions in the high and low governance conditions is most pronounced in conditions of high information asymmetry, and especially after the implementation of Regulation FD. My research contributes to the corporate governance literature by formally demonstrating that the level of a firm’s information asymmetry can be an important factor in determining the impact of corporate governance on the market reaction to an event. As an independent signal, bond rating downgrades provide a useful setting in which to examine this relationship.Item Two Essays in Corporate Finance(2012-07-16) Huang, KershenIn the first essay, "Why Won't You Forgive Me? Evidence of a Financial Misreporting Stigma in Bank Loan Pricing," we examine the relation between bank loan pricing and intentional financial misreporting. Firms that misreport financial information pay greater spreads on their bank loans for five years following their restatements, whether benchmarked against their pre-restatement loans or similar loans made to matched non-misreporting firms. Misreporting firms that promptly replace certain parties who are potentially related to the misreporting see their spreads fall to benchmark levels within three years following restatement. Large fractions of firms, however, do not promptly replace the potentially related parties and continue to pay premiums over benchmark spread levels for five years following restatement. The results suggest that misreporting creates a long-lasting and costly stigma, but that certain actions can reduce the duration of the stigma. In the second essay, "Can Shareholder-Creditor Conflicts Explain Weak Governance? Evidence from the Value of Cash Holdings," we look into whether shareholder-creditor conflicts generate costs large enough to prevent improvements in governance. If firms choose to remain weakly governed, some cost must prevent improvements. We address our research question by estimating the value of cash as a function of governance, leverage, and the interaction of the two. We find that governance increases the value of cash, but that leverage reduces the gain from strong governance. However, the magnitudes are far too small to explain why weak governance firms remain weakly governed. Our estimates suggest more than 80 percent of weakly governed firms would increase the value of their cash by improving governance. In fact, half of weakly governed firms would increase the value of their cash holdings by $0.35 or more per dollar held by improving governance. Our focus on cash holdings does not seem to drive our results, nor do endogenous governance choices or nonlinearities reverse our conclusions.