Robert F. Gary, Jared A. Moore, Craig A. Sisneros, and William D. Terando
Advances in Accounting, Volume 34, Pp. 55–63
We examine how tax rates impact investment by corporations in the stock market. We regress changes in intercorporate investment on changes in the various individual and corporate top statutory marginal tax rates (MTRs). We find a significant negative association between changes in individual capital gains MTRs and changes in intercorporate investment, while no such association is evident for changes in either individual ordinary or dividend MTRs. These results support the notion that corporations respond to the after-tax rate of return and/or market efficiency consequences brought about by a change in individual capital gains MTRs. We find a significant positive relation between changes in intercorporate investment and changes in corporate MTRs on ordinary income. These results are consistent with corporations scaling back expansion plans and instead investing free cash flows in equity securities as MTRs increase.
Dahlia Robinson, Michael Robinson and Craig Sisneros
Advances in Accounting, Vol 28, Issue 2, Dec 2012, Pages 270–278
We examine the association between board composition and bankruptcy outcomes. Preliminary analyses provide no evidence that the proportion of outside directors is significantly associated with the likelihood that a Chapter 11 firm liquidates. Further analyses indicate, however, that the relation between the proportion of outside directors and bankruptcy outcomes is a function of the outside directors’ ownership. More specifically, we find that the association is positive when outside director ownership is low and negative when it is high. The overall evidence supports the notion that a one-size-fits-all approach to corporate governance is likely to result in suboptimal board structures and hinder firms’ strategies for dealing with poor performance.
William M. Cready, Thomas J. Lopez, and Craig A. Sisneros
The Accounting Review, Vol. 87, Issue 4, pp. 1165–1195
Burgstahler et al. (2002) investigate the implications of special items for future earnings and report that firms use negative special items to accelerate the recognition of future expenses into the current period. That is, negative special items serve as an ‘‘inter-period transfer’’ device. We extend their analysis and find that earnings increase in post-special item quarters beyond the four quarters considered in Burgstahler et al. (2002). In particular, we find that future earnings increase over the subsequent 16 quarters by more than 130 percent of the reported negative special item. The earnings increases are greater for restructuring charges than for asset write-downs or goodwill impairment charges. Such patterns suggest that negative special items also signal real future performance improvements (i.e., performance improvement hypothesis) in addition to inter-period expense transfer (i.e., inter-period transfer hypothesis). Moreover, the real improvement effect appears to be driven by restructuring charges, the most prevalent type of special item.
William Cready, Thomas J. Lopez, and Craig A. Sisneros
THE ACCOUNTING REVIEW, Vol. 85, Issue 5, pp. 1577-1615
This study focuses on the persistence and market value implications of a subset of nonrecurring charges that are atypical due to repeated occurrence. The increased recurrence of supposedly nonrecurring items perhaps reflects managerial shifting of (more permanent) ordinary expenses to a transitory category or, alternatively, may reflect an environment where these items naturally occur more frequently. Either scenario suggests that these repetitive charges have future earnings implications dramatically different from truly nonrecurring events and should therefore be valued more like a recurring component of earnings. Consistent with this notion, we find that as the
frequency of reporting negative special items increases (measured by the presence of multiple prior charges), the persistence of these items significantly increases with respect to future earnings. Our evidence also suggests that the valuation multiple on such charges increases with frequency. That is, the market values “recurring nonrecurring” items more like the other components of recurring earnings.