an unintended consequence of book tax conformity a loss of earnings informativeness increasing the conformity between accounting earnings and taxable income has been proposed to improve financial reporting and curtail aggressive tax planning we find however that increasing conformity results in earnings that are less informative our inquiry exploits a unique sample of firms forced to change from the cash method to the accrual method for tax purposes thereby increasing their book tax conformity we find that these firms experienced a decrease in earnings informativeness compared to control firms unaffected by the change to our knowledge this is the first evidence of tax law changes affecting the informativeness of accounting earnings

measuring the cost of shelter for homeowners theoretical and empirical considerations recent economic developments have aroused substantial interest in the treatment in the consumer price index cpi of the cost of shelter for homeowners from december 1977 when the latest version of the cpi was introduced until december 1980 the all items cpi increased at an average annual rate of 11 6 while the homeownership component increased at an average annual rate of 16 2 relative to all of the other goods and services in the cpi the homeownership component has increased by 17 5 over the same time period if the relative price of homeownership had remained constant the growth rate of the cpi would have been reduced to 10 1 the question which has been raised is whether the rapid relative increase in the homeownership component which has had such an important impact on the cpi truly reflects changes in the cost of shelter this question is not only important but difficult encompassing many subsidiary questions and auxiliary issues the purposes of this paper are threefold 1 to outline briefly a conceptual framework for the cpi which leads to a straightforward specification of what the shelter component of the cpi should measure 2 to evaluate the theoretical properties of alternative procedures designed to approximate this measurement objective and 3 present empirical evidence on the operational difficulties involved in pursuing a new approach to shelter cost measurement two main conclusions are reached first on both theoretical and empirical grounds a rental equivalence approach to measuring shelter costs for owner occupants is preferred second an estimated rental equivalence measure has grown more slowly over at least the past six years than the official cpi homeownership component given the way in which the cpi is used to escalate both private and public expenditures these results demonstrate that the choice of measurement technique has important distributional implications

does a common set of accounting standards affect tax motivated income shifting for multinational firms abstract i test whether adoption of ifrs by individual affiliates of multinational entities mnes for unconsolidated financial reporting facilitates tax motivated income shifting mnes often justify transfer prices to tax authorities by benchmarking intercompany profit allocations against a range of book profit rates reported by economically comparable independent firms that use similar accounting standards additional qualifying benchmark firms resulting from ifrs adoption could allow managers to support more tax advantaged transfer prices using a database of european unconsolidated financial and ownership information over 2003 2012 i first document an increase in the arm s length range of book profits reported by potential ifrs benchmark firms following affiliate adoption of ifrs i then estimate a statistically and economically significant 11 3 percent tax motivated change in reported book pre tax profits following affiliate ifrs adoption relative to pre adoption and non adopter affiliate years

tax induced earnings management by firms with net operating losses this paper investigates tax induced intertemporal income shifting by firms with net operating loss nol carrybacks for several years following the tax rate reductions of the tax reform act of 1986 tra 86 these firms had incentives to shift recognition of revenues and expenses across years to increase their nol carrybacks by examining how nol firms shift income and cross sectional variation in the extent to which they do so this research extends prior examinations of intertemporal income shifting by profitable firms see scholes wilson and wolfson 1992 and guenther 1994 1

efficiency gains from organizational innovation comparing ordinal and cardinal tournament games in broiler contracts abstract we analyze the contract settlement data of a poultry company who contracts the production of broiler chickens with a group of independent growers the company originally used rank order ordinal tournaments to compensate their contract growers and later switched to cardinal tournaments based on the observed payment mechanism we construct an empirical model of a rank order tournament game and estimate structural parameters of the symmetric nash equilibrium and then simulate growers performance under the observed cardinal tournament contract we found that the model with risk averse agents fits the data better than the model with risk neutral agents and that switching from a rank order tournament to a cardinal tournament while keeping the growers ex ante expected utility constant improved efficiency the principal company gains from the switch whereas some of the agents growers gain and others lose depending on their realized productivity shocks

an empirical examination of the relation between debt contracts and management incentives abstract prior research on the factors influencing the use of debt covenants restricting dividends and additional borrowing is extended by considering management incentives when alternative incentive variables are considered separately we find covenants have a significant negative relation to ceo cash compensation an insignificant relation to the value of ceo equity held and significant positive relations to both the ratio of the value of ceo equity holdings to cash compensation and the fraction of equity held by the ceo in two stage simultaneous equations models only the latter is significant when jointly considered with each of the other incentive variables

integrator contracts with many agents and bankruptcy this article analyzes optimal livestock production contracts between an integrator company and many independent growers in three similar industries broiler turkey and swine the analysis provides an explanation for the simultaneous existence of distinct incentive schemes in these industries by examining the effects of bankruptcy the key factors are shown to be the output price volatility and the firm size with large companies dominating the broiler industry a small price volatility facilitates the use of two part piece rate tournaments by contrast given the prevalence of smaller companies in the swine industry a larger price volatility generates a bankruptcy risk which renders the use of tournaments infeasible given the combination of medium size companies in the turkey industry an intermediate price volatility produces a mixed result where tournaments and fixed performance standards exist simultaneously

book tax conformity earnings persistence and the association between earnings and future cash flows abstract calls for eliminating differences between accounting earnings and taxable income in the us have been debated extensively proponents of increased book tax conformity argue that tax compliance will increase and earnings quality will improve opponents argue that earnings quality will decline we examine whether the level of required book tax conformity affects earnings persistence and the association between earnings and future cash flows we develop a comprehensive book tax conformity measure and find that earnings have lower persistence and a lower association with future cash flows when conformity is higher our evidence suggests that increased book tax conformity may reduce earnings quality

contract production of peas abstract this article analyzes a contract between farmers and the processor danisco foods production of peas for consumption requires highly accurate coordination obtained through centralized decision making the contract is based on a tournament system providing risk sharing between the farmers general problems known from contract theory such as hold up moral hazard risk sharing and discrimination are analyzed the article illustrates trade offs between these problems in the design of contracts by negotiating the contract through the pea growers association the farmers gain some bargaining power thereby the farmers ensure that danisco foods uses only one contract for all farmers this article analyzes the consequences of the farmers strategy throughout the analysis several modifications of the contract are suggested in order to improve the incentives

a primer on cardinal versus ordinal tournaments i introduction the tournament literature has considered primarily two relative performance evaluation schemes that are consistent with what we observe in practice the rationale behind each of these incentive schemes is that relative performance evaluation is useful when agent performance is subject to common shocks in which case individual performance is not a sufficient statistic for individual effort that is the performance of other agents can enhance the inference of the effort exerted by an individual agent one important difference between these schemes is that under rank order or ordinal tournaments the prizes are prespecified and agents compete for rank by contrast under two part piece rate or cardinal tournaments the total prize is fixed and agents compete for a share of the pie 1 each agent receives a base payment and a bonus depending on the difference of his performance from the average performance of his peers 2 average performance provides an informative signal about the value of common shocks inflicted on agents ordinal tournaments are prevalent in contests where rank is more important than individual performance for instance sports contests where contestants compete for medals or fixed prizes or when individual performance data are not readily available for instance promotion contests where the individual contribution of contestants cannot easily be separated from that of their co workers or subordinates by contrast cardinal tournaments are popular in several occupations or industries where cardinal performance data are readily available e g salesmen contracts physician contracts with hmos and agricultural contracts 3 both ordinal and cardinal tournaments are relatively simple to design even though they are only proxies of theoretically optimal schemes 4 prior literature has contrasted the efficiency properties of either ordinal or cardinal tournaments against those of piece rates under piece rates each agent is evaluated according to his absolute performance thus agents receive a base payment and a bonus which is based typically linearly on their individual output 5 piece rates are sometimes expressed as fixed performance standards when an agent s performance is evaluated against a fixed standard instead of the average output obtained lazear and rosen 1981 green and stokey 1983 and nalebuff and stiglitz 1983 have shown that ordinal tournaments are superior to piece rates when agent activities are subject to common shocks that affect performance 6 more recently marinakis and tsoulouhas 2012 2013 investigated and verified this result for cardinal tournaments relative performance evaluation via tournaments constitutes a pareto superior move by removing common uncertainty from the responsibility of agents and by charging a premium for this insurance the principal increases his profit without hurting the agents moreover by providing this type of insurance tournaments enable the principal to implement higher power incentives than under piece rates what is still an open question in the literature above is a comparison of ordinal to cardinal tournaments the consensus among tournament theorists is that even though ordinal tournaments are informationally wasteful as in holmstrom 1982 by ignoring the agents cardinal performance data if available they are however more general because they are less restrictive on the functional form of the contract i e they are step functions with a linear or non linear trend part of the appeal is that the founders of tournament theory focused on ordinal tournaments nevertheless a significant part of the current tournament literature has analyzed cardinal tournaments instead 7 this paper fills in this gap in theory by developing a framework that can be used to analyze both cardinal and ordinal tournaments as well as piece rates and in doing so it provides a primer on tournaments and piece rates

the economic consequences of accounting choice implications of costly contracting and monitoring abstract in this paper we review research into the economic consequences of voluntary and mandatory choices of accounting techniques and standards we discuss how the predictions of extant economic consequence theories are driven by contracting and monitoring costs associated with management compensation contracts bond covenants regulation and or political visibility we review empirical tests of economic consequence theories categorize those tests and discuss their strengths and weaknesses the empirical tests reveal two systematic associations with accounting choice size a proxy for political visibility and leverage a proxy for contracting and monitoring costs of lending agreements interpretation of the results is difficult due to general limitations of the tests we conclude by suggesting some directions for future research based on our analysis of the potential payoffs associated with different types of empirical tests

the value relevance of taxes international evidence on the proxy for profitability role of tax surprise abstract despite evidence that tax surprise is incrementally value relevant the literature has done little to broaden the investigation beyond the united states or examine circumstances that affect informativeness after extending to the international setting i examine the impact of tax enforcement i report strong results of greater value relevance when tax enforcement is high and that the value relevance of tax surprise is mostly contained within its interaction with tax enforcement these findings highlight the importance of tax enforcement in determining the information content of tax surprise and suggest that extant and future discussions should be broadened to include it

evidence for the possible information loss of conforming book income and taxable income abstract recent corporate accounting reporting scandals and aggressive corporate tax shelters have led for calls for regulatory reform one such call is to conform or reduce the gap between the calculation of book and taxable income proponents of conformity focus on perceived benefits while ignoring possible costs we examine one possible cost the loss in information content to investors if one measure is removed from the information set we provide evidence for this possible loss by examining the relative and incremental information content over the past 20 years of book and estimated taxable income for a large sample of firms we find that book income exhibits significantly greater relative explanatory power while both exhibit significant incremental explanatory power conforming the two measures at a minimum results in the loss of incremental explanatory power and if book income is conformed to the tax rules a 50 percent loss in the explanatory power of earnings

corporate tax avoidance and firm value abstract do corporate tax avoidance activities advance shareholder interests this paper tests alternative theories of corporate tax avoidance using unexplained differences between income reported to capital markets and to tax authorities ols estimates indicate that the effect of tax avoidance on firm value is a function of firm governance as predicted by an agency perspective on corporate tax avoidance instrumental variables estimates based on exogenous changes in tax regulations yield larger overall effects and reinforce the basic result as do several robustness checks the results suggest that the simple view of corporate tax avoidance as a transfer of resources from the state to shareholders is incomplete given the agency problems characterizing shareholder manager relations

labor unions and tax aggressiveness abstract we examine the impact of unionization on firms tax aggressiveness we find a negative association between firms tax aggressiveness and union power and a decrease in tax aggressiveness after labor union election wins this relation is consistent with labor unions influencing managers in one or both of two ways 1 constraining managers ability to invest in tax aggressiveness through increased monitoring or 2 decreasing returns to tax aggressiveness that arise from unions rent seeking behavior we also find preliminary evidence that the market expects these reductions around union elections and discounts firms that likely add shareholder value via aggressive tax strategies

testing the theory of tournaments an empirical analysis of broiler production broiler chickens are raised by contract growers whose rewards depend explicitly upon relative performance we use data on the performance of broiler producers facing both tournament and linear performance evaluation compensation structures to test three predictions from the theory of tournaments that changes in the level of prizes that leave prize differentials unchanged will not affect performance that in mixed tournaments more able players will choose less risky strategies and that tournament organizers will attempt to handicap players of unequal ability or reduce mixing to avoid the disincentive effects of mixed tournaments our evidence is consistent with each prediction

earnings quality research advances challenges and future research abstract this discussion makes several observations regarding the earnings quality research reviewed in dechow ge and schrand 2010 dgs i discuss some of the factors that led to the large growth in the earnings quality literature over the past two decades and note a few of the important contributions from this literature i also present what i view as several major challenges the literature faces as well as some avenues for future research in addition i discuss the difficulties in evaluating such a diverse body of literature and comment on dgs s major conclusions

the information content of losses abstract this study hypothesizes that because shareholders have a liquidation option losses are not expected to perpetuate they are thus less informative than profits about the firm s future prospects the results are consistent with the hypothesis they also show that the documented increase in the earnings response coefficent as the cumulation period increases appears to be due exclusively to the effect of losses the liquidation option effect extends to profitable cases where earnings are low enough to make the option attractive alternating explanations for the low informativeness of losses such as mean reversal of earnings are not supported by the tests

a theory of wage dynamics a dynamic equilibrium model of long term implicit labour contracts under incomplete but symmetric information is developed workers are assumed to be risk averse and of unknown ability or productivity risk neutral firms learn as do workers about each worker s productivity by observing the worker s output over time it is shown that equilibrium contracts provide for wages which never decline with age and increase only when the worker s market value increases above his current wage in addition to characterizing the equilibrium wage contract we also derive some of its implications for the behaviour of aggregate wages across various groups of workers these implications explain some findings in the recent empirical literature on ageearnings profiles in particular our model can explain why earnings may be positively related to experience even after controlling for productivity as some empirical studies have indicated

financial reporting tax costs and book tax conformity abstract we investigate the role of book tax conformity in firms financial reporting activities using a unique set of publicly traded firms that were forced to switch for tax purposes from the cash method to the accrual method prior to the mandated change little trade off existed between tax planning and financial reporting goals for these firms after the change recognition criteria for tax and financial reporting purposes became more alike increasing the trade off between financial reporting and tax objectives our results suggest that required use of the accrual method for tax purposes causes firms to defer income for financial statement purposes

are tournaments optimal over piece rates under limited liability for the principal a highly acclaimed result is that tournaments are superior to piece rates when the agents are risk averse and their production activities are subject to a relatively large common shock the reason is that tournaments allow the principal to trade insurance for lower income to the agents our analysis shows that this celebrated result does not carry over to the case when a limited liability bankruptcy constraint limits the payments the principal can make provided that the liquidation value of the firm is sufficiently small this finding has important implications for the vast number of limited liability firms even though limited liability becomes an issue for different ranges of liquidation values under the two schemes tournaments are still superior when the liquidation value of the firm is intermediate or large even though the limited liability constraint is still binding for intermediate values surprisingly uncertainty in the price of output strengthens the need for tournaments by expanding the range of liquidation values over which tournaments are dominant because price uncertainty introduces additional bankruptcy risk these findings provide insight into policy implications in the contracting out of services by state and local governments in procurement in rent seeking contests and in tournaments used by hmos

structural estimation of rank order tournament games with private information in this article we propose and solve a game theoretic model of a rank order tournament with private information using the contract settlement data from a poultry company we estimate a fully structural model of a symmetric nash equilibrium of this game we show that growers equilibrium effort depends on four factors the spread in piece rates between the performance brackets the number of players in each tournament the number of performance brackets used and the density of growers private shocks we use estimates to simulate how changes in the tournament characteristics affecting equilibrium effort impact the growers and the integrator s welfare in most sporting events prizes are awarded not on basis of absolute performance but based on relative performance or tournaments be sides sporting events tournaments are also frequently used in labor contracts the name tournament typically suggests a rank order ordinal scheme such as is considered by lazear and rosen 1981 whereas a broader definition applies to any compensation scheme based on relative performance e g nalebuff and stiglitz 1983 tsoulouhas and vukina 1999 despite the sizeable theoretical litera ture on tournaments empirical work related to these models remains rather limited most of the theoretical literature on tournaments see mclaughlin 1988 for a survey has been con cerned primarily with the comparison of tour naments against various independent reward structures under various assumptions about risk preferences the number of participants and prizes specifications of production shocks and the asymmetry of information previous empirical work has largely focused on testing the predictions of the theoretical models this includes articles on executive compensation e g main o reilly and wade 1993 ericksson 1999 gibbons and murphy 1990 profes sional sports e g ehrenberg and bognanno

an analysis of the principal agent problem most analyses of the principal agent problem assume that the principal chooses an incentive scheme to maximize expected utility subject to the agent s utility being at a stationary point an important paper of mirrlees has shown that this approach is generally invalid we present an alternative procedure if the agent s preferences over income lotteries are independent of action we show that the optimal way of implementing an action by the agent can be found by solving a convex programming problem we use this to characterize the optimal incentive scheme and to analyze the determinants of the seriousness of an incentive problem

empirical research on accounting choice abstract we review research from the 1990s that examines the determinants and consequences of accounting choice structuring our analysis around the three types of market imperfections that influence managers choices agency costs information asymmetries and externalities affecting non contracting parties we conclude that research in the 1990s made limited progress in expanding our understanding of accounting choice because of limitations in research design and a focus on replication rather than extension of current knowledge we discuss opportunities for future research recommending the exploration of the economic implications of accounting choice by addressing the three different reasons why accounting matters

transaction costs and the design of cropshare contracts modern cropshare contracts are explained using a model in which agents are risk neutral and contract rules are chosen to maximize expected joint wealth it is shown that the farmer either bears the entire cost of inputs or shares the costs with the landowner in the same proportion as the output the incentives of altering the cropshare percentage are examined and are used to derive implications about the portion of the crop that will be owned by the farmer the model is tested and supported using data from a 1986 survey offarmers and landowners in nebraska and south dakota

regulating broiler contracts tournaments versus fixed performance standards grower discontent with tournaments as mechanisms for settling poultry contracts can largely be attributed to the group composition risk that tournaments impose on growers this article focuses on the welfare effects of a widely advocated regulatory proposal to prevent integrator companies from using tournaments and replace them with schemes that compare performance to a fixed standard the analysis shows that the mandatory replacement of tournaments with fixed performance standards absent any rules that regulate the magnitude of the piece rate can decrease grower income insurance without raising welfare however replacing tournaments with fixed performance standards can simultaneously increase income insurance and welfare provided that the magnitude of the piece rate is also regulated

homogenous and heterogenous contestants in piece rate tournaments theory and empirical analysis in this article we show that sorting different ability contestants in piece rate tournaments into more homogenous groups alters agents incentives to exert effort we propose a method for structurally estimating the piece rate tournament game with heterogenous players and apply it to the payroll data from a broiler production contract our counterfactual analysis shows that under reasonable assumptions both the principal and the growers can gain when the tournament groups are heterogenized this business strategy could be difficult to implement in real life settings however this article has supplementary material online

the taxable and book income motivations for a lifo layer liquidation this study examines the potential determinants of lifo liquidations using a multivariate tobit model 1 unlike the univariate analysis used in prior lifo liquidation studies e g davis kahn and rozen 1984 and tse 1990 our multivariate analysis takes into account both the correlations among these potential determinants and the magnitude of lifo liquidations simple correlation analysis indicates that the sales changes and earnings changes of lifo liquidation firms are highly correlated thus while univariate support for both the declining sales and declining earnings explanations of lifo liquidations could indicate that both explanations are correct it could also be the case that support for either explanation stems from the high correlation between sales changes and earnings changes our multivariate approach helps avoid such ambiguities in interpretation and supports two conclusions first

limited liability contracts between principal and agent abstract the optimal strategy of the principal is examined in an environment where there are ex post limitations on the maximum penalty that can be imposed on a riskneutral agent contrary to the case in which such limitations are not imposed it is in the principal s interest to deliberately forego the opportunity to induce socially efficient behavior and to instead design a contract that induces the agent to realize an efficient outcome only in the most productive state of nature and perhaps in certain very unproductive states the properties of the contract are examined in detail

managing interacting accounting measures to meet multiple objectives a study of lifo firms abstract using a sample of lifo users we examine the strengths and weaknesses of adopting a simultaneous equations approach to study managers adjustments of interacting accounting measures that meet multiple objectives we focus on the importance of considering differences in the costs and the effectiveness of adjusting accounting measures in addition we examine managers objectives in subsequent years and how adjustments reversals affect those objectives although generally consistent with earlier studies of lifo inventory adjustments our results indicate that modelling interacting accounting measures such as other current accruals and depreciation leads to differing conclusions about the role of taxes

do tournaments solve the two sided moral hazard problem abstract the paper analyzes the optimality of relative performance evaluation via two part piece rate tournaments in incentive contracting with multiple agents and two sided moral hazard if the agents are risk averse it is shown that a tournament is optimal only when the following conditions hold i there is common uncertainty inflicted on the activities of the agents that is not contingent on their actions but can be contingent on the principal s action ii the principal sufficiently saves in transaction costs by employing a tournament iii the number of agents is sufficiently large then the feedback effect of using a tournament to monitor the agents is that the principal s moral hazard problem is relaxed when the principal takes a single action it can also be relaxed when the principal can vary her actions with the agents but there are economies of scale in her activity absent common uncertainty the optimum scheme is shown to be a fixed performance standard rather than a tournament but if the agents are risk neutral a tournament can still be optimal provided that ii and iii hold

political economy of regulation of broiler contracts in this paper we present a brief history of regulation of broiler contracts whose main characteristic has been that virtually all regulatory attempts on either federal or state levels have failed we identify two possible sources of market failure that may justify regulation asymmetric bargaining power between integrators and contract growers and imperfect information we search for the explanation for this outcome by comparing the public interest theory of regulation with the interest group theory posner 1974 based on the existing literature on possible market failures in broiler contracts we found that empirical evidence in support of those is rather weak this may or may not explain the existing lax regulatory environment in which poultry processors operate from the public interest theory s point of view however we can build a more compelling case for the lack of regulation resorting to the interest group theory s main arguments as formulated by becker 1983

firms off balance sheet and hybrid debt financing evidence from their book tax reporting differences we match large u s corporations tax returns during 1989 2001 to their financial statements to construct a firm level proxy of firms use of off balance sheet and hybrid debt financing we find that firms with less favorable prior period standard poor s s p bond ratings or higher leverage ratios in comparison to their industry report greater amounts of interest expense on their tax returns than to investors and creditors on their financial statements these between firm results are consistent with credit constrained firms using more structured financing arrangements our within firm tests also suggest that firms use more structured financing arrangements when they enter into contractual loan agreements that provide incentives to manage debt ratings specifically we find that after controlling for s p bond rating and industry adjusted leverage our sample firms report greater amounts of interest expenses for tax than for financial statement purposes when they enter into performance pricing contracts that use senior debt rating covenants to set interest rates furthermore we find that the greatest book tax reporting changes occur when firms become closer to violating these debt rating covenants these latter findings are consistent with firms contractual debt covenants influencing their use of off balance sheet and hybrid debt financing

the effect of book income adjustment in the 1986 alternative minimum tax on corporate financial reporting abstract this study examines the effect of the book income adjustment provision in the 1986 alternative minimum tax amt on financial accounting practices a model is developed to identify firms that are more susceptible to the book income adjustment the changes in financial accounting practices for firms affected by the amt are then examined our results indicate that firms that are likely to be affected by the book income adjustment shift timing and permanent differences across years to reduce the impact of the amt

the value relevance of german accounting measures an empirical analysis in this study we compare the value relevance of accounting measures for u s and german firms matched on industry and firm size and evaluate the incremental informativeness of earnings adjusted on the basis of a formula proposed by analysts german companies have been at the center of a controversy between the new york stock exchange nyse and the securities and exchange commission sec the controversy arises from the sec s insistence that to list on a u s stock exchange non u s companies must reconcile earnings and shareholders equity to u s generally accepted accounting practice u s gaap fuerbringer 1992 and jarrell 1992 41 the nyse s concern has been that

empirical tax research in accounting this paper traces the development of archival microeconomic based empirical income tax research in accounting over the last 15 years the paper details three major areas of research i the coordination of tax and non tax factors ii the effects of taxes on asset prices and iii the taxation of multijurisdictional international and interstate commerce methodological concerns of particular interest to this field also are discussed the paper concludes with a discussion of possible directions for future research r 2001 elsevier science b v all rights reserved jel classification m41 h25 k34 g32 f23

the association between financial accounting measures and real economic activity a multinational study abstract we investigate how cross country differences in financial accounting standards affect the relation between financial accounting earnings and real economic value relevant events that underlie those earnings based on previous research and economic theory we hypothesize that because of differences in legal systems and the demand for accounting information differences in legal protection for external shareholders and differences in the degree of tax conformity in our sample countries accounting earnings in the uk and the us will be more closely related to underlying economic activity than will accounting earnings in france and germany empirical results are generally consistent with our hypothesis

will a departure from tax based accounting encourage tax noncompliance archival evidence from a transition economy we investigate whether a departure from a tax based accounting system toward the adoption of international financial reporting standards encourages tax noncompliance we also examine whether such a departure which weakens book tax conformity affects the informativeness of book tax differences for tax noncompliance our evidence suggests that as book tax conformity decreases tax noncompliance increases although book tax differences remain informative of tax noncompliance the informativeness attenuates as book tax conformity weakens additionally firms with high incentives to inflate book income are more tax compliant than their counterparts after the departure from a tax based accounting system

tax planning regulatory capital planning and financial reporting strategy for commercial banks we test whether banks investment and financing policies can be explained by tax status we document changes in bank holdings of municipal bonds in response to changes in tax rules relating to deductibility of interest expense we also document an association between banks marginal tax rates and their investment and financing decisions which is consistent with the existence of tax clienteles however banks do not sort themselves perfectly into investment and financing clienteles because of adjustment costs we posit specific types of transaction cost impediments to tax planning and document that banks apparently trade off these costs against tax planning benefits article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

grouping tests for misspecification an application to housing demand we consider several grouping tests for regression misspecification with reference to housing demand function estimation we compare three existing test procedures demonstrate modifications necessary in most applications and propose a fourth test to distinguish between two categories of potential specification error the test procedures are evaluated in artificial simulations of alternative errors finally we apply the tests to fha home purchase data we reject the hypothesis that household and grouped regressions differ only by sampling error or random mismeasurement of household income or price our results have implications for choices among test procedures and interpretations of previous housing demand analysis

aggregation and linearity in the provision of intertemporal incentives we consider the problem of providing incentives over time for an agent with constant absolute risk aversion the optimal compensation scheme is found to be a linear function of a vector of n accounts which count the number of times that each of the n kinds of observable events occurs the number n is independent of the number of time periods so the accounts may entail substantial aggregation in a continuous time version of the problem the agent controls the drift rate of a vector of accounts that is subject to frequent small random fluctuations the solution is as if the problem were the static one in which the agent controls only the mean of a multivariate normal distribution and the principal is constrained to use a linear compensation rule if the principal can observe only coarser linear aggregates such as revenues costs or profits the optimal compensation scheme is then a linear function of those aggregates the combination of exponential utility normal distributions and linear compensation schemes makes computations and comparative statics easy to do as we illustrate we interpret our linearity results as deriving in part from the richness of the agent s strategy space which makes it possible for the agent to undermine and exploit complicated nonlinear functions of the accounting aggregates

vertical integration in the pork industry this article provides an economic explanation regarding why the share of u s pork raised on companyowned farms with hired management integration is increasing relative to production through independently owned and operated contract growers contracting the article develops a property rights model that shows how in certain circumstances production contracts do not transfer sufficient control over the use of production assets to intermediaries on the other hand integration removes certain grower incentives with the result that production on company farms tends to be relatively costly practical examples of factors that influence the likelihood of full integration are emphasized an increasing amount of u s hog production is controlled by a small number of very large pork producers examination of the pork powerhouse list published by successful farming magazine each october highlights the degree of integration taking place freese 2004 while the top thirty pork powerhouses in 1994 owned 15 of all u s sows the top thirty in 2004 had 45 of the total with the top three alone comprising 21 many of these same firms are also involved in processing for example the top three pork powerhouses are also the first thirteenth and seventh largest pork packers in the nation adhikari 2002 many family farmers view large pork producers as a threat and federal and state law makers are now considering a variety of policies to limit the business practices of topranking firms a bill before the 108th congress would make it unlawful for a packer to own feed or control livestock intended for slaughter another proposal would require packers to procure at least 25 of hogs from spot markets carstensen 2004 several states already have anti corporate farming laws that prohibit ownership and husbandry of hogs by large firms yet these laws are controversial and are being contested in the courts very large pork producers are commonly called contractors or integrators since they contract production of their hogs out to

have financial statements lost their relevance the authors explore the concern that financial statements no longer have the same relevance to investors that they had in the past they test for value relevance by measuring the total return that could have been earned from prior knowledge of financial statement information and by examining the explanatory power of accounting information on market values and annual market adjusted returns both analyses are applied to a broad sample of exchange listed and nasdaq firms for the 1952 94 period the authors find mixed evidence on value relevance of financial statement reporting during the test period

the agent agents problem payment by relative output this paper begins an investigation into the incentive problems at a firm when the effort of the employer and the employees combines to determine final output the major conclusion is that optimal reward functions in this circumstance will in general value the performance of a worker relative to that of his peers the paper thus joins a growing literature associated with the work of lazear and rosen on rank order tournaments

motives for forming research development financing organizations abstract we study the decision to fund r d through a separate financing organization an rdfo that takes the form of either a limited partnership or a corporation the rdfo offers tax and financial reporting benefits as a form of external funding it also creates moral hazard and adverse selection problems information costs using convertible debt as a comparative form of external funding we find that debt related but not equity related financial reporting benefits affect the decision to form rdfos the evidence is mixed on whether taxes influence the formation decision and the information costs of rdfos restrict their use

the league composition effect in tournaments with heterogeneous players an empirical analysis of broiler contracts we compare welfare effects of tournaments and piece rates in contracts with heterogeneous ability agents and demonstrate that tournaments that mix players of unequal abilities create a league composition effect when leagues are fixed and the time horizon sufficiently long piece rates improve welfare over tournaments using contract production data for broiler chickens we estimate the variances of growers abilities common production shock and grower s idiosyncratic shock growers abilities are heterogeneous and common production shocks are significant leagues in broiler tournaments disintegrate rapidly over time suggesting that tournament contracts offer more welfare than piece rates

agricultural markets as relative performance evaluation relative performance schemes such as tournaments are commonly used in markets for a variety of livestock and processing commodities while explicit versions of these schemes are rarely used in markets for fresh fruits and vegetables and specialty grains we show how contracts for these latter commodities do in fact provide relative performance incentives albeit indirectly via a payment mechanism that depends on market prices in such contracts compensation is often an increasing function of revenue this implements a relative performance scheme by making each grower s payment an increasing function of his own output but a decreasing function of other s output in an important 1982 article holmstr om models the problem facing a group of agents each of whom produces an observable quantity of some good by taking an unobservable action a rather robust conclusion from this line of inquiry is that when the production of one agent is not independent of the production of another then the compensation awarded to the first agent should depend not only on his own production but also on the output of others in particular if agents production is positively correlated because of some common shock for example then an agent s compensation should be larger when other agents output is smaller a phenomenon which holmstr om terms relative performance evaluation relative performance evaluation ought to be particularly important for agricultural producers and the various intermediaries who purchase their output these producers face considerable common risk from aggregate production shocks and so one would expect that relative performance evaluation could improve efficiency in fact certain types of agricultural intermediaries do use explicit relative performance schemes as predicted by