This study examines the role of media sentiment in shaping corporate tax behaviour. Unlike prior research that focuses on the linear association between governance mechanisms and the level of tax avoidance, we argue that firms target an optimal level of tax avoidance and that media sentiment induces firms to adjust when they deviate from this target. Consistent with this view, we find that negative media sentiment is associated with incremental increases (decreases) in three-year cash effective tax rates (CETRs) when firms' CETRs fall below (above) their target levels. This effect is stronger among firms that are more sensitive to reputation concerns, such as those with limited self-disclosed positive news, shorter-tenured or relatively young CEOs, and prior negative media coverage related to tax avoidance. In contrast, the effect is not significant for firms facing higher noncompliance costs, including those with greater tax audit risk, increased scrutiny from tax authorities, or prior tax-related restatements. Overall, our findings highlight the role of the media as an external governance mechanism and support a target-adjustment view of corporate tax avoidance, with reputation concerns likely playing an important role.
We examine whether CEO gender, CEO overconfidence, and their interaction affect a firm's likelihood of reporting a data security breach (DSB). Theory suggests that relative to male CEOs, female CEOs are more likely to allocate resources to managing IT-related risks, while overconfident CEOs are inclined toward risk-taking. Consistent with these arguments, we predict and find that firms led by female CEOs are significantly less likely to report a DSB, whereas those led by overconfident CEOs are significantly more likely to do so. Further, firms led by female CEOs that are also overconfident are incrementally less likely to report a DSB than firms led by overconfident male CEOs. Our findings offer new insights into how CEO characteristics impact the exposure of firms to cybersecurity risks.
Integrated Reporting (IR) is a globally adopted framework, yet little is known about the actual reporting practices it entails. To address the ongoing tension over whether IR genuinely adopts a broader, more inclusive stakeholder orientation or remains primarily, or even exclusively, shareholder-focused, we examine how stakeholders in general, and shareholders in particular, are discursively constructed in best practice integrated reports. We use transitivity analysis, operationalised through Corpus Linguistics (CL) tools, to examine how grammatical and lexical choices construct meaning by revealing who is represented as 'acting', or 'being acted upon', in the text. We find that stakeholders are portrayed as passive, in need of guidance, yet also appreciative of corporate actions, while shareholders are presented as rights-bearing, and influential. We argue that this convenient construction allows companies to appear responsive to stakeholders while maintaining a primary focus on shareholders, thereby further reinforcing the financialisation of sustainability.
For their strategic and operational decision making, managers often need to rely on information reported by their subordinates. However, these subordinates sometimes have incentives to misreport information. We examine whether the process through which employees acquire the information they need to report affects the likelihood that they selfishly misreport this information to their manager. We argue that employees are more likely to misreport information that they chose to collect compared to information that they were endowed with, and that this difference will be larger if acquiring the information requires costly effort. The reason is that as the information acquisition process becomes more convoluted, employees will find it easier to come up with benevolent explanations for their misstated reports, which reduces the psychological costs of misreporting. Using a lab experiment, we find no effect of information acquisition discretion on misreporting, but we do find that information acquisition effort increases misreporting.
We examine whether Chief Financial Officers' (CFOs) facial attractiveness influences audit pricing in a setting where independence, objectivity, and professional skepticism are expected to dominate decision-making. Using a machine-learning-based measure of facial attractiveness validated against human ratings, we analyze CFOs of U.S. publicly listed firms from 2006 to 2016 and find that auditors charge significantly lower audit fees to firms with more facially attractive CFOs. Cross-sectional analyses suggest that facial attractiveness facilitates closer engagement and richer exchange of soft information, especially during periods of high uncertainty, and that attractiveness exerts greater influence when relationship-specific information is limited, which leads auditors to lower their assessed audit risk and charge lower audit fees. Additional tests show that CFO attractiveness is unrelated to financial reporting quality, the likelihood of going concern opinions, or financial restatements, suggesting that facial attractiveness is not a proxy for firm fundamentals or CFO competence. Overall, our study introduces a novel channel - appearance-driven dynamics in auditor-client interactions - which extends prior research on behavioural influences in audit pricing.
