We investigate the relation between corporate social responsibility (CSR) and earnings management within the novel setting of certified B Corporations. We survey professionals from B Corporations and non-B Corporations to assess their likelihood of engaging in different types of earnings management: accrual earnings management, real earnings management with heightened CSR concerns, and real earnings management without heightened CSR concerns. We find that B Corporation managers are less likely to engage in the types of earnings management viewed as more unethical (accrual earnings management and real earnings management with heightened CSR concerns), and these relations are mediated by the decreased importance B Corporation managers place on meeting earnings expectations. Our findings inform the earnings management literature by providing new insights into the impact of CSR on managers’ earnings management decisions as well as the importance of considering the potential CSR consequences of specific earnings management activities. Data Availability: The data that support the findings of this study are available from the first author upon request. JEL Classifications: G3; M4.
This paper attempts to fill a gap in the accounting literature by exploring the impact of a teaching module involving microaggressions (microassaults, microinsults, and microinvalidations) and microexclusions. Our research shows that accounting students have experienced a wide range of microaggressions and microexclusions inside and outside of the classroom. This paper supports the need for increased training for both faculty and students within accounting curricula on Diversity, Equity, Inclusion, and Belonging (DEIB) topics. Accounting educators can seek self-development improvement, which may lead to a more welcoming classroom experience for all. Although actively integrating DEIB may not be possible for some professors or institutions because of state law, we encourage faculty to continue to pursue an understanding of teaching techniques and cases that promote DEIB awareness to support the academy and improve student knowledge acquisition by eliminating microaggressions and microexclusions perpetuated by faculty. Data Availability: Data are available upon request.
This paper explores how two public accounting associations, the American Institute of Certified Public Accountants (AICPA) and the Canadian Institute of Chartered Accountants (CICA), conveyed norms of conduct to members and students through editorials published in the Journal of Accountancy and CA Magazine from 1916 to 1973, with a focus on the use of profession-related terms. Drawing on Bakhtin’s concept of stylistic aura and employing advanced textual analysis techniques, the study reveals that profession stem words played a key role in communicating these norms by synthesizing varied normative concerns into a cohesive professional discourse applicable across settings. The semantic meanings of these sentences shifted over time and between journals. Additionally, the study finds that utterances with profession stem words were more pervasive and better at highlighting competing concerns than ethics stem words. This study contributes to our understanding of accounting association communication processes, specifically communication via professional narratives.
Corporate lobbying is a legitimate mechanism for businesses to participate in the regulatory decision-making processes. However, a long-standing concern exists about whether lobbying compromises the quality of regulatory standards by prioritizing special interests over the public good. Research has highlighted instances where corporate lobbyists have significantly influenced both U.S. and international regulations. Researchers also analyzed lobbying firms’ characteristics and how corporate lobbying impacts the outcomes of firms’ activities. This study synthesizes the contemporary lobbying research published in mainstream accounting journals and offers a conceptual framework to examine its role in accounting standard setting and other regulatory processes. The study also explores the factors determining corporate lobbying behavior and the consequences of lobbying on various corporate outcomes. Through analyzing theoretical, survey, and archival studies in accounting literature, the study also offers directions for future research. JEL Classifications: M10; M41; M48.
The name-letter effect is the tendency for individuals to evaluate the alphabetical initials in their name particularly favorably due to egocentric bias. We investigate whether the name-letter effect influences judicial decision-making in a tax setting. We construct datasets from decades of tax court data for two types of taxpayers (individuals and corporations) in two jurisdictions (Canada and the United States). Our total sample size is 11,370 cases. Using all possible combinations of first letter matches between taxpayers’ and judges’ names, we do not find that the likelihood of a taxpayer achieving a favorable outcome is significantly higher than if there is no name-letter match. We also match first and last names of taxpayers with judges and do not find any significant differences in outcome likelihood. Our results suggest that a psycho-linguistic phenomenon with considerable empirical support in extralegal contexts is unlikely to unconsciously bias judges. Data Availability: Data are available through the Open Science Framework at https://osf.io/3v47u/?view_only=9edcb8afa6d74783bea626126ce98bb2
This study explores the correlation between greenhouse gas (GHG) emissions from U.S. companies and their audit fees, driven by the escalating frequency and intensity of extreme weather events. Building on prior research that connects climate risk, regulation, and audit fees, our investigation uses a sample of companies with Scope 1 GHG emissions sourced from the U.S. Environmental Protection Agency’s (EPA’s) Greenhouse Gas Reporting Program (GHGRP). Our results show a positive association between GHG emissions and audit fees. Additionally, we find that regulatory uncertainty surrounding U.S. climate policy intensifies this relationship. Our findings are robust to alternate model and variable specifications. This research benefits managers and policymakers by highlighting some of the financial consequences of corporate GHG emissions, especially when combined with inconsistent climate policies. It is also beneficial to accountants in practice or researchers interested in refining their audit fee models. Data Availability: Data are available from the sources cited in the text. JEL Classifications: M42; M48; Q48; Q54.
Political Action Committees (PACs) affiliated with large accounting firms allow these firms to develop political connections by facilitating contributions to specific candidates, campaigns, and parties. Individuals in the profession may also make such contributions, outside of the PACs, although their motivations for giving are relatively unknown. This study examines political contributions by accounting-related PACs and contributions from individuals within the accounting profession. We find that accounting PACs are largely funded by influential firm members (i.e., partners) and support powerful legislators with probusiness ideologies. We fail to find that contributions from individuals in the profession favor probusiness legislators. Further, contributions directly from firm employees largely come from nonpartners and marginally favor legislators with procivil rights ideologies. Overall, our findings indicate that accounting firms’ strategic political contributions may align with their private business interests but may not serve the public interest and may differ from the larger professional accounting community. Data Availability: The data used in this manuscript are publicly available.
This study examines the factors influencing firms’ disclosure behavior in response to the mandated CEO pay ratio disclosure, effective from January 1, 2017. Specifically, we investigate the association between a firm’s performance in employee relations and its approach to disclosing pay ratios. The results suggest that firms with superior employee relations exercise less discretion when calculating and reporting pay ratios. Additionally, these firms are less likely to provide lengthy discussions or utilize spin language to justify their compensation practices. For firms providing supplementary pay ratios, we find that those with stronger employee relations make fewer downward adjustments. Overall, our results suggest that firms valuing employee relations are less likely to engage in opportunistic reporting when disclosing pay ratio information. This study has implications for the importance and informativeness of disclosures related to environmental, social, and corporate governance (ESG), as well as the increasing demand for transparency in human capital practices. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: M14; M41.
In this study, we use a textual analytics approach to assess whether the communicative quality of risk factor disclosures in 10-K filings improved following new voluntary regulatory guidance during a globally disruptive event. Specifically, we focus on the COVID-19 context. Surprisingly, our analyses reveal that the communicative quality of COVID-19 risk disclosures did not improve; rather, it declined after the SEC’s guidance and continued to decrease throughout the study period. Further analysis reveals that this decline coincides with an increasing trend in companies’ compliance with the textual delineations of SEC’s COVID-19 risk disclosure guidance, suggesting a possible tradeoff effect between compliance with textual content and communicative quality. Our study contributes to the risk disclosure literature and provides researchers and stakeholders with insights to better understand these issues and potentially enhance corporate disclosures and transparency. Data Availability: Please contact the authors.
Attempting to identify additional conditions that may contribute to the gap between the supply and demand for CPAs, we investigate the relationship between the diversity and representativeness of an understudied institution, state Boards of Accountancy (BOAs), and new CPA candidates. We argue that gatekeeper BOAs contribute to the profession’s tone-at-the-top through their words and actions, like promoting or engaging in outreach activities and establishing prerequisites to take the CPA exam. Based on an examination of the entire population of the 50 states’ BOAs, we observe that, for the most part, states with more diverse BOAs and the highest levels of representativeness, have more new CPA candidates. This suggests the possibility that improving the diversity and representativeness of BOAs could contribute to reducing the gap between the supply and demand for CPAs.
This is the first comprehensive, quantitative study of how the Tax Cuts and Jobs Act (TCJA) impacts individual taxpayers. Although this study has a specific focus on equity, it also broadly considers how the TCJA benefits and harms the tax system. Relative to equity, this study finds that the TCJA granted a roughly even tax cut across all income groups—on a percentage basis. However, as high-income taxpayers pay the majority of income taxes, this group received the largest tax cut in absolute dollars. Next, the results indicate that certain convenience-focused TCJA provisions (e.g., reduced itemized deductions) did not reduce related desirable economic activities (e.g., charitable giving), implying that these provisions were successful. Finally, the U.S. tax system raised similar tax revenues pre- and post-TCJA, implying that economic growth largely covered the costs of the Act. The study concludes by discussing how its findings inform policy and future studies. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: K34; H23; H24; H60.
ABSTRACT Corporate tax responsibility, or the obligation of companies to pay their “fair share” of taxes, is increasingly perceived as a component of firms’ social responsibility. Considering tax payments through the redistributive function, we examine how the association between corporate tax responsibility and firm value varies based on the presence of a salient social issue—local income inequality. Firms headquartered in areas of average income inequality have a negative relation between effective tax rate (ETR) and firm value, consistent with traditional economic theory and prior research. However, as local income inequality rises above average, the relation between ETR and firm value becomes more favorable (i.e., less negative). We interpret these findings as evidence that the relation depends on the salience of tax payments as a social issue. Further, the results are substantiated by firms whose socially responsible tax payments are consistent with their reputation as good corporate citizens. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: D22; H23; H25; H32.
ABSTRACT Our study investigates whether the quality of information available within firms promotes corporate social responsibility (CSR) performance. Using different measures of internal information quality, we find that internal information quality is positively associated with CSR strengths, which are discretionary in nature, and negatively associated with CSR concerns, which are compliance oriented. We find that the positive association between internal information quality and CSR strengths is stronger in settings with internal information asymmetries due to greater cash flow volatility, a larger number of employees, or a broader geographic footprint. We also find that the negative association between internal information quality and CSR concerns is stronger in compliance settings where there are internal information asymmetries linked to year-over-year increases in concerns. Our results suggest that organizational practices that improve a firm’s internal information environment will likely enhance CSR performance by promoting CSR strengths and diminishing CSR concerns. Data Sources: Data are available from the public sources cited in the text. JEL Classifications: M14; Q56; M41; D8.
ABSTRACT This study investigates the efficacy of two strategies, active self-concept priming and message framing, designed to encourage standard-compliant behavior. We prime 82 bicultural U.S. taxpayers from a collectivist culture through informational videos to activate either an individualist or collectivist self-concept. The message is framed to match (versus not match) the primed self-concept. Results reveal an ordinal interaction where participants primed with a collectivist self-concept have higher tax compliance than those primed with an individualist self-concept, and the highest compliance occurs when the message has a relational focus (i.e., collectivist prime match) compared to a self-focus (i.e., individualist prime match). Supplemental analysis suggests that raising the salience of the collectivist-self over the individualist-self indirectly affects taxpayers’ intentions to comply through the mediator of taxpayers’ attitudes. The findings highlight the potential of behavioral priming as a low-cost strategy for boosting tax revenues that fund services that benefit the public interest at large. Data Availability: Data are available from the authors upon request.
Boulianne, Lecompte, and Fortin (2023) investigate how audit firms, auditing regulators, and the accounting profession publicly acknowledge ethics in technology before and during the early stages of the pandemic. In this discussion, I situate the paper in a broader context and then evaluate elements of the investigation to better understand its contribution. Areas of future research are suggested to further our understanding of the intersection of accounting, ethics, technology, and the pandemic.
ABSTRACT We examine the effect of campaign financial disclosures on support for Washington State Initiative 1634, a ballot initiative aimed at limiting tax increases on soda. In an experimental setting, we assess the effect of financial disclosures when paired with the actual textual arguments provided to Washington State voters and the effect of financial disclosures when paired with more complementary textual arguments. We find evidence that financial disclosures influence changes in voter support for the tax initiative. Specifically, our findings indicate that disclosing the top financial contributors “for” and “against” the initiative provides decision-relevant information to voters. Thus, policymakers should consider (1) making donor disclosures freely available in voter information guides, (2) eliminating special-interest group techniques that hide the sources of contributions, and (3) erring on the side of caution when constituents seek to remove ballot-related financial reporting requirements.
ABSTRACT We employ China’s mandatory corporate social responsibility (CSR) reporting requirement as a natural experiment to evaluate firm-level responses to a Chinese rule that required public firms to issue CSR reports beginning in 2009. Our difference-in-differences analyses of firm-level data indicate that firms required to issue CSR reports decreased overall pollution levels after the mandate. Conventional wisdom (the “Traditional View”) argues that pollution reductions cannot be achieved without profit sacrifice. Conversely, under the Porter Hypothesis, non-prescriptive regulations can stimulate innovations that improve process efficiency and lead to both pollution reductions and improved long-term shareholder returns. Our results reveal evidence of reduced asset returns among firms required to issue CSR reports after 2008, consistent with both hypotheses. However, consistent with the Porter Hypothesis and not the Traditional View, positive three-day stock returns surrounding the release of CSR report information suggest that shareholders favorably view the overall long-term effects of required CSR reports.
ABSTRACT Changes in public sector management systems have resulted in public sector organizations adopting business models similar to private corporations. Using two experiments that vary in the service quality provided to public sector constituents, this study examines how different incentive schemes impact public sector employees’ decision-making. We find that performance-based incentive schemes in the public sector increase employees’ self-interest and lead them to focus more on maximizing their personal wealth (which is aligned with organizational economic efficiency) at the expense of service quality to public sector constituents (i.e., public interest). However, we also find that employees’ decisions are more focused on service quality and less on wealth maximization when their decisions may negatively impact public sector constituents. Overall, we find that employees who receive fixed compensation are more likely to consider how their decisions impact public service quality and are less likely to focus on personal wealth maximization. JEL Classifications: H11; L33; M21; M41.
ABSTRACTBoulianne, Lecompte, and Fortin (2023) investigate how audit firms, auditing regulators, and the accounting profession publicly acknowledge ethics in technology before and during the early stages of the pandemic. In this discussion, I situate the paper in a broader context and then evaluate elements of the investigation to better understand its contribution. Areas of future research are suggested to further our understanding of the intersection of accounting, ethics, technology, and the pandemic.
ABSTRACT In this discussion of “The Inherent Conflict Between Progressive Tax Rates and Income Inequality: Lessons from COVID-19 Restrictions” (Goldman, Lusch, and Sadka 2022), I first provide context in which to better understand the article’s findings and contribution. I then discuss endogeneity and the generalizability of the article’s findings. I conclude with suggestions for future research. Data Availability: Data are available from the public sources cited in the text.
