As interim CEO appointments are common in CEO successions, we examine these temporary executives' economic impact on their firms. Specifically, we explore how interim CEOs affect corporate tax avoidance. We match each "interim CEO firm" (test firms) with a "direct-succession CEO firm" (control firms) and find that test firms report significantly and economically lower tax avoidance. We also find that test firms' pre-tax earnings are similar to those of control firms, but their after-tax earnings are significantly lower. Further, we find that this lower tax avoidance holds only when interim appointees have low equity compensation, are not named as permanent/successor CEOs, and have no CFO background. Our paper opens the door for future investigation of the economic impact of interim CEOs, which has been under-investigated by prior studies.

ABSTRACT The accounting profession and academic institutions have expressed solidarity with diversity, equity, and inclusion (DEI) principles and recognize the importance of DEI programs in pedagogy to enhance students’ and new accounting professionals’ awareness of DEI issues specifically related to race. However, despite the collective acknowledgement by the accounting profession and academic institutions regarding the importance of DEI, no research, to our knowledge, in business or accounting higher education literature has empirically evaluated the effectiveness of specific DEI programming for enhancing students’ awareness of and attitudes toward racial issues. We fill the gap by investigating the effectiveness of a diversity symposium and a reflective writing exercise on undergraduate accounting students’ awareness and attitudes regarding racial issues. Our results suggest that both pedagogical interventions incrementally improve students’ knowledge and understanding of these issues. Our results have important implications for accounting higher education by providing implementable methods to enhance student awareness and attitudes.

SYNOPSIS We examine whether suspect firms (that precisely meet or narrowly beat earnings benchmarks) decrease investments in tax planning to manage earnings; we refer to this strategy as the direct method of modifying discretionary tax fees to increase net income. We analyze investments in tax planning by suspect firms and find that most suspect firms increase earnings by curtailing these investments. Thus, suspect firms appear to prefer this direct method to the indirect method that prior studies have examined, in which firms increase investments in tax planning to reduce tax expense and, in turn, increase net income. We next examine the association between investments in tax planning by suspect firms and tax avoidance. Our findings suggest that suspect firms that increase investments in tax planning experience reductions in ETRs during the same period. In contrast, suspect firms that decrease investments in tax planning do not experience symmetric increases in ETRs.

Prior research demonstrates that manufacturing firms increase production (relative to sales) to transfer fixed costs from cost of goods sold (COGS) to inventory accounts, thereby increasing income to reach or surpass earnings thresholds. We examine how the market reacts to this earnings management strategy. We find that investors respond positively to inventory growth based on an expectation of increased future sales; however, this signal is weaker for inventory manipulators. Further, the market premium from meeting or beating analyst earnings forecasts by manipulating inventory is smaller than the premium for achieving this threshold absent inventory manipulation or through accrual manipulation. Finally, we examine firms considered to be "serial" inventory manipulators, finding that the market consistently discounts earnings beats for these firms, suggesting that inventory manipulation erodes investor confidence in firms' earnings. Collectively, our results provide new insights into a challenge facing operations managers and finance managers in manufacturing firms.

ABSTRACTIn this study, we examine the effect of health information technology (HIT) investments on hospital bad debt via improved patient experience. Using data from California Hospital Reports and Definitive Healthcare, we first expect and find that HIT investments decrease hospital bad debt. Next, following Baron and Kenny's (1986) approach and the bootstrap approach of Zhao, Lynch, and Chen (2010), we study whether patient experience mediates the relationship between HIT investments and hospital bad debt. We find that HIT improves patient experience which, in turn, reduces bad debt at hospitals. Taken together, our findings provide evidence that patient experience is important as a means to affect the relationship between HIT investments and hospital bad debt.

ABSTRACT Using absorption costing, manufacturing firms can alter production (relative to sales) to shift fixed costs between cost of goods sold and inventory accounts, thereby managing earnings either upward or downward. The accounting‐oriented benefits of such a strategy are met with operations‐oriented costs (e.g., carrying costs, inventory obsolescence, and/or stock outages), creating business frictions between accounting and operations. We use a large sample of manufacturing firms to study how production cost structure and inventory valuation method affect this strategy. Thus, the goal of this investigation is less about whether firms manage earnings in general and more about examining the impact of firm characteristics on the likelihood of altering inventory to manage earnings. Our results indicate that firms with high fixed‐cost ratios (FCRs) are more likely to alter inventory but make smaller abnormal inventory changes than companies with low FCRs. Because Last‐In‐First‐Out (LIFO) firms in the manufacturing sector also may manage earnings by liquidating LIFO layers and releasing the LIFO reserve into earnings, these firms are less likely than other companies to manage earnings by shifting fixed costs between COGS and inventory. Finally, we examine our findings in a multi‐period context, determining that when firms have greater abnormal inventory changes in period t , they are less inclined to alter inventory in period t + 1. These results suggest that manufacturing firms alter inventory levels to reach accounting earnings targets, but they tend to do so when the strategy is relatively less costly.

This study examines whether companies' decisions to dismiss or substantially reduce reliance on their audit firms as tax-service providers in the wake of the Sarbanes-Oxley Act affect tax avoidance. We hypothesize that decoupling audit and tax-service provision and subsequently obtaining tax services from a new provider can result in decreased tax avoidance because the new provider lacks familiarity with a client's existing tax planning or does not have the expertise to generate new tax-avoidance opportunities. Consistent with our hypothesis, our results reveal that sample companies' book (cash) effective tax rates increased by economically significant 1.36 (1.63) percentage points in the year after terminating or substantially decreasing purchases of tax services from their audit firms, and discretionary permanent book-tax differences declined significantly. We find that decreases in tax avoidance were larger for companies whose outgoing tax-service providers were tax-specific industry experts.

This study examines short selling as one external determinant of corporate tax avoidance. Prior research suggests that short sellers have information advantages over retail investors, and high short-interest levels are a bearish signal of targeted stock prices. As a result, when short-interest levels are high, managers have been shown to take actions to minimize the negative effect of high short interest on firms' stock prices. Tax-avoidance activities may convey a signal of bad news (i.e., high stock price crash risk). We predict that, when short-interest levels are high, managers possess incentives to reduce firm tax avoidance in order to reduce the associated stock price crash risk. Consistent with this prediction, we find that short interest is negatively associated with subsequent tax-avoidance levels. This effect is incremental to other factors identified by prior research. We conclude that short selling significantly constrains corporate tax avoidance.

We examine two important channels through which corporate social responsibility (CSR) affects firm value: investment efficiency and innovation. We find that firms with higher CSR performance invest more efficiently: these firms are less prone to invest in negative net present value (NPV) projects (overinvestment) and less prone to forego positive NPV projects (underinvestment). We also find that firms with higher CSR performance generate more patents and patent citations. Mediation analysis indicates that firms with higher CSR performance are more profitable and valuable, consequences partially attributable to efficient investments and innovation. These results, robust to alternate model specifications, lend support to enlightened stakeholder theory.

Prior research provides evidence that lesbian, gay, bisexual, and transgender (LGBT)-supportive corporate policies are related to important human resource functions, such as enhanced recruitment and retention. In addition, prior research indicates that investors view the adoption of such policies positively. We examine the firm-performance mechanisms underlying favorable stock-market reactions based on an integration of perspectives from corporate social responsibility and the business case for diversity. Specifically, we estimate a hierarchical linear model (HLM) to account for the nested nature of our data (firms nested within states) and find that (1) the presence of LGBT-supportive policies is associated with higher firm value, productivity, and profitability; (2) the firm-value and profitability benefits associated with LGBT-supportive policies are larger for companies engaged in research and development (R&D) activities; and (3) the firm-value and profitability benefits of LGBT-supportive policies persist in the presence of state antidiscrimination laws. In supplemental analyses, we find that firms implementing (discontinuing) LGBT-supportive policies experience increases (decreases) in firm value, productivity, and profitability. We are among the first to link LGBT-supportive policies specifically to financial performance outcomes as well as to develop and test a multilevel model of these relationships. Our results have important implications for theory and research on LGBT issues in organizations, human resource managers, and policymakers.

Research readings groups represent a recent innovation in accounting doctoral education that appears to be spreading at research-oriented universities. In this chapter, the authors describe how accounting research readings groups can serve as a mechanism to engage doctoral students in the consumption and discussion of research throughout all phases of the doctoral program. An accounting research readings group supplements the breadth of knowledge gained in doctoral seminars by adding depth of knowledge in a focal research area. The authors offer insights from the educational psychology literature to justify research readings groups as a form of team-based learning and then offer suggestions on the formation and operation of these groups. The authors enumerate the many benefits that these groups afford to both doctoral students and faculty members. The authors also distribute a survey to faculty organizers of the existing accounting research readings groups and share the results of this survey to supplement their advice with firsthand experiences, the authors also share the results of a survey distributed to faculty organizers of existing accounting research readings groups. The authors’ goal is to encourage the use of accounting research readings groups to inspire, foster, and enhance the research culture within accounting departments and doctoral programs.

PurposeThe purpose of this paper is to examine whether B corps’ (for-profit entities whose owners voluntarily commit to conduct business in a socially responsible manner, beyond traditional CSR, that generates profits, but not at the expense of stakeholders) commitment to social issues influences two aspects of financial performance: employee productivity and sales growth.Design/methodology/approachThis paper is an exploratory analysis of B corps. This paper examines B corps with B Lab’s B Impact Assessment reports and PrivCo financial data, for descriptive information. This paper also analyzes the financial impact of obtaining and reporting on excellence in both employee and consumer focus, as well as the differences in financial growth between B corps and non-hybrid peers.FindingsOverall, results suggest that, among B corps whose treatment of employees (consumers) is recognized as an “area of excellence,” employee productivity (sales growth) is significantly higher. Additionally, sales growth is significantly higher for B corps relative to their peer, non-hybrid, matched firms.Practical implicationsResults from this study inform states considering the adoption of the B corp legal status – this legal status does not hinder firm profitability, but instead enhances long-term firm value while allowing firms to beneficially affect their communities, consumers, employees and the environment.Social implicationsResults from this study provide important insights regarding the current paradigm shift from the traditional business focus on profit maximization to a fruitful coexistence of profits with social interests and initiatives, within a structure of dissolving national boundaries and increasingly divergent logics.Originality/valueThis paper provides an initial empirical examination of B corp performance.

Research readings groups represent a recent innovation in accounting doctoral education that appears to be spreading at research-oriented universities. In this paper, we describe how accounting research readings groups can serve as a mechanism to engage doctoral students in the consumption and discussion of research throughout all phases of the doctoral program. An accounting research readings group supplements the breadth of knowledge gained in doctoral seminars by adding depth of knowledge in a focal research area. We offer insights from the educational psychology literature to justify research readings groups as a form of team-based learning and then offer suggestions on the formation and operation of these groups. We enumerate the many benefits that these groups afford to both doctoral students and faculty members. We also distribute a survey to faculty organizers of existing accounting research readings groups and share the results of this survey to supplement our advice with their firsthand experiences. Our goal is to encourage the use of accounting research readings groups to inspire, foster, and enhance the research culture within accounting departments and doctoral programs.

This study examines the association between tax avoidance and ex ante cost of equity capital.Based on prior research, we develop two proxies for investors' expectations of tax avoidance and explore whether deviations from those expectations result in higher ex ante cost of equity capital.We find that the ex ante cost of equity capital increases with tax avoidance that is either below or above investor expectations and that the increase is larger for tax avoidance that exceeds investors' expectations.We then examine whether firms that alter their future tax avoidance exhibit a lowering of their ex ante cost of equity capital and find that tax avoidance decreases (increases) from the prior year for firms that were above (below) investors' expectations in the prior year.These results are consistent with the trade-off suggested by the Scholes and Wolfson framework and reinforce the notion that balancing tax benefits and non-tax costs is an important feature of firms' tax planning.

SYNOPSIS We report results of 266 surveys from untenured and tenured accounting faculty employed by both elite and non-elite accounting programs concerning factors that influence career satisfaction. We find that accounting academics are somewhat satisfied with their jobs, although factors that enhance or impair career satisfaction differ for faculty at elite versus non-elite programs and for untenured versus tenured faculty. Our findings suggest noteworthy implications for the accounting academy and provide insights about cultural differences between elite versus non-elite accounting programs. JEL Classifications: M40; M49. Data Availability: Please contact the authors.

We offer this paper as a primer for accounting doctoral students and new faculty on how to discuss a paper. We believe that this topic can serve to “jump start” the engagement of students and junior faculty in developing and delivering quality discussions. We begin by emphasizing the importance and benefits of being a good discussant to both the profession and the discussant. We then outline the discussion process and provide detailed suggestions on points to consider in each phase of this process: (1) volunteering to discuss, (2) receiving the discussion assignment, (3) preparing the discussion, (4) presenting the discussion, and (5) following up with the authors after the discussion. Next, we examine data that highlight the need for additional discussant volunteers at conferences. Finally, we present possible innovations to foster high-quality discussions. This paper formalizes the ideal process typically learned through years of mentoring and conference experience.

The authors considered an individual investor who holds a financial portfolio with funds in at least two of the following accounts: a taxable account, a tax-deferred account, and a tax-exempt account. They examined various strategies for withdrawing these funds in retirement. Conventional wisdom suggests that the investor should withdraw funds first from the taxable account, then from the tax-deferred account, and finally from the tax-exempt account. The authors provide the underlying intuition for more tax-efficient withdrawal strategies and demonstrate that these strategies can add more than three years to the portfolio's longevity relative to the strategy suggested by the conventional wisdom.

The authors considered an individual investor who holds a financial portfolio with funds in at least two of the following accounts: a taxable account, a tax-deferred account, and a tax-exempt account. They examined various strategies for withdrawing these funds in retirement. Conventional wisdom suggests that the investor should withdraw funds first from the taxable account, then from the tax-deferred account, and finally from the tax-exempt account. The authors provide the underlying intuition for more tax-efficient withdrawal strategies and demonstrate that these strategies can add more than three years to the portfolio’s longevity relative to the strategy suggested by the conventional wisdom.

ABSTRACT We examine the influence of the Alternative Simplified Credit (ASC) on firms' research and development (R&D) spending. The ASC remedies a perceived flaw with the previous R&D tax credit regime that excluded firms with high R&D intensities during their fixed-base periods and/or high sales in the previous four years from claiming a credit. We document a large increase in R&D tax credit eligibility following the enactment of the ASC, and find that its effect on R&D spending was positive relative to firms not utilizing this new credit-calculation option. Specifically, we estimate that the ASC induced an additional $2.26 of R&D spending for every dollar of forgone tax revenue. These results provide evidence that the ASC has spurred R&D investment in a setting where firms have a choice between two credit-calculation methods. JEL Classifications: H25, H32, O31