Does Tax Avoidance Impair Accounting Comparability?

This paper examines the relationship between tax avoidance and accounting comparability. We argue that aggressive tax behavior impairs the comparability of financial statements by altering the accounting function, which maps economic events into accounting data. Using raw and industry-adjusted effective tax rates to proxy tax avoidance, we find that firms with more aggressive tax avoidance strategies have substantially lower accounting comparability. The evidence also shows that the negative effect of tax avoidance on accounting comparability is driven by firms with aggressive tax planning strategies beyond the industry norm. Furthermore, using an alternative measure of accounting comparability as a function of pre-tax income, we continue to find evidence of the negative effect of tax avoidance behavior. Importantly, this provides evidence that the effect of aggressive tax planning is not limited to the reported tax expense, but affects the comparability of the overall financial reporting system. Our results contribute to the literature on the costs of tax avoidance and on the determinants of accounting comparability

Audit Fees and IAS/IFRS Adoption: Evidence from the Banking Industry

The adoption of IAS/IFRS has two opposite effects on audit fees: on the one hand, greater effort is required from auditors, which is likely to be reflected by higher fees; on the other hand, if IAS/IFRS improve the quality of financial reporting, expected liability costs could decrease and lower fees may be demanded. We consider a large sample of Italian banks and we examine the effect of IAS/IFRS adoption on audit fees. The results show that higher fees (19.29% in real terms) are paid after the switch to the new standards. Using a standard earnings management model, we do not find support for the idea that financial reporting quality is affected by the adoption of IAS/IFRS. The observed increase in fees is positively associated with the presence of financial derivatives held for hedging purposes. This paper extends the findings of prior research on the effect of IAS/IFRS adoption on audit fees; contrary to prior contributions, our analysis concentrates on the banking industry. Furthermore, unlike prior works, we consider both listed and non-listed firms

Managerial Discretion in Accruals and Informational Efficiency

In this paper, we examine the relation between managerial discretion in accruals and informational efficiency. We measure managerial discretion in accruals by the absolute value of abnormal accruals. Assuming that efficient prices follow a random walk, we measure informational efficiency by using stock return variance ratios. We find that the absolute value of abnormal accruals is negatively associated with the price deviation from a random walk pattern, estimated in the 12-month period subsequent to the accrual reporting; hence, future informational efficiency increases with the extent to which managers exercise discretion over accruals. The results are consistent with the view that discretionary accruals, on average, convey useful information to investors and facilitate the price convergence to its fundamental value. Our findings are robust to a battery of tests, including tests to validate both our measures of informational efficiency and our measure of managerial discretion in accruals

Output-Based Measurement of Accounting Comparability: A Survey of Empirical Proxies

Accounting comparability has been the subject of significant interest in empirical financial accounting research. Recent literature, particularly that following De Franco et al.’s (2011) influential study, has focused on utilizing the output of the financial reporting process to measure accounting comparability. In this paper, we conduct an early survey of studies using output-based measures of comparability. We provide two distinct contributions to the literature. First, we describe and comment on four important measurement concepts as well as the studies that introduced them. With this methodological contribution, we aim to facilitate the measurement choice for empirical accounting researchers engaged in comparability research. Second, we classify the sub-streams of literature and related studies. In providing this content-related contribution, we sum up what has already been achieved in output-based accounting comparability research and highlight potential areas for prospective research. As a whole, our study attempts to guide empirical researchers who (plan to) undertake studies on accounting comparability in selecting relevant topics and choosing adequate approaches to measurement.</jats:p

Product Market Competition and Firms’ Disclosure of Cross-Segment Differences in Performance

This study examines how product market competition affects firms’ disclosures of their individual segment's performance. We explicitly account for different types of product market competition by distinguishing between competitors who are already active in a particular market and potential competitors who are considering entering the market. Arguably, firms that are subject to intensive existing competition have lower incentives to conceal information because they are less likely to exhibit abnormal profitability. By contrast, a high level of potential competition constitutes a threat to profitability and hence provides incentives to conceal segment performance. In line with these proprietary cost arguments, we find that potential competition is negatively associated with the disclosure of cross-segment differences in performance, whereas existing competition is positively associated with the disclosure of cross-segment differences in performance. Our results remain robust to a number of sensitivity tests

Vice-chancellor narcissism and university performance

Universities hold a prominent role in knowledge creation through research and education. In this study, we examine the effects of VC narcissism on university performance. We measure VC narcissism based on the size of the signature, in line with a methodological approach which has been widely used in the recent literature and repeatedly validated in laboratory experiments. We exploit a quasi-natural experiment of VC changes and employ a Difference-in-Difference research design, which alleviates concerns related to endogeneity and identification bias. We show that the appointment of a highly narcissistic VC leads to an overall deterioration in research and teaching performance and concomitantly league table performance. We further identify excessive financial risk taking and empire-building as possible mechanisms explaining the main results and provide evidence on the moderating role of university governance. Our findings are consistent with the view that narcissism is one of the most prominent traits of destructive leadership; they also have practical implications for leadership recruitment and the monitoring of leadership practices in the higher education sector. The results of this study extend prior research in several ways. Extant literature on executive leadership and narcissism yields inconclusive findings; this literature has mainly focused on for-profit organisations and has not considered universities. In addition, prior research in higher education on the determinants of university performance has not yet examined the role of leadership personality traits

Lot size constraints and market quality:evidence from the Borsa Italiana

Trading venues often impose a minimum lot size (minimum trade unit or MTU) to facilitate order execution. We document changes in market quality associated with the reduction of the MTU to one share on the Italian stock exchange, the Borsa Italiana. We observe a substantial improvement in liquidity, with an average decrease in the relative spread of 10.2%, and more significant improvements for those firms for which the MTU constraint was more binding. We also show that the improvement in liquidity is mainly driven by a reduction in adverse selection; that informational efficiency is not significantly affected; and there is an increase in retail trading. We interpret our findings in light of a model of asymmetric information in which the MTU affects traders’ choice of order size