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The Tax Cuts and Jobs Act of 2017 (TCJA) dramatically changed U.S. taxation of foreign earnings for U.S. multinational companies (MNCs). Specifically, the TCJA required taxation of existing unremitted foreign earnings through a deemed repatriation and effectively eliminated future repatriation taxes through a 100 percent dividends received deduction. Additionally, the bill introduced the global intangible low-taxed income (GILTI) regime. We examine MNCs’ responses to the TCJA and find that spending and investment behavior depends on liquidity, investment opportunities, and borrowing costs. Domestic capital expenditures and share repurchases increased for MNCs with low domestic liquidity and high domestic investment opportunities. In contrast, MNCs with low domestic liquidity (high cost of debt) and low domestic investment opportunities increased dividends (decreased debt). Finally, we find that MNCs with high foreign cash and most vulnerable to the GILTI regime increased their foreign but not domestic capital expenditures—a potential unintended consequence. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: F23; G31; G38; H25; M40; M48.

The Financial Accounting Standards Board requires separate reporting of discontinued operations within the income statement to provide better information about companies’ future earnings for financial statement users. However, discontinued operations can increase the complexity of forecasting earnings because a portion of permanent earnings is being eliminated, the future effect on continuing operations may be unclear, and there are incentives for opportunistic reporting. Additionally, anecdotal evidence also shows that analysts, an important proxy for financial statement users, have difficulty in adjusting their forecasts when companies report discontinued operations. This study empirically examines whether reporting of discontinued operations affects analyst earnings forecast accuracy. Our results suggest that forecast accuracy initially declines following the reporting of discontinued operations, and the effect is more pronounced for firms with lower quality discontinued operations disclosures. Results also show the initial decline in forecast accuracy dissipates after a year and is concentrated in firms with potentially more opportunistic reporting within discontinued operations.

The Tax Cuts and Jobs Act of 2017 (TCJA) reduces U.S. multinational companies’ (MNC) internal capital market frictions related to repatriation costs by decreasing costs to access internal capital (i.e., foreign cash). This study examines MNCs’ responses to the TCJA and finds spending and investment behavior are dependent upon liquidity, investment opportunities, and borrowing costs. Domestic capital expenditures increased for MNCs with low domestic liquidity and high domestic investment opportunities. These firms also increased share repurchases. In contrast, MNCs with low domestic liquidity and low domestic investment opportunities increased dividends. MNCs with low domestic investment opportunities and high cost of debt reduced their outstanding debt. We also investigate responses to global intangible low-taxed income (GILTI) incentives and find that MNCs with more foreign cash and a greater likelihood of being affected by the GILTI regime increase their foreign but not domestic capital expenditures - a potential unintended consequence of TCJA.

SYNOPSIS Prior studies document both an improvement (Gunny 2010) and deterioration (Bhojraj, Hribar, Picconi, and McInnis 2009) in the future operating performance of firms engaging in real earnings management (REM) to meet earnings benchmarks. These results suggest that some firms use REM to signal their favorable prospects, whereas others use REM opportunistically. We hypothesize that firms with less robust information environments, more costly REM, and fewer incentives to meet short-term earnings benchmarks are more likely to engage in REM to signal future performance. Consistent with expectations, we find the positive relation between REM and future profitability is limited to firms that have less robust information environments (measured with stock return volatility, bid/ask spread, and analysts following), more costly REM (measured with market share and financial health), and fewer incentives to meet short-term earnings benchmarks (measured with market-to-book ratio, transient investors, and seasoned equity offering). In supplementary analysis, we note that Bhojraj et al. (2009) restrict their sample to relatively large firms, whereas Gunny's (2010) sample includes both large and small firms. Our analysis indicates that the difference in sample composition explains the differing results. We find that small firms use REM to signal positive future performance, but large firms do not. JEL Classifications: M40; M41.

We study how managers of Nasdaq-listed firms respond to the threat of delisting due to quantitative listing deficiencies. We find that managers' responses vary by deficiency type, specifically, whether the deficiency is accounting-based (related to shareholders' equity) or market-based (related to market value or bid price). Firms with accounting-based deficiencies exhibit income-increasing discretionary accruals. In contrast, firms with market-based deficiencies do not. We also find that shareholders' equity-deficient firms respond with equity issuances and bid price-deficient firms initiate reverse stock splits. These findings suggest that firms trade off among methods to meet benchmarks based on costs and constraints. In additional analyses, we find some evidence that firms' delisting avoidance strategies succeed in delaying or avoiding regulatory delistings.

Financial Accounting Standards Board Interpretation No. 48 (FIN 48, FASB 2006) allows discretion regarding the income statement classification of interest and penalty expenses for unrecognized tax benefits (UTBs). We investigate whether tax avoidance, management compensation, and debt agreements affect the expense classification election and whether this discretion has implications for financial statement users. We find firms that engage in tax avoidance activities, measured by effective tax rates (ETRs) and involvement in tax disputes, are more likely to include interest and penalties in tax expense. We also find that interest and penalties are more likely to be classified as tax expense when CEO compensation is more sensitive to pre-tax income. Finally, we find that UTB interest and penalty expense classification is associated with analysts' ETR forecast accuracy, which suggests there is a potential unintended consequence related to decision usefulness of FIN 48 reporting due to expense classification discretion.

• We examine internal capital market inefficiencies and U.S. multinational firms' return of capital to shareholders.

In an effort to provide more meaningful information to financial statement users, the Public Company Accounting Oversight Board (PCAOB) recently adopted sweeping changes to the audit report, requiring the audit firm to disclose whether or not it identified a critical audit matter (CAM) and its tenure with the client. To our knowledge, ours is the first study to explore how nonprofessional investors’ judgments are influenced by (1) the relative effects of a CAM disclosure versus a disclosure that the auditor did not identify a CAM, and (2) the disclosure of the audit firm’s tenure. We find that, relative to disclosing that no CAMs were identified, disclosing a CAM reduces investment intentions. We do not find a significant effect of tenure disclosure on investment intentions, despite evidence that participants attended to and understood the tenure manipulation. Concerning investors’ cognitive processes, we find that perceptions of both risk of material misstatement and management disclosure credibility mediate the effect of CAM disclosure on investment intentions, while perceived audit quality suppresses this effect. Our contributions include furthering the understanding of cognitive mechanisms through which CAM disclosure influences investment intentions, identifying a relatively unique setting in which perceptions of management disclosure credibility and audit quality move in opposite directions, and providing evidence that auditor tenure disclosure does not appear to affect investment intentions. Our findings should be of interest to regulators, auditors, issuers, and investors.

Since 2014, a number of U.S. states have legalized business activities related to the production, distribution, and use of recreational cannabis. These activities remain illegal at the U.S. federal level, creating a dual regulatory environment. The uncertainty related to the enforcement of federal cannabis laws affects businesses located in legalizing states, particularly federally-insured banks. Applying a difference-in-differences approach to a matched sample of banks in legalizing and non-legalizing states, we document an increase in audit fees incurred by banks located in legalizing states after cannabis legalization. This finding is consistent with increased auditor effort and engagement risk being an unintended consequence of state-level recreational cannabis legalization. In supplemental analysis, we find that the relation between banks’ audit fees and cannabis legalization was greater for banks having larger increases in banking activity, suggesting that audit fees increased primarily for banks that may be engaging in relationships with cannabis-related businesses.

In an effort to provide more meaningful information to financial statement users, the Public Company Accounting Oversight Board (PCAOB) recently adopted sweeping changes to the audit report, requiring the audit firm to disclose whether or not it identified a critical audit matter (CAM) and its tenure with the client. To our knowledge, ours is the first study to explore how nonprofessional investors’ judgments are influenced by (1) the relative effects of a CAM disclosure versus a disclosure that the auditor did not identify a CAM, and (2) the disclosure of the audit firm’s tenure. We find that, relative to disclosing that no CAMs were identified, disclosing a CAM reduces investment intentions. We do not find a significant effect of tenure disclosure on investment intentions, despite evidence that participants attended to and understood the tenure manipulation. Concerning investors’ cognitive processes, we find that perceptions of both risk of material misstatement and management disclosure credibility mediate the effect of CAM disclosure on investment intentions, while perceived audit quality suppresses this effect. Our contributions include furthering the understanding of cognitive mechanisms through which CAM disclosure influences investment intentions, identifying a relatively unique setting in which perceptions of management disclosure credibility and audit quality move in opposite directions, and providing evidence that auditor tenure disclosure does not appear to affect investment intentions. Our findings should be of interest to regulators, auditors, issuers, and investors.

Prior literature has investigated three forms of earnings management: real earnings management (REM), accruals earnings management (AEM) and classification shifting. Managers make trade-off decisions among these methods based on the costs, constraints and timing of each strategy. This study investigates whether managers use classification shifting when their ability to use other forms of earnings management is constrained. We find that when REM is constrained by poor financial condition, high levels of institutional ownership and low industry market share, managers are more likely to use classification shifting. Further, we find that when AEM is constrained by low accounting system flexibility and the provision of a cash flow forecast, managers are more likely to use classification shifting. In addition, when we limit our sample to firms that are most likely to have manipulated earnings, we continue to find support for constraints of both REM and AEM leading to higher levels of classification shifting. We also find support for the hypothesis that the timing of each earnings management strategy influences managers� trade-off decision. Our results indicate that managers use classification shifting as substitute form of earnings management for both AEM and REM.

The purpose of this paper is to provide a concise career guide for current and potential doctoral students in accounting and, in the process, help them gain a greater awareness of what it means to be an accounting professor. The guide can also be used by accounting faculty in doctoral programs as a starting point in mentoring their doctoral students. We begin with foundational guidance to help doctoral students better understand the “big picture” surrounding the academic accounting environment. We then provide specific research guidance and publishing guidance to help improve the probability of publication success. Actions are suggested that doctoral students and new faculty can take to help jump-start their academic careers. We finish with guidance regarding some important acronyms of special interest to doctoral students in accounting.

SYNOPSIS Financial analysts and accounting regulators encourage companies to disclose the disaggregation of total capital expenditures (CAPX) into the portion for sustaining current performance (maintenance CAPX [MCAPX]) and the portion for pursuing additional opportunities (growth CAPX [GCAPX]). Using a hand-collected sample of voluntary disclosures, we document that traditional estimates of disaggregated CAPX components, using currently required financial statement disclosures, are inadequate proxies for actual (disclosed) values of MCAPX and GCAPX. Specifically, we find that estimation errors for disaggregated variables are associated with future financial performance (i.e., changes in sales and earnings), suggesting that disaggregated disclosure information is potentially useful in forecasting. We also find that these estimation errors are associated with analyst forecast revisions of sales and earnings per share, consistent with analysts incorporating disaggregated CAPX information into their forecasts. Our results provide evidence that disaggregated CAPX disclosures are superior to currently required aggregate CAPX disclosure for forecasting firms' financial performance.

In 2010, the Internal Revenue Service (IRS) announced the requirement to disclose uncertain tax positions (UTP) on a new schedule (Schedule UTP) to be filed with federal corporate income tax returns. Schedule UTP could increase a firm's tax burden by providing a roadmap for the IRS to identify firms' tax-planning strategies. We find that stock returns around the development of Schedule UTP are negative, consistent with investors' concern that Schedule UTP would impose costs on firms. However, we document a significant positive stock price reaction to the release of the final draft of Schedule UTP in which the IRS relaxed many of the controversial provisions of Schedule UTP. Additionally, we find this positive reaction is incrementally larger for more tax-aggressive firms. Finally, we find a significant decrease in reported unrecognized tax benefits (UTBs) and additions to UTBs after the adoption of Schedule UTP in 2010.