This study investigates the determinants of audit report lag (ARL) for a sample of banks. Researchers have been interested in the determinants of ARL, in part, because it impacts the timeliness of public disclosures. However, prior ARL research has relied exclusively on regression analysis of cross-sectional samples of companies from many industries. In addition to focusing exclusively on banks, panel data analysis is introduced and compared with cross-sectional analysis to demonstrate its power in dynamic settings and its potential to improve estimation. Results reveal important differences between cross-sectional analysis and panel data analysis. First, bank size is negatively related to ARL in cross-section but positively related to ARL using panel data analysis. The cross-sectional size estimate is subject to omitted variables bias, and furthermore, cross-sectional analysis fails to capture variation in size over time in relation to ARL. Panel data analysis both accounts for omitted variables and captures the dynamics of the relationship between size and ARL. As well, the panel data model's explanatory power far exceeds that of the cross-sectional model. This is primarily due to the panel model's use of firm-specific intercepts that both capture the role of reporting tradition and eliminate heterogeneity bias. Thus, panel data analysis proves to be a powerful tool in the analysis of ARL.

The relationship between ethical beliefs and tax compliance is well documented, but extant research has not explored the relationships among general ethical beliefs, contextual ethical beliefs, and tax compliance behavior. In this study we propose a model that is intended to clarify the mechanisms through which ethical beliefs impact tax compliance. In the model, contextual ethical beliefs represent the mechanism through which individuals' general ethical beliefs impact tax compliance behavior. The model is tested using participants' ethical orientations as measures of their general ethical beliefs and using participants' ethical evaluations of others' tax compliance decisions as measures of their contextual ethical beliefs. Tax compliance behavior is inferred from participants' estimates of the likelihood that they would evade. Overall, the findings from our study support the proposed model. Ethical orientations are directly related to ethical evaluations; ethical evaluations directly predict tax compliance behavior; and finally, ethical orientations are indirectly related to tax compliance behavior. That is, ethical orientations influence tax compliance behavior, but only through their influence on ethical evaluations. We believe that the proposed model provides an important contribution by providing a framework that outlines the routes through which ethical beliefs impact tax compliance.

We investigate a sample of cross-border mergers involving US firms that acquired foreign targets between 1985 and 1995. Our general interest is in the long-term success of the acquisitions, measured by the post-merger abnormal returns to the US acquirers. Our primary focus is the relationship between the quality of the foreign target's accounting disclosures and the acquisition's long-term success. Employing a procedure recommended by Lyon et al. (1999), we find that US acquirers in cross-border mergers experience significantly negative long-term abnormal returns post-merger. These returns also are significantly more negative than those realized by a matched sample of US acquirers that acquired US targets. To investigate the potential association between the US acquirers' post-acquisition returns and target firms' accounting disclosures, we classify the merger transactions by target firm home country. We define variables to reflect the quality of accounting disclosures and control for other important country-specific features. The results reveal that post-merger abnormal returns are less negative for acquirers of targets based in countries where accounting data is less value relevant. This may be due to a higher cost of capital for target firms in these countries, resulting in a built-in discount in the pricing of targets. An examination of the premiums paid in a subset of 79 cross-border mergers reveals evidence consistent with this contention: premiums are lower for target firms based in countries where accounting data is less value relevant. These results suggest that shareholders of targets from such countries pay a price for their country's institutional framework that makes accounting information less value relevant.

Although information technology (hereafter, IT) expenditures represent an increasingly large investment for most corporations, firms are not required to disclose them separately in their financial statements. We hypothesize and find evidence that information about a firm’s IT expenditures helps explain its future performance as reflected in both accounting measures (residual income, earnings volatility) and market measures (stock price and long-run abnormal returns). In particular, we provide evidence of market mispricing and suggest the lack of firm-level annual IT expenditure disclosure as one potential reason for such mispricing. Altogether, the evidence presents a persuasive case that information about a firm’s IT expenditures is useful to stock market participants. The evidence we report is useful to managers and accounting policy makers contemplating the public disclosure of firm-level information about IT investments.

We examine the association between layoffs and chief executive oficer (CEO) compensation. Because of the public scrutiny and political pressures associated with both CEO compensation and layoffs, we expect firms to alter CEO compensation by reducing bonus pay and increasing equity-based compensation as the magnitude of the layoff increases. Consistent with the predicted substitution, we find that as layoffs intensify, CEOs' bonus compensation decreases and their equity-based compensation increases. When we consider whether these compensation adjustments vary with CEO power, we find that as the layoff magnitude increases, relative to less powerful CEOs, more powerful CEOs experience smaller reductions in bonus pay, a higher likelihood of receiving a bonus, and comparable increases in equity compensation. Finally, we report evidence that post-layoff market performance of firms led by more powerful CEOs is not superior to that of firms led by less powerful CEOs. Collectively, the results suggest that the preferential compensation arrangements afforded more powerful CEOs is inconsistent with eficient contracting. Instead, the combined results are consistent with the managerial power theory.