Search results

We investigate the interaction of debt covenants and tax accounting on the adoption of Financial Interpretation No. 48 (FIN 48). We examine how firms respond to the potential tightening of covenant slack upon FIN 48 adoption and whether these actions are penalized by creditors and anticipated by equity markets. We find that upon FIN 48 adoption, the majority of sample corporate borrowers increase their tax reserves and reduce equity. Firms close to debt covenant violation were even more likely to increase tax reserves upon FIN 48 adoption; however, the size of the adjustment was relatively smaller, suggesting that the FIN 48 standards limited, but did not eliminate, firms use of discretion in reporting uncertain tax positions to avoid costly covenant violations. For firms near net worth debt covenant violation, the act of decreasing equity upon FIN 48 adoption imposes real economic costs, as the average cost of debt increased by 43 basis points. Finally, we extend prior research on the market response to FIN 48 by showing how the market response to FIN 48 adoption is a function of debt covenant slack and tax aggressiveness. Specifically, the cumulative abnormal return at the FIN 48 exposure draft release date is negative only for tax aggressive firms that are close to debt covenant violation.

Chen and Ritter (2000) documented that underwriter spreads for recent US initial public offerings (IPOs) in $20 million range as well as much larger IPOs in the $80 million range are clustered at 7%. This observation has led to a Department of Justice (DOJ) enquiry into potential price fixing by underwriters. We demonstrate through a times series analysis that IPOs have tripled in size and become much riskier over time. A pooled data analysis can therefore mask evidence of competition in the market. We find that spread clustering is not a recent phenomenon. Over time, clustering at 7% has increased as clustering above 7% has declined. IPO spreads have declined significantly over time as the firms going public more recently are riskier, underwriting efforts have increased and recent IPOs are much larger than IPOs in the past. Controlling for time trends, larger IPOs have lower average spreads. The market for underwriting IPOs seems to be competitive with entry of new firms during the hot markets.

A total of 12 chapters in this volume represent some current research on important topics in finance and economics. Bajaj et al. demonstrate through a time series analysis that the IPO underwriting spreads seem to be competitive, in contrast to the findings of Chen and Ritter (2000). Sealey argues that it is necessary for the regulator and deposit insurer to be an integral part to mitigate the moral hazard problem in bank regulation. Lee develops a multi-period pricing model to examine the impact of forbearance and potential moral hazard behavior on the cost of deposit insurance. Hao and Roberts show that lead lenders have significant positive influence on loan yield spreads. Daly et al. show that coincident indicators developed to track a state's gross outputs have significant influence on state-level aggregate bank performance.

This project requires students to analyze and make a client recommendation for the most tax-effective saving option, comparing a traditional individual retirement account (IRA) versus Roth IRA. Students analyze the two alternatives and track growth as well as projected tax liability over the life of the client to determine the strategy that generates the best outcome for the client. The project emphasizes principles of tax planning to illustrate that the solution with the smallest tax liability in the short term is not necessarily the most beneficial option over the long term, as well as how this often is in conflict with a client’s expectations and tax preparer tactics utilized to attract new clients. Students will demonstrate critical thinking skills through the analysis of two options for a client, and the communication of the findings with a recommendation through a client letter.

The processes that underlie ability emotional intelligence (EI) are barely understood, despite decades of management research. Furthermore, the outcomes of these processes have been narrowly and prescriptively defined. To address this deficiency, I conducted a phenomenological study (n = 26). Findings from a public sector sample suggest that the underlying emotional processes of meaningful life events are – at least for now – better defined through the construct of emotion regulation. While it is part of the ability EI model, the emotional processing that occurs prior to emotion regulation being initiated is likely to be less consistent with current EI theory. Likewise, these processes lead to outcomes considerably more nuanced than currently appreciated in the EI literature. Consequently, what started as a gap-filling approach to research eventually turned into a problematization of what scholars seem to know about EI. I outline the theoretical and practical implications of this study for management, and offer suggestions for future research.

Andrew Williams and I have argued since the early 1990s that not only have equity (and subsequently most other assets classes) come to be dominated by institutional ownership of various types, an observation that many have made and documented at length, but that the majority of those institutions are fiduciary ones (primarily pension and mutual funds in the United States). More recently pension and mutual funds have been the source of the majority of funds for many ‘alternative’ investments, such as hedge funds, private equity and commodity funds. In the last two decades there have been parallel developments in other countries, although the form of the institutional investors vary widely, from fiduciary ones mostly in common law countries to fiduciary-like ones in many civil law jurisdictions (e.g. the Netherlands), to some sovereign wealth funds (e.g. Norway and Australia and some others) which do not have fiduciary obligations as such, but in their legal mandates and practices are structured much like those that are fiduciary or fiduciary like. As discussed below, all these (in addition to some other large institutional owners) are universal owners, that is, they own a representative cross section of their investment universe (which increasingly is a global universe). Given their ownership structure characterised by a large degree of diversification, universal owners' long-term interests to a large degree coincide with the economy as a whole.