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Article
Publication date: 12 March 2018

Robert C. Ricketts, Mark E. Riley and Rebecca Toppe Shortridge

This study aims to determine whether financial statement users suffered a significant loss of information when, in November 2007, the SEC dropped the requirement for foreign…

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Abstract

Purpose

This study aims to determine whether financial statement users suffered a significant loss of information when, in November 2007, the SEC dropped the requirement for foreign private issuers using International Financial Reporting Standards (“IFRS firms”) to reconcile their financial statements to US generally accepted accounting principles (GAAP).

Design/methodology/approach

The study investigates whether analyst forecast errors and forecast dispersion increased for IFRS firms to a greater extent than for US GAAP firms after the Securities and Exchange Commission (SEC) dropped the reconciliation requirement. Using a treatment group comprised of IFRS firms and a matched sample of US GAAP firms, this study uses regression analyses to compare forecast errors and dispersion for the last fiscal year the reconciliation was available and the first fiscal year during which the reconciliation was unavailable to analysts.

Findings

The study finds evidence that forecast errors for IFRS firms exhibited no systematic change after the reconciliation was no longer available for analysts covering those firms. Thus, it does not appear that dropping the reconciliation requirement was associated with a change in forecast accuracy. However, the study does find evidence of increased dispersion in the IFRS firms’ forecasts relative to their US GAAP counterparts after the reconciliation requirement was dropped.

Practical implications

These findings have implications for evaluating the Securities and Exchange Commission’s 2007 decision to eliminate the reconciliation for IFRS firms. Specifically, the Securities and Exchange Commission’s decision does not appear to have significantly altered analysts’ information environments.

Originality/value

This paper contributes to the understanding of how a group of sophisticated financial statement users adapt to different sets of accounting standards.

Details

Journal of Financial Reporting and Accounting, vol. 16 no. 1
Type: Research Article
ISSN: 1985-2517

Keywords

Book part
Publication date: 9 December 2020

Zhan Furner, Michaele L. Morrow and Robert C. Ricketts

In this chapter we analyze how the designation of foreign earnings as “permanently reinvested” outside the US (PRE) is related to subsequent firm growth and market returns. Prior…

Abstract

In this chapter we analyze how the designation of foreign earnings as “permanently reinvested” outside the US (PRE) is related to subsequent firm growth and market returns. Prior research suggests that firms that hold excess cash in foreign markets to avoid the US corporate income tax experience lower growth, since such “trapped” cash is inefficiently invested. However, foreign earnings can be inefficiently invested in forms other than cash. We hypothesize and find that as the ratio of PRE to total assets increases, firms' growth rates decline. Our results suggest that trapped earnings, and not just trapped cash, are associated with lower growth. Because PRE have also been associated with earnings management in the literature, we further analyze the association between the use of PRE to meet or beat earnings targets and subsequent growth, observing a significant and persistent negative association. Finally, we note that the market discount for PRE, and especially for the use of PRE to manage earnings, appears to be relatively small. Our results provide support for FASB's stated plans to increase disclosure requirements surrounding the tax accrual.

Book part
Publication date: 16 June 2008

Teresa Lightner, Robert Ricketts and Brett R. Wilkinson

We analyze cumulative abnormal returns (CARs) around key events leading up to the passage of JGTRRA to determine whether a reduction in the individual tax rate on dividend income…

Abstract

We analyze cumulative abnormal returns (CARs) around key events leading up to the passage of JGTRRA to determine whether a reduction in the individual tax rate on dividend income affects stock prices, and if so, whether that effect differs for different groups of firms. In general, we find that dividend yield is positive and significantly related to CARs around both the December and January announcements that legislation might be enacted to reduce or eliminate the dividend tax. Consistent with this observation, when Congress subsequently passed the final Senate vote to reduce but not eliminate dividend taxes, we observe positive and statistically significant returns for high-yield dividend firms, but not for other firms. Additionally, we analyze the role of institutional ownership in the relation between firm yield and price reaction. The incentive to buy dividend-paying stocks should not be influenced by the degree to which a firm's stock is held by institutional investors but rather by the firm's dividend yield. Our results suggest that this distinction is important – institutional ownership appears to be significant for tax changes that induce seller-initiated market reactions, but not for changes that increase buyer-initiated reactions.

Details

Advances in Taxation
Type: Book
ISBN: 978-1-84663-912-8

Content available
Book part
Publication date: 9 December 2020

Abstract

Details

Advances in Taxation
Type: Book
ISBN: 978-1-80043-327-4

Content available
Book part
Publication date: 18 September 2017

Abstract

Details

Advances in Taxation
Type: Book
ISBN: 978-1-78714-524-5

Book part
Publication date: 9 November 2004

John J. Masselli, Tracy J. Noga and Robert C. Ricketts

We use the 1995 IRS Public Use Tax File in simulation models to examine the factors associated with the widely anticipated growth in the alternative minimum tax (AMT). The…

Abstract

We use the 1995 IRS Public Use Tax File in simulation models to examine the factors associated with the widely anticipated growth in the alternative minimum tax (AMT). The evidence suggests that the changes in the marginal tax rate structure associated with the 2001 and 2003 tax legislation are likely to result in exponential growth in AMT incidence and create a substantial hidden marriage tax penalty, a result contradictory with the intent of these tax law changes. The evidence further suggests that the elimination of preferential long-term capital gain rates for the AMT could effectively fund structural changes in the AMT that would substantially reduce the impact of the AMT on middle and lower income taxpayers, many of whom are liable for the AMT due to the add-back for AMT purposes of such non-tax preferential items as Schedule A adjustments and personal and dependency exemptions.

Details

Advances in Taxation
Type: Book
ISBN: 978-0-76231-134-7

Book part
Publication date: 17 November 2003

Abstract

Details

Advances in Taxation
Type: Book
ISBN: 978-0-76231-065-4

Book part
Publication date: 9 November 2004

Abstract

Details

Advances in Taxation
Type: Book
ISBN: 978-0-76231-134-7

Content available
Book part
Publication date: 16 June 2008

Abstract

Details

Advances in Taxation
Type: Book
ISBN: 978-1-84663-912-8

Content available
Book part
Publication date: 20 October 2015

Abstract

Details

Advances in Taxation
Type: Book
ISBN: 978-1-78560-277-1

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