Bank-Tax Conformity for Corporate Income: An Introduction to the Issues

This paper discusses the issues surrounding the proposals to conform financial accounting income and taxable income. The two incomes diverged in the late 1990s with financial accounting income becoming increasingly greater than taxable income through the year 2000. While the cause of this divergence is not known for certain, many suspect that it is the result of earnings management for financial accounting and/or the tax sheltering of corporate income. Our paper outlines the potential costs and benefits of one of the proposed "fixes" to the divergence: the conforming of the two incomes into one measure. We review relevant research that sheds light on the issues surrounding conformity both in the U.S. as well as evidence from other countries that have more closely aligned book and taxable incomes. The extant empirical literature reveals that it is unlikely that conforming the incomes will reduce the amount of tax sheltering by corporations and that having only one measure of income will result in a loss of information to the capital markets.

Barriers to Mobility: The Lockout Effect of U.S. Taxation of Worldwide Corporate Profits

Using data from a survey of tax executives, we examine the corporate response to the one-time dividends received deduction in the American Jobs Creation Act of 2004. We describe the firms’ reported sources and uses of the cash repatriated and we also examine non-tax costs companies incurred to avoid the repatriation tax prior to the Act. Finally, we examine whether firms would repatriate cash again if a similar Act were to occur in the future. Overall, the evidence is consistent with a substantial lockout effect resulting from the current U.S. policy of taxing the worldwide profits of U.S. multinationals.Fuqua School of Business (Duke University)Michigan Ross School of Business (Paton Accounting Fund)University of Washington (Paul Pigott/PACCAR Professorship

Real Effects of Accounting Rules: Evidence from Multinational Firms' Investment Location and Profit Repatriation Decisions

We analyze survey responses from nearly 600 tax executives to better understand corporate decisions about real investment location and profit repatriation. Our evidence indicates that avoiding financial accounting income tax expense is as important as avoiding cash income taxes when corporations decide where to locate operations and whether to repatriate foreign earnings. This result is important in light of the recent research about whether financial accounting affects investment and in light of the decades of research on foreign investment that examines the role of cash income taxes but heretofore has not investigated the importance of financial reporting effects. Our analysis suggests that financial reporting is an important factor to be considered in the policy debates focused on bringing investment to the United States

Are Online Job Postings Informative to Investors?

Human capital is a key factor in value creation in the modern corporation. Yet the disclosure of investment in human capital is scant. We propose that a company’s online job postings are disclosures made outside of the investor-relations channel that contain forward-looking information that could be informative to investors about future growth. We find that changes in the number of job postings are positively associated with changes in future performance and that this relation is stronger when postings likely represent growth rather than replacement. Consistent with job postings providing new information to the market, investors react positively to changes in the number of job postings. The market reaction to postings is stronger when firms are likely to be hiring for growth rather than replacement and for firms with low labor intensity (and therefore high marginal productivity of labor). This paper was accepted by Brian Bushee, accounting