The TRR 266 Accounting for Transparency is a trans-regional Collaborative Research Center funded by the German Research Foundation (Deutsche Forschungsgemeinschaft – DFG). Our team of more than 80 dedicated researchers examines how accounting and taxation affect firm and regulatory transparency and how regulation and transparency impact our economy and society. We intend to help develop effective regulation for firm transparency and a transparent tax system. Naturally, we also ensure transparency of our own research.

Laurence van Lent
Principal Investigator
Project B10: Corporate Transparency: Unstructured Soft Information, Gossip, and Fake News

BLOG

Measuring Political Risk and its Effects
on Firms

05.08.2019

Most people think that corporate disclosures are all about numbers and hard facts. While numbers play a central role, recent developments in machine learning and computational linguistics show that much more can be learned about important issues faced by companies, which is “hidden” between the numbers. Laurence van Lent’s research aims to uncover this hidden information. Together with a team of international researchers he recently developed and published a measure for a firm’s exposure to political risk by using information gleaned from discussions between management and financial analysts in earnings conference calls.   

Margaret Abernethy, Chung-Yu Hung, and Laurence van Lent (Frankfurt School of Finance and Management) examine the association between managers’ expertise and their discretionary bonus decisions in a hospital setting.

Margaret Abernethy, Chung-Yu Hung, and Laurence van Lent (Frankfurt School of Finance and Management) examine the association between managers’ expertise and their discretionary bonus decisions in a hospital setting. They hypothesize that high-expertise managers make decisions that encourage cooperation among their subordinates. However, low-expertise managers cannot do so because their lower levels of knowledge, experience, and domain expertise prevent them from having sufficient personal influence to persuade other professionals to cooperate. They find that high-expertise managers make two types of bonus decisions: (1) keep a smaller share of the bonus pool than what they are entitled to retain and (2) allocate the remainder to subordinates more evenly after adjusting for the underlying heterogeneity in their productivity. They also find evidence that high-expertise managers whose bonus decisions reflect their support for cooperation have higher department performance than all other managers.

Expertise and discretionary bonus decisions

Abernethy, M.A., Hung, C.Y., & van Lent, L. (2019). Expertise and discretionary bonus decisions. Management Science, in press. https://doi.org/10.1287/mnsc.2018.3172

LATEST RESEARCH

Thorsten Sellhorn (LMU Munich) and Katharina Hombach (Frankfurt School of Finance and Management) discuss targeted transparency regulation by securities regulators: corporate disclosure regulation aimed at nudging firms towards changing their business activities in socially desirable ways.

Thorsten Sellhorn (LMU Munich) and Katharina Hombach (Frankfurt School of Finance and Management) have published a review on ‘targeted transparency‘ – transparency regulation aimed at nudging firms towards changing their business activities in socially desirable ways. They focus on targeted transparency implemented by securities regulators, such as recent CSR reporting requirements in the E.U. or mine safety disclosures in the U.S. Interestingly, these targeted transparency rules contradict securities regulators’ traditional missions. Sellhorn and Hombach provide a framework to analyze this emerging type of transparency regulation, and review the emerging empirical evidence. Their analysis highlights instances where targeted transparency regulation achieves policy-makers’ stated objectives. However, there is also evidence of unintended ‘side effects’. Overall, the empirical studies reviewed face challenges in terms of clearly showing that transparency regulation causally affects policy-relevant outcomes. To do better, researchers need support from policy-makers as well as affected firms.

Transparency via corporate
disclosure regulation

Hombach, K., & Sellhorn, T. (2019). Shaping corporate actions through targeted transparency regulation: A framework and review of extant evidence. Schmalenbach Business Review, 71(2), 137-168. Available at: https://doi.org/10.1007/s41464-018-0065-z.

LATEST RESEARCH

Tarek Hassan, Stephan Hollander, Laurence van Lent (Frankfurt School of Finance and Managament) and Ahmed Tahoun adapt simple tools from computational linguistics to construct a new measure of political risk faced by individual US firms: the share of their quarterly earnings conference calls that they devote to political risks.

Tarek Hassan, Stephan Hollander, Laurence van Lent (Frankfurt School of Finance and Managament) and Ahmed Tahoun adapt simple tools from computational linguistics to construct a new measure of political risk faced by individual US firms: the share of their quarterly earnings conference calls that they devote to political risks.

Firm-level political risk:
Measurement and effects

Hassan, T., Hollander, S., van Lent, L. &, Tahoun, A. (2019). Firm-level political risk: measurement and effects. The Quarterly Journal of Economics, in press. https://doi.org/10.1093/qje/qjz021

LATEST RESEARCH

Malte Chirvi and Ralf Maiterth (HU Berlin) discuss the transition to downstream taxation of statutory pensions in German tax law. They discuss how it leads to under- rather than double taxation of public pensions. They show that using the benchmark employed by the jurisdiction and the vast majority of the literature indicates a higher under-taxation (11.4%) than a systematic benchmark (8.4%).

Malte Chirvi and Ralf Maiterth (HU Berlin) discuss the transition to downstream taxation of statutory pensions in German tax law. They discuss how it leads to under- rather than double taxation of public pensions. They show that using the benchmark employed by the jurisdiction and the vast majority of the literature indicates a higher under-taxation (11.4%) than a systematic benchmark (8.4%). Under-taxation of public pensions could be reduced significantly without causing double taxation issues if the taxation of public pensions was increased appropriately. This new system would not have to be adjusted to changes in expected pensions if it was based on the systematic benchmark.

Doppelbesteuerung beim
Übergang zur nachgelagerten
Besteuerung gesetzlicher Renten?

Chirvi, M., & Maiterth, R. (2019). Doppelbesteuerung beim Übergang zur nachgelagerten Besteuerung gesetzlicher Renten? Steuersystematische Überlegungen und empirische Ergebnisse. Steuer und Wirtschaft, 96(2), 130-143.

LATEST RESEARCH

Christian Hofmann (LMU Munich) and Naomi Rothernberg study a principal's choice of whether to produce an imperfect forecast about a firm's outcome either before or after an agent's effort choice. The early forecast affects the agent's effort choice, which means the forecast can also be used to infer information about the effect of the agent's effort on outcome. The late forecast is more accurate because, by working hard, the agent also learns about productivity, implying that the late forecast has an additional performance measurement role.

Christian Hofmann (LMU Munich) and Naomi Rothernberg study a principal's choice of whether to produce an imperfect forecast about a firm's outcome either before or after an agent's effort choice. The early forecast affects the agent's effort choice, which means the forecast can also be used to infer information about the effect of the agent's effort on outcome. The late forecast is more accurate because, by working hard, the agent also learns about productivity, implying that the late forecast has an additional performance measurement role. With verifiable information, the principal prefers a late forecast when the agent's effect on the accuracy of the forecast is either large or small. The agent has consistent preferences when his effect on the accuracy of the late forecast is not too large. With unverifiable information, the agent's information rents imply that the principal cannot use either forecast as a performance measure. Thus, the accuracy of the late forecast has no effect on the principal's preference. However, if the accuracy of the early forecast is low and its decision‐making function is diminished, the principal prefers a late signal.

Forecast accuracy and consistent
preferences for the timing of
information arrival

Hofmann, C., & Rothenberg, N.R. (2019). Forecast accuracy and consistent preferences for the timing of information arrival. Contemporary Accounting Research. Available at: https://doi.org/10.1111/1911-3846.12499

LATEST RESEARCH

Joachim Gassen (HU Berlin), Hollis A. Skaife and David Veenman demonstrate that measures of stock price synchronicity based on market model R2s are predictably biased downwards as a result of stock illiquidity, and that previously‐employed remedies to correct market model betas for measurement bias do not fix R2.

Joachim Gassen (HU Berlin), Hollis A. Skaife and David Veenman demonstrate that measures of stock price synchronicity based on market model R2s are predictably biased downwards as a result of stock illiquidity, and that previously‐employed remedies to correct market model betas for measurement bias do not fix R2. Using a large international sample of firm‐years, they find strong negative and nonlinear relations between illiquidity and R2 across countries, across firms, and over time. Because variables of interest frequently relate to illiquidity as well, they illustrate the consequences of not controlling for illiquidity in synchronicity research. More generally, they demonstrate the importance of using nonlinear control variable methods. Overall, they conclude that the illiquidity‐driven measurement bias in R2 provides an explanation for why prior research finds low‐R2 firms to have weak information environments, and suggest future research carefully evaluate the sensitivity of its results to nonlinear controls for illiquidity.

Illiquidity and the Measurement
of Stock Price Synchronicity

Gassen, J., Skaife, H.A., & Veenman, D. (2019). Illiquidity and the measurement of stock price synchronicity. Contemporary Accounting Research. Available at: https://doi.org/10.1111/1911-3846.12519

LATEST RESEARCH

previous arrow
next arrow
Slider

JOB POSTS

We invite applications of candidates for Doctoral Researcher and Post-Doctoral Researcher positions. We are looking for candidates with research interests in managerial accounting, financial accounting or taxation. Read more about our job posts here.

UPCOMING EVENTS

14-15 Oct. 2019
Emerging Scholars in Accounting Conference 
Frankfurt

28-29 Nov. 2019
TRR 266 Annual Conference
Mannheim

DATA VISUALIZATION

Tax Complexity Index

July 2019 – Even though tax complexity is an exceedingly important and widely discussed topic, we know relatively little about it. LMU Munich and Paderborn University have therefore investigated tax complexity and its drivers across the globe. They have jointly developed a Tax Complexity Index which measures the level of tax (code and framework) complexity faced by multinational companies in 100 countries. The results are made publicly available through an interactive website.

 

Scroll to top

Pin It on Pinterest