ACCT 608 – Positive Accounting Research
USC Marshall School of Business
Spring 2015 (as of 1/14/2015)
The focus of this course is on the motivation of accounting policies and practices from a positive
economics view, the governance and contracting use of accounting (including the role of
auditing, and accounting research on taxation and. Because the role of information in contracting
and capital markets is important for accounting, finance and economics, I do not limit the course
to only journals with “accounting” in the title.
Course Grade:
Your grade will be determined as follows: presentations 1/3; participation, 1/3; paper, 1/3.
Presentations:
You will be assigned to present 6 to 8 papers during the quarter. If you are assigned to present a
paper, you will need to put together a “workshop” presentation and critique of the paper and be
prepared to lead the discussion. You will act as both author and discussant. For published articles
your presentation should identify the paper’s contribution to the literature, its strengths and
weaknesses and potential extensions by future research. For working papers, presentations
should include all of the above as well as suggestions to enhance the paper’s contribution to the
literature. Presentations cannot be an uncritical summary of the paper. We want to learn
something from you. And take this as an opportunity to work on your presentation skills.
Depending on how many papers we cover and how much discussion is warranted, the
presentation should last 1 to 1.5 hours.
Class participation:
Class participation grades are based on the quality of your comments and you are not endowed
with class participation credit at the start of the course. If you don’t participate your class
participation credit will be zero. Each week starting on 1/21, you must email me by 9am the
morning of class three (3) questions for each paper we are presenting/discussing in class that day.
Come up with high quality, critical questions – like the kind you typically see asked in a
workshop. For example, “I think endogeneity is a big concern” is not enough (unless you explain
why and what could be done about it). This is part of your “participation” credit, but so is active
participation in class.
The paper:
By the end of the term you are to make significant progress on a research paper related to a topic
we are covering this quarter. The paper will address an original research question – it should not
be a replication of prior work. Please discuss your idea with me outside of class. Your paper
topic should be approved by the end of February.
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REVIEW PAPERS
Financial Accounting
Beyer, A., Cohen, D., Lys, T., Walther, B., 2010. The financial reporting environment: Review
of the recent literature. Journal of Accounting and Economics 50, 296-243.
Core, J., 2001. A review of the empirical disclosure literature: Discussion. Journal of Accounting
and Economics 31.
Dechow, P., Ge, W., Schrand, C., 2010. Understanding earnings quality: A review of the proxies,
their determinants and their consequences. Journal of Accounting and Economics 50, 344401.
Dye, R., 2001. An evaluation of ‘Essays on Disclosure’ and the disclosure literature in
accounting. Journal of Accounting and Economics 32.
Fields, T., Lys, T., Vincent, L., 2001. Empirical research on accounting choice. Journal of
Accounting and Economics 31, 255-307.
Graham, J., Harvey, C., Rajgopal, S., 2005. The economic implications of corporate financial
reporting. Journal of Accounting and Economics 40.
Healy, P., Palepu, K., 2001. Information asymmetry, corporate disclosure, and the capital
markets: A review of the empirical disclosure literature. Journal of Accounting and
Economics 31, 405-440.
Kothari, S.P., Ramanna, K., Skinner, D., 2010. Implications for GAAP from an analysis of
positive research in accounting. Journal of Accounting and Economics 50, 246-286.
Lambert, R., 2010. Discussion of “Implications for GAAP from an analysis of positive research
in accounting”. Journal of Accounting and Economics 50, 287-295.
Verrecchia, R., 2001. Essays on disclosure. Journal of Accounting and Economics 32, 97-180.
Watts, R., Zimmerman, J., 1986. Positive Accounting Theory. Prentice Hall; Englewood Cliffs,
NJ.
Capital Markets
Barth, M., Beaver, W., Landsman, W., 2001. The relevance of the value relevance literature for
financial accounting standard setting: Another view. Journal of Accounting and Economics
31, 77-104.
Holthausen, R., Watts, R., 2001. The relevance of the value-relevance literature for financial
accounting standard setting. Journal of Accounting and Economics 31, 3- 75.
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Kothari, S.P., 2001. Capital markets research in accounting. Journal of Accounting and
Economics 31, 105-231.
Lee, C., 2001. Market efficiency and accounting research: A discussion of capital market
research in accounting. Journal of Accounting and Economics 31.
Lewellen, J., 2010. Accounting anomalies and fundamental analysis: An alternative view.
Journal of Accounting and Economics 50, 455-466.
Richardson, S., Tuna, I., Wysocki, P., 2010. Accounting anomalies and fundamental analysis: A
review of recent research advances. Journal of Accounting and Economics 50, 410-454.
Contracting and Governance
Armstrong, C., Guay W., Weber, J., 2010. The role of information and financial reporting in
corporate governance and debt contracting. Journal of Accounting and Economics 50, 179235.
Brickley, J., Zimmerman, J., 2010. Corporate governance myths: Comments on Armstrong,
Guay, and Weber. Journal of Accounting and Economics 50, 235-245.
Bushman, R., Smith, A., 2001. Financial accounting and corporate governance. Journal of
Accounting and Economics 32, 237-333.
Auditing
Defond, M. Zhang, J., 2014. A review of archival auditing research. Journal of Accounting and
Economics.
Donovan et al., 2014. Issues raised by studying Defond and Zhang: What should audit
researchers do? Journal of Accounting and Economics.
Tax
Shackelford and Shevlin, 2001. Empirical tax research in accounting. Journal of Accounting and
Economics.
Maydew, 2001. Empirical tax research in accounting: A discussion. Journal of Accounting and
Economics.
Hanlon and Heitzman, 2010. A review of tax research. Journal of Accounting and Economics.
Graham, Raedy and Shackelford, 2012. Research in accounting for income taxes. Journal of
Accounting and Economics.
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Shevlin, 2007. The future of tax research: From an accounting professor’s perspective. Journal of
the American Taxation Association.
Robinson, 2007. The future of tax research: What are the unanswered questions? Journal of the
American Taxation Association.
Gentry, 2007. The future of tax research: A mostly economics perspective. Journal of the
American Taxation Association.
Weisbach, 2007. A legal perspective on unanswered questions in tax research. Journal of the
American Taxation Association.
WEEKLY PAPERS AND PRESENTERS WILL BE ASSIGNED ONE WEEK IN ADVANCE
WEEK 1 (1/14): OVERVIEW, ADVICE ON PHD PROGRAM, ETC.
WEEK 2 (1/21): AGENCY THEORY AND ORGANIZATIONAL ARCHITECTURE
Coase, R. 1937. The Nature of the Firm, Economica 4:386-405.
Alchian, Armen and Harold Demsetz, Production, Information Costs, and Economic
Organization, American Economic Review, Vol. 52 (1972), 777-795.
Jensen, M. and W. Meckling. 1976. Theory of the Firm: Managerial Behavior, Agency Costs and
Ownership Structure, Journal of Financial Economics, October: 305-360. (Sections 1 - 3)
Fama and Jensen 1983. Separation of Ownership and Control. Journal of Law and Economics.
Fama and Jensen 1983. Agency Problems and Residual Claims. Journal of Law and Economics.
WEEK 3 (1/28): THE ECONOMICS OF ACCOUNTING
Akerlof, G., The Market for Lemons: Quality Uncertainty and the Market Mechanisms. The
Quarterly Journal of Economics, Vol. 84, No. 3 (Aug., 1970), pp. 488-500.
Stigler, George J., The theory of economic regulation, Bell Journal of Economics, Vol. 2/1
(1971).
Friedman, M., The Methodology of Positive Economics, in Essays in Positive Economics,
University of Chicago Press (1953).
Hayek, Friedrich A., The Use of Knowledge in Society, American Economic Review, Vol. 35/4
(1945).
Watts and Zimmerman 1979. The Demand for and Supply of Accounting Theories: The Market
for Excuses. The Accounting Review.
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Watts and Zimmerman 1978. Towards a Positive Theory of Accounting Standards. The
Accounting Review.
Watts and Zimmerman, 1983. Agency Problems, Auditing and the Theory of the Firm, Journal of
Law and Economics.
Watts and Zimmerman 1986. Positive Accounting Theory. Prentice-Hall
WEEK 4 (2/4): AUDITING I
WEEK 5 (2/11): AUDITING II
WEEK 6 (2/18): AUDITING III
WEEK 7 (2/25): CONTRACTING I
Armstrong, C., Guay, C., Weber, J., 2010. The Role of Information and Financial Reporting in
Corporate Governance and Debt Contracting. Journal of Accounting and Economics 50: 179–
234. (Debt contracting section)
Dichev, I., Skinner, D., 2002. Large-Sample Evidence on the Debt Covenant Hypothesis. Journal
of Accounting Research 40: 1091–123.
Christensen, H., Nikolaev, V., 2012. Capital versus Performance Covenants in Debt Contracts.
Journal of Accounting Research 75: 75–116.
Asquith, P., Beatty, A., Weber, J., Performance Pricing in Bank Debt Contracts. Journal of
Accounting and Economics 40: 101–28.
Roberts, M. R., Sufi, A., 2009. Renegotiation of Financial Contracts: Evidence from Private Credit
Agreements. Journal of Financial Economics 93: 159–84.
WEEK 8 (3/4): CONTRACTING II
Aghion, P., Bolto, P., 1992. An Incomplete Contracts Approach to Financial Contracting. Review
of Economic Studies 59: 473–94.
Sufi, A., 2007. Information Asymmetry and Financing Arrangements: Evidence from Syndicated
Loans. The Journal of Finance 62: 629-668.
Ball, R., Bushman, R., Vasvari, F., 2008. The Debt‐Contracting Value of Accounting Information
and Loan Syndicate Structure. Journal of Accounting Research 46: 247–87.
WEEK 9 (3/11): CONTRACTING III
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Wittenberg-Moerman, R, 2008. The Role of Information Asymmetry and Financial Reporting
Quality in Debt Trading: Evidence from the Secondary Loan Market. Journal of Accounting
and Economics 46: 240–60.
Costello, A., Wittenberg-Moerman, R., 2011. The Impact of Financial Reporting Quality on Debt
Contracting: Evidence from Internal Control Weakness Reports. Journal of Accounting
Research 49: 97–136.
WEEK 10 (3/25): TAX I – CAPITAL STRUCTURE
Modigliani, F., Miller, M., 1958. The Cost of Capital, Corporate Finance and the Theory of
Investment. American Economic Review, 48, 261-97.
Modigliani, F., Miller, M., 1963. Corporate Income Taxes and the Cost of Capital: A Correction.
American Economic Review, 53, 433-43.
Miller, M., 1977. Debt and Taxes. Journal of Finance, 32, 213-233.
DeAngelo, H., Masulus, R., 1980. Optimal Capital Structure under Corporate and Personal
Taxation. Journal of Financial Economics 8, 3-27.
MacKie-Mason, J., 1990. Do taxes affect corporate finance decisions? Journal of Finance 147193.
Graham, J., 1996. Debt and the marginal tax rate. Journal of Financial Economics, 41- 74.
Graham, J., Lemmon, M., Schallheim, J., 1998. Debt, leases, taxes, and the endogeneity of
corporate tax status. Journal of Finance 54, 2241-2262.
Graham, J., 2000. How big are the tax benefits of debt? Journal of Finance 55, 1901 – 1941.
Core, J, Blouin, J., Guay, W., 2010. Have the tax benefits of debt been overestimated? Journal of
Financial Economics 09, 195-213.
WEEK 11 (4/1): TAX II – PAYOUT POLICY
Mackie-Mason
Chetty and Saez
Blouin, Ready Shackelford
Hanlon, M., Hoopes, J., 2014. What do firms do when dividend tax rates change? An
examination of alternative payout responses to dividend tax rate changes. Journal of
Financial Economics.
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WEEK 12 (4/8): TAX III – BOOK-TAX TRADEOFFS
Scholes, M., Wilson, P., Wolfson, M., 1990. Tax planning, regulatory capital planning, and
financial reporting strategy for commercial banks. Review of Financial Studies, 625- 650.
Matsunaga, S., Shevlin, T., Shores, D., 1992. Disqualifying Dispositions of Incentive Stock
Options: Tax Benefits versus Financial Reporting Costs. Journal of Accounting Research 30
(Suppl.), 37-68.
Erickson, M., Hanlon, M., Maydew, E., 2004. How much will firms pay for earnings that do not
exist? Evidence of taxes paid on allegedly fraudulent earnings. The Accounting Review,
79(2), 387-408.
Armstrong, Blouin, and Larcker. 2012. The Incentives for Tax Planning, Journal of Accounting
and Economics, 391-411.
WEEK 13 (4/15): TAX IV – TAX AVOIDANCE – THEORY
Becker, G., 1968. Crime and Punishment: An Economic Approach, Journal of Political Economy
76, 169–217. (skim)
Allingham, M. Sandmo, A. 1972. Income Tax Evasion: A Theoretical Analysis. Journal of
Public Economics 1, 323–338.
K. Crocker, Slemrod, J., 2005. Corporate Tax Evasion with Agency Costs. Journal of Public
Economics, 1593-1610.
Desai, H., Dyck, A., Zingales, L., 2007. Theft and Taxes. Journal of Financial Economics.
Desai, H., Dharmapala, D., 2006. Corporate Tax Avoidance and High Powered Incentives.
Journal of Financial Economics.
Armstrong, Blouin, Jagolinzer and Larcker, 2015. Corporate Governance, Incentives and Tax
Avoidance. Journal of Accounting and Economics, Forthcoming.
WEEK 14 (4/22): TAX V – TAX AVOIDANCE EVIDENCE
Lisowsky, P. 2010. “Seeking Shelter”: Empirically modeling tax shelters and examining their
link to the contingent tax liability reserve. The Accounting Review.85, 1693-1720.
Dyreng, S., M. Hanlon, and E. Maydew. 2008. Long-run corporate tax avoidance. The
Accounting Review 83: 61-82.
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Dyreng, S., M. Hanlon, and E. Maydew, 2010. The effects of managers on corporate tax
avoidance, The Accounting Review 85, 1163-1189.
Brown, J. 2011. The Spread of Aggressive Corporate Tax Reporting: A Detailed Examination of
the Corporate-Owned Life Insurance Shelter. TAR 86: 23-57.
Wilson, R. 2009. An examination of corporate tax shelter participants. The Accounting Review.
84, 969-999.
Hanlon and Slemrod. 2009. What does tax aggressiveness signal? Evidence to stock price
reactions about news about tax shelter involvement. Journal of Public Economics, 93, 126141.
Graham, Hanlon, Shevlin, Shroff. 2014. Incentives for Tax Planning and Avoidance: Evidence
from the Field. Forthcoming, The Accounting Review.
Gallemore, J., Labro, E., 2015. The Importance of the Internal Information Environment for Tax
Avoidance. Journal of Accounting and Economics, forthcoming.
WEEK 15 (4/29): NO CLASS
WEEK 16: TAX VI – TAX AVOIDANCE - INTERNATIONAL
Klassen, K., Laplante, S., 2012. Are U.S. Multinational Corporations Becoming More
Aggressive Income Shifters? Journal of Accounting Research 50:5, 1245-1285.
DeSimone, L., Klassen, K., Seidman, J., 2014. Unprofitable Affiliates and Income Shifting
Behavior. Stanford University working paper.
Dyreng, S., Markle, K., 2014. The Effect of Financial Constraints on Tax-Motivated Income
Shifting by U.S. Multinationals. Duke University working paper.
Hanlon, M., Maydew, E., Thornock, J., 2015. Taking the Long Way Home: U.S. Tax Evasion
and Offshore Investments in U.S. Equity and Debt Markets. Journal of Finance, forthcoming.
Background Reading
Collins, J., Kemsley, D., Lang, M., 1998. “Cross-Jurisdictional Income Shifting and Earnings
Valuation.” Journal of Accounting Research 36:2, 209-229.
Hines, J., Rice, E., 1994. “Fiscal Paradise: Foreign Tax Havens and American Business.” The
Quarterly Journal of Economics 109:1, 149-182.
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Graham, J., Hanlon, M., Shevlin, T., 2011. Real effects of Accounting Rules: Evidence form
Multinational Firms’ Investment and Profit Repatriation Decisions. Journal of Accounting
Research
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