Woon-Oh Jung

Disclosure when the Market is Unsure of Information Endowment of Managers

Whether insiders (e.g., managers, sellers) fully disclose their private information has been a research interest in accounting as well as in finance and economics. Grossman and Hart [1980] and Grossman [1981] support full disclosure of private information based on an adverse selection argument. That is, when insiders are known to withhold information, outsiders (e.g., investors, consumers) discount the quality of goods insiders deal with to the lowest possible value consistent with their discretionary disclosure. This in turn drives insiders to make full disclosure. On the other hand, Dye [1985] has recently demonstrated the possibility of partial disclosure based on a scenario in which investors are not sure whether managers are endowed with private information.1 In his scenario, given no information disclosure by managers, investors are uncertain whether the nondisclosure is due to nonexistence of information or due to its adverse content. This uncertainty on the part of investors deters the adverse selection and leads to partial disclosure

Taxpayer Disclosure and Penalty Laws

The consequences of a penalty exemption available to U.S. taxpayers who disclose aggressive reporting positions is examined via a game theoretic model. Results indicate that (i) the tax agencys expected revenue collections (net of audit costs) decline under the disclosure exemption, and (ii) the impact of disclosure regulations depends on the taxpayers type. Of particular interest, we find that taxpayers who are likely to prevail on an uncertain issue decrease their expected payments although they do not disclose in equilibrium. The impact on the amount of resources absorbed by the tax collection process is also examined. Copyright 2000 by Blackwell Publishing Inc.

Tax reporting game under uncertain tax laws and asymmetric information

Abstract This study models a game played by a tax enforcement agency and a taxpayer who is only partially informed about her true taxable income due to complexity of tax laws. A signalling equilibrium is shown to exist in which the taxpayers report is monotone increasing in her private information about taxable income. Investigated also is the effect of changes in uncertainty on reporting decisions and the agencys expected revenue.

Debt Financing and Voluntary Adoption of the International Financial Reporting Standards: Evidence from Korean Unlisted Firms

ABSTRACT We investigate the effect of debt financing on the voluntary adoption of the International Financial Reporting Standards (IFRS) by unlisted firms and such adoption’s effect on bond credit rating. We find that unlisted firms with public debts are more likely to voluntarily adopt IFRS. Subsequent to the voluntary application of IFRS, the unlisted firms exhibit, on average, enhanced credit ratings. These findings suggest that the public debt market’s demand for high-quality financial reporting may drive those unlisted firms to voluntarily adopt IFRS. Furthermore, rating agencies seem to reward such firms by elevating their bond credit ratings.

Earnings management by controlling shareholders who plan for stock gifts: Korean evidence*

Abstract We examine whether controlling shareholders who plan for stock gifts would manage earnings in an attempt to depress stock prices prior to gifting stocks to related parties. Gift taxes are levied based on the average market value of the stock transferred for a certain period known as the valuation period. This process enables controlling shareholders to be incentivized to depress stock prices during this period and thereby alleviate tax burden. We discover that the firms that have stock gift transactions in the sample significantly decrease their discretionary accruals in the quarters that precede and/or overlap with the valuation period. Earnings management that decreases income is statistically significant when stock gifts are made for individuals who are the related parties and family members of controlling shareholders. By contrast, we do not observe a similar earnings-management behavior in cases where stock gifts are donated to institutional donees who are not subject to gift taxes.