Zane L. Swanson

REIT Risk Premium Sensitivity and Interest Rates

This analysis investigates several aspects of the relationship between daily REIT stock risk premiums and various interest rates. Consistent with prior research, the general findings indicate that interest rates do impact REIT returns. This study specifically finds that stock returns are more sensitive to maturity rate spread between short- and long-term treasuries than the credit rate spread between commercial bonds and treasuries. In addition, the analyses document a structural model shift during the nineties that has made REITs more sensitive to credit risk. In additional to change in investor clientele, an analysis of declining REIT credit-worthiness points to a root cause for this shift.

Analytical and Empirical Evidence of the Impact of Tax Rates on the Trade-off between Debt and Managerial Ownership

We show that, for a firm facing a high marginal tax rate, the benefit of using debt relative to managerial ownership to control agency costs increases at a decreasing rate. Debt and managerial stock ownership represent alternative mechanisms for reducing agency costs of the relationship between owner-investors and managers in firms. However, although debt and managerial ownership provide overlapping benefits, only debt can provide the differential benefit of reducing the firms tax liability. While the tax benefit from using debt relative to managerial ownership to control agency conflicts is an increasing function of the firms marginal tax rate, the decreased managerial ownership results in external investors bearing a larger part of the cost of debt that accrues to the firm. Effectively, for external investors, the relative cost of debt decreases at a decreasing rate when the marginal tax rate increases. Therefore, the trade-off between debt and managerial ownership predicted by the agency literature is expected to be strong at low marginal tax rates, but get progressively weaker at higher marginal tax rates. In this paper, we build an analytical model of this hypothesis and provide strong empirical evidence in its support. Our study contributes to a further understanding of how tax rates might affect the interaction of capital structure decisions with the incentive compatibility issues and corporate governance. The study also provides a basis for future studies to examine factors other than tax rates that differentially affect debt and managerial ownership costs.

Are Investor Reactions to R&D Influenced by the Corporate Headquarter's Location?

This study provides evidence that investors react differently to R&D (line item) information according to the disclosure regimes of a firms headquarters-country. The stock market response is significantly lower for R&D information from code law countries (continental Europe) than for common law countries (such as Britain).

How Do Firms Address Multiple Taxonomy Issues

As a matter of course in international business, multinational firms produce reports according to different taxonomies for the same entity. However, the relation between US and IFRS taxonomies is nontrivial. There are some exact correspondences of accounts and some accounts which lack congruence. This issue is complicated by the need to have different industry taxonomies applicable to different reporting needs in different countries. The source of the differences is the different regulatory accounting approaches to economic events. This paper addresses these taxonomy issues, both generally and with a case example of a specific firm. Investors, companies, and regulators have the need to reconcile statements produced under alternative taxonomies. This problem is not restricted to this one issue. For example government authorities create XBRL taxonomies for banking purposes and then need to reconcile with generally used Generally Accepted Accounting Principles (GAAP) taxonomies from different jurisdictions.

Management Risk Incentives and the Readability of Corporate Disclosures

We show that managers with greater options vega undertake riskier firm policies and issue less readable corporate disclosures (Form 10-Ks). Ceteris paribus, a manager in the top quartile of vega files a Form 10-K that is 18.56% percent more voluminous than that of a bottom quartile vega manager. The effect of vega on disclosure obfuscation remains after controlling for firm risk, operating complexities and accounting choices, but is moderated by higher institutional ownership and greater shareholder rights, suggesting strategic disclosure obfuscation. These findings uncover a new (and unintended) link between incentive compatible compensation contracts and disclosure complexity.

How Robust Is the Performance of Growth Options of R&D and Capital Expenditures?

This study investigates the robustness of growth options/assets-in-place theoretical frameworks with respect to firm and investor characteristics. Specifically, analyses contribute to the investment knowledge frontier by examining the proposition that different growth option (e.g. research and development (R&D), and capital expenditures) model formulations have different incremental explanatory power. With regards to the question whether there is increasing/decreasing returns to scale of capital expenditures and R&D, the empirical findings indicate a diminishing (negative) association of R&D with price, but a positive association of capital expenditures with price.

Accounting Statement Footnotes Contextual Association with Firm Financial Characteristics in the Oil and Gas Industry

Information quality of financial accounting statements is an issue for readers’ decision-making. This study investigates the association of the annual report readability with the firm’s weighted average cost of capital (a key ratio used in firm valuations and investments). The study focuses upon the oil and gas industry in order to include an analysis of “successful efforts” versus “full cost” accounting methods. Prior studies find that as the level of useful information increases in the financial statements, the corresponding firm’s information asymmetries decrease, resulting in a company’s lower cost of capital (Francis, J. et al. 2008, and Barth M. et al. 2013). The current study findings indicate that the accounting readability of annual reports does associate with weighted average cost of capital. This study extends readability research into this financial ratio footnote and MD&A area. The study also finds the accounting choice of “successful efforts” versus “full cost” affects readability of annual report information, but no association is apparent of the method with the weighted average cost of capital.