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Andrew Schmidt's
Scholarly Papers
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Total Downloads
1,581 |
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Citations
19 |
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1.
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Joseph Comprix Syracuse University Lillian F. Mills University of Texas at Austin - Red McCombs School of Business Andrew P. Schmidt Columbia University - Accounting
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10 Sep 04
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06 Jan 09
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461 (17,371)
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Abstract:
We investigate whether quarterly annual effective tax rate (ETR) estimates are systematically biased in comparison to year-end actual ETRs. We find that estimated annual ETRs in the first, second, and third quarters are systematically higher than year-end ETRs. On average, these ETRs decline monotonically each subsequent quarter. Our findings are consistent with managers overstating their initial estimates and revising them downward throughout the year. We then investigate whether firms use this apparent slack for earnings management. We find that initial ETR increases are more likely to be reversed when firms would have missed their analysts' earnings forecast absent the reversal. These results documenting patterns of annual ETR estimates and revisions contribute to research about how earnings management is accomplished.
Earnings Management, Effective Tax Rates, Tax Expense, Quarterly Earnings
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2.
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Andrew P. Schmidt Columbia University - Accounting
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07 Dec 03
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04 Feb 09
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371 (23,042)
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Abstract:
I examine whether and under what circumstances changes in net income caused by changes in effective tax rates (ETRs) (the tax change component) persist and whether the tax change component aids in forecasting future earnings incremental to aggregate earnings excluding the tax change. I decompose the tax change component of earnings into an initial and revised portion, which I hypothesize to have differential persistence and forecasting implications. Finally, I utilize the Mishkin (1983) procedure to determine if the market recognizes the forecasting implications of the differential persistence of the initial and revised tax change components. My results indicate that the tax change component is negatively associated with future tax changes. I find that the initial tax change component is more persistent for future tax changes than the revised tax change component. Additionally, I find that the initial tax change component is useful in forecasting future earnings, while the revised tax change component is not. These results are consistent with my hypotheses that the initial and revised tax change components have differential persistence and forecasting implications, and dispute the notion that changes in ETRs are transitory. Mishkin (1983) test results indicate that the market underestimates the persistence of the revised tax change component and the mispricing appears to be driven by firms in industries with above-average intra-year variation in the tax change component of earnings.
Market Efficiency, Effective Tax Rates, Earnings Persistence, Valuation
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3.
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Leslie A. Robinson Dartmouth College - Tuck School of Business Andrew P. Schmidt Columbia University - Accounting
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13 Nov 08
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13 Jul 09
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247 (37,085)
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Abstract:
Financial Interpretation No. 48, Accounting for Uncertainty in Income Taxes, imposes mandatory disclosure requirements on public firms regarding uncertain tax positions reflected in their financial reports. While the number of studies examining the amount of the disclosed liability is growing, there is little focus on the actual quality of the disclosure itself. We examine determinants of FIN 48 disclosure quality among S&P 1500 firms by constructing a statistic to measure the quality of firm disclosures. We predict and find that firms with the highest proprietary costs of disclosure use discretion to jam the information contained in the disclosure. In stock market reaction tests, we find evidence to suggest that investors penalize firms for high disclosure quality, suggesting that investors are primarily concerned with the proprietary costs of the disclosure rather than increased transparency. These findings are interesting in light of the fact that regulators designed FIN 48 disclosure requirements to protect investors.
mandatory disclosure, FIN 48, proprietary costs, disclosure quality
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4.
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Petro Lisowsky University of Illinois at Urbana-Champaign - Department of Accountancy Leslie A. Robinson Dartmouth College - Tuck School of Business Andrew P. Schmidt Columbia University - Accounting
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04 Oct 09
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25 Jan 10
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207 (44,674)
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Abstract:
We examine whether the FIN 48 reserve for contingent income tax liabilities reflects a firm’s tax sheltering activities, and whether that informativeness depends on monitoring mechanisms. Understanding the relation between tax shelters and the tax reserve is important to researchers, investors, and regulators keen to use the reserve to measure corporate tax aggressiveness. By linking confidential IRS tax shelter data with firms’ tax reserves, we find that, on average, tax shelter incidence is associated with an $11 million increase in the reserve and that each dollar of book-tax differences generated by tax shelters is associated with a 40¢ increase in the reserve. Increased auditor-client bonding, but not strong corporate governance, improves the ability of the reserve to reflect tax shelters. Our results support theoretical predictions on auditor independence that the reputation cost of an audit failure is a significant determinant of client accrual quality.
FIN 48, ASC 740-10-25, tax aggressiveness, tax shelters, firm monitoring, accrual quality, corporate governance, auditor independence
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5.
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'Secondary Evasion' and the Earned Income Tax Credit
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Andrew P. Schmidt Columbia University - Accounting Edward M. Werner Drexel University - Bennett S. LeBow College of Business
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19 Nov 03
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24 Apr 06
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160 ( 57,656) |
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Andrew P. Schmidt Columbia University - Accounting Edward M. Werner Drexel University - Bennett S. LeBow College of Business
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24 Apr 06
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24 Apr 06
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Abstract:
This paper documents that the earned income of taxpayers claiming the earned income tax credit (EITC) tends to cluster within $800 intervals surrounding the kink points of the EITC benefit distribution. This clustering is especially strong for head of household taxpayers around the kink point of the phase-in range and, to a lesser extent, for married filing joint taxpayers around the kink point of the phase-out range. The results from logit regression models estimated by filing status and kink point location indicate that secondary evasion' with respect to the EITC is more associated with the characteristics of head of household taxpayers than those of married filing joint taxpayers.
Earned Income Tax Credit, Tax Compliance, Kink Points
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Andrew P. Schmidt Columbia University - Accounting Edward M. Werner Drexel University - Bennett S. LeBow College of Business
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19 Nov 03
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13 Sep 04
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160
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Abstract:
This paper documents that the earned income of taxpayers claiming the earned income tax credit (EITC) tends to cluster within $800 intervals surrounding the kink points of the EITC benefit distribution. This clustering is especially strong for head of household taxpayers around the kink point of the phase-in range and, to a lesser extent, for married filing joint taxpayers around the kink point of the phase-out range. The results from logit regression models estimated by filing status and kink point location indicate that "secondary evasion" with respect to the EITC is more associated with the characteristics of head of household taxpayers than those of married filing joint taxpayers.
Earned Income Tax Credit, Tax Compliance, Kink Points
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6.
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Sanjay Gupta Michigan State University - Department of Accounting & Information Systems Yuhchang Hwang Arizona State University - School of Accountancy Andrew P. Schmidt Columbia University - Accounting
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27 Apr 04
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16 Feb 10
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135 (67,142)
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Abstract:
The R&D credit has always been incremental in nature, providing a credit for qualified R&D expenses exceeding some base amount. Originally, the base amount was the average of the previous three years' R&D expenses (i.e., a moving average). After heavy criticism that the credit's incentive effects were largely offset in the following three years, Congress substituted the moving average base with a fixed-base as part of the Omnibus Budget Reconciliation Act of 1989. This study examines the impact of this structural change on the number of firms that are eligible for the credit and the type of firms that are eligible for the credit. In addition, we examine the incentive effect of the R&D tax credit for firms that qualified for the credit, and whether the incentive effect changed after the implementation of OBRA89. Using data from 1981-1994, we find overall firm eligibility declined after OBRA89, but increased for firms belonging to high-tech industries, relative to firms belonging to other industries. Fixed-effects regressions that control for various non-tax factors indicate that median R&D intensity increased approximately 11.0 (5.4) percent from 1986-1989 to 1990-1994, producing credit induced additional spending by high-tech (other) firms of $3.54 ($1.68) per revenue-dollar forgone. Overall this translates into an estimate of $2.40 of additional R&D spending per revenue dollar forgone.
Research and Development, Tax Credits, Tax Incentives
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7.
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Andrew P. Schmidt Columbia University - Accounting
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24 Apr 06
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Last Revised:
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15 May 06
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0 (13,788)
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Abstract:
I examine whether earnings generated by changes in effective tax rates (the tax change component) persist and aid in forecasting future earnings. In addition, this study investigates to what extent investors incorporate the forecasting implications of the tax change component of earnings into stock prices. I find that there is a positive, significant association between the tax change component of earnings and future earnings. I use the interim reporting requirements of APB No. 28 (APB 1973) and FASB Interpretation No. 18 (FASB 1977) to further decompose the tax change component into an initial and a revised portion based on the first quarter estimate of the annual ETR. I find that the initial tax change component is more persistent for future earnings than the revised tax change component. These results are consistent with my hypotheses that the initial and revised tax change components have differential persistence and forecasting implications, and dispute the broad notion advanced by prior literature that ETR-related earnings changes are transitory. Results from market tests indicate that the market underweights the forecasting implications of the tax change component and the mispricing appears to be driven by the transitory nature of the revised tax change component.
Market Efficiency, Effective Tax Rates, Earnings Persistence, Valuation
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