Mayberry is an expert in how taxes affect corporate behavior, how the tax system affects flow through entities (S-corporations) versus bigger businesses (C-corporations), and how firms minimize taxes.
Industry Expertise (3)
Areas of Expertise (10)
Tax System Effects on Large and Small Companies
Non-GAAP Reporting of Income Taxes
Federal Accounting Standards Board
Taxes and Corporate Behavior
Accounting for Income Taxes
How Firms Minimize Taxes
Media Appearances (1)
‘Street’ effective tax rates are more useful in predicting companies’ future tax outcomes, study finds
Notre Dame News online
“Street vs. GAAP: Which Effective Tax Rate Is More Informative?” is forthcoming in Contemporary Accounting Research from Erik Beardsley, assistant professor of accountancy at Notre Dame’s Mendoza College of Business, along with Michael Mayberry at University of Florida and Sean McGuire at Texas A&M University. The study finds that street ETRs provided by analysts do a better job of predicting future tax outcomes than the ETR included in financial reports prepared using GAAP. The study also finds that the market responds to street tax information more than GAAP tax information, suggesting investors find street tax expense more relevant for their decisions.
Risk-Taking Incentives and Earnings Management: New EvidenceContemporary Accounting Research
Michael Mayberry, Hyun Jong Park, Tian Xu
2021 We reexamine the positive association between stock option vega and earnings management previously documented in Armstrong et al. (2013; ALOT). In contrast to ALOT, prior empirical research and practitioner literature emphasizes earnings management's goals of increasing stock price and reducing volatility. Specifically, we assess whether the association is robust to (i) employing discretionary accruals that are less prone to misspecification, (ii) focusing on a more recent time period, and (iii) including additional controls for period-specific factors. Our main findings are as follows. First, we fail to find a positive association between vega and earnings management after controlling for performance-related misspecification in discretionary accruals. Second, we find no association between vega and earnings management in a more recent time period, suggesting the results of ALOT may be sensitive to period-specific factors. Lastly, the positive association vanishes when we control for year fixed effects, growth opportunities, or monitoring, suggesting the original ALOT's results may be sensitive to correlated, omitted variables. Overall, our results question the extent to which vega incentivizes earnings management. Our results may be of interest to boards of directors in designing executive compensation contracts; to regulators in crafting policies that maintain high levels of financial reporting quality; and to researchers seeking to identify settings where earnings management incentives are most salient.
The Shareholder Response to Corporate Tax Planning Advice RegulationSSRN
Michael P Donohoe, Brian Gale, Michael Mayberry
2021 We examine the shareholder response to heightened regulation of corporate tax planning advice through the covered opinions rules under U.S. Treasury Department Circular No. 230. These rules imposed extensive due diligence obligations and drafting requirements on tax professionals for a broad range of written tax advice. Despite overwhelming criticism from tax professionals, stock returns reveal a positive shareholder response to the promulgation of the rules, equating to a $12.33 billion aggregate increase in shareholder value. Consistent with shareholders believing that the benefits of the rules—deterrence of excessively risky tax planning and increased monitoring—would offset the burdens, we find that the shareholder response was more positive for firms with higher tax risk, weaker monitoring, and higher tax risk coupled with weaker monitoring. Overall, these findings provide new evidence that shareholders perceive regulations aiming to curtail risky tax planning as value enhancing when they target tax professionals rather than taxpayers.
Is Corporate Social Responsibility Related to Corporate Tax Avoidance? Evidence from a Natural ExperimentThe Journal of the American Taxation Association
Michael A Mayberry, Luke Watson
2021 We employ states' enactment of constituency statutes as plausibly exogenous shocks to the marginal cost of corporate social responsibility (CSR) and examine the relation between CSR and corporate tax avoidance. We find almost no evidence of an association between the enactment of constituency statutes and tax avoidance. We use confidence intervals and other analysis to rule out low power as an explanation. Using an instrumental variables design, we find evidence that third-party CSR scores increase following constituency statutes, yet without a detectable impact on tax avoidance. The lack of results across multiple proxies and specifications suggests firms decouple CSR from tax policy. Our study introduces a strong identification strategy common in management research to the accounting literature, producing a novel no-result finding on a popular research question.
Street vs. GAAP: Which Effective Tax Rate Is More Informative?SSRN
Erik Beardsley, Michael Mayberry, Sean T McGuire
2020 This study investigates how sophisticated market participants use tax-based information by examining whether analysts’ street effective tax rates (ETRs) are informative. When forecasting and assessing firm performance, analysts often exclude certain items they believe do not reflect current performance, resulting in “street” metrics such as street ETR. Using a hand-collected sample of analyst reports, we find that approximately 35 percent of street ETRs have at least one tax-specific exclusion, and over 90 percent have tax effects of pre-tax exclusions. Consistent with analysts’ understanding the implications of tax and non-tax exclusions, our results suggest that street ETRs are more informative than GAAP ETRs. We investigate variation in analysts’ ETR exclusions and find that ETR exclusions are of higher quality when the magnitude of the potential excluded item is greater and when managers disclose pro forma earnings. These results provide a nuanced view of the extent that analysts incorporate tax-based information into their assessment of firm performance. Collectively, our findings suggest that analysts understand taxes, but selectively exert effort to understand and incorporate tax-based information into their assessment of firm performance.
Good for managers, bad for society? Causal evidence on the association between risk-taking incentives and corporate social responsibilityJournal of Business Finance & Accounting
2020 Using FAS 123R as an exogenous shock to stock options, I provide evidence that equity-based risk-taking incentives discourage corporate social responsibility (CSR). This finding suggests that compensation incentives can motivate managers not to pursue CSR strategies because CSR reduces firms’ risk and provides insurance-like benefits. Firms with a greater demand for CSR's risk reduction are more sensitive to changes in risk-taking incentives. I triangulate my results by confirming that CSR weaknesses are positively related to subsequent stock return volatility. Overall, using a robust empirical design, I find that risk-taking incentives are a determinant of firms’ CSR.