Using a large U.S. sample, we find a significant and positive relation between patents and corporate tax planning, and the effect is incremental to the effect of R&D on tax planning. We employ a quasi‐natural experiment based on staggered industry‐level innovation shocks to identify the positive causal effect of patents on corporate tax planning. We also find that patents are not associated with tax planning for domestic firms, but their association with tax planning is concentrated in multinational firms, which have the ability to shift domestic income to low‐tax countries. Moreover, we find that the identified effect mainly exists in the post‐check‐the‐box (CTB) rule period when shifting income among affiliates becomes more flexible and convenient. Finally, we use two income shifting models and find that patents, rather than R&D, facilitate tax planning through an income shifting channel. Overall, our results suggest that R&D and patents facilitate firms’ tax planning in distinct ways: R&D facilitates tax planning as intended through tax credits and deductions, whereas patents are used by taxpayers to avoid taxes aggressively through income shifting.

We find a negative relationship between managerial ability and tax aggressiveness. The result is robust to a wide range of measures of tax aggressiveness, inclusion of firm fixed effects, and the use of a difference-in-differences approach using information regarding CEO turnover to control for endogeneity. Further tests show that this negative relationship is more pronounced for firms with higher investment opportunities or firms with more reputational concerns. Given the significant costs associated with tax aggressiveness and the negative effect it can have on managerial reputation if discovered, our results suggest that more able managers invest less effort in aggressive tax avoidance activities.

We utilize Chinese audit firms' organizational transformation to identify the increase in auditors’ legal liability and find that after auditors transform into limited liability partnerships (LLPs), their clients demonstrate lower future stock price crash risk. Using the path analysis, we find that accounting conservatism, optimism in management earnings forecasts, and optimism in management discussion and analysis (MD&A) disclosures explain the negative relationship between auditor legal liability and client crash risk. The results are less pronounced for auditors finishing the transformation in an early stage than for auditors subject to the mandatory transformation in 2013, as the former generally has a larger size and higher audit quality before the transformation. Overall, this study complements the existing literature on litigation risk and the auditor’s monitoring role in the client information environment.

We adopt the policy of “Opinion on Corporate Mergers and Acquisitions” (OCMA) issued by the State Council of China in 2010 as an exogenous experiment to examine the corporate bidding decisions and the post-merger performance. While the policy encourages more corporate bidding decisions, the policy-driven mergers are not appreciated by the market investors at the time of announcements. The policy-driven M&As, on average, do not increase firm performance unless those acquirers possess a high pre-merger value of internal financial sufficiency or market power. The additional analysis shows that the insignificant positive effect of the policy-driven M&As is because the value created by the non-SOE acquirers is offset by the value decreased by the SOE acquirers. The value creation in non-SOE acquirers remains consistent at different levels of financial strength and market power. Differently, policy-driven M&As decrease (increase) value for SOE acquirers with a medial and low (high) pre-merger level of financial strength or market power.

Using a data sample of 93 Chinese reverse-merger (CRM) firms listed in the U.S. over the period from 2000 to 2011, we find supporting evidence of poorer financial reporting quality exhibited by CRM firms relative to their respective US counterparts. Our main result indicates that while poor financial reporting quality induces information risk/asymmetry, higher (lower) information risk fails to be associated with higher (lower) expected returns. In contrast with prior studies that document information risk as non-diversifiable and a priced risk factor, the value relevance of the CRM firms’ financial reporting quality, in terms of information asymmetry-based premiums, is found to be remote.