Table A1 Definition of variables... | Emerald Publishing

Table A1

Definition of variables

Variable	Definition
Bankruptcy	A dummy variable that takes one if the Altman score is < 1.81 and the firm filed for Chapter 11.
Earnings	Net income before extraordinary items (Compustat #18), scaled by lagged market value of equity (Compustat #125 * Compustat #199).
RET	Annual stock return from nine months before fiscal year-end of three months after fiscal year-end from CRSP.
ROA	Net income (Compustat #172) divided by total assets (Compustat #6).
ETL	EBITDA (Compustat #13) divided by total liabilities (Compustat #181). EBITDA is earnings before interest, taxes, depreciation, and amortization.
LTA	Total liabilities (Compustat #181) divided by total assets (Compustat #6).
LSIGMA	The standard deviation of the residual return from a regression of twelve monthly returns of the firm on monthly returns of the market index.
Size	The natural log of market value of equity (Compustat #25 * Compustat #199).
Leverage	Total debt (Compustat #9 + Compustat #34) scaled by total assets (Compustat #6).
MTB	The market-to-book ratio ((Compustat #25 * Compustat #199) / Compustat #60).
LitiCost-Aud	A binary variable that equals one if the code of a firm’s auditor (Compustat #149) is from one to eight, and zero otherwise.
TaxCost	Following Qiang (2007), we measure TaxCost as the association between book income and tax income estimated from time-series regression TX_jt = β_0j + β_jt BKTX_jt + ε_jt for firm j over the sample period, where BKTX_jt is tax expense for firm j in year t (Compustat #16) and TX jt is tax expense minus deferred tax expense (Compustat #16 – Compustat #50); all variables are deflated by lagged total assets (Compustat #6).
Reg	The firm’s regulation cost is measured following Qiang (2007). It a dummy variable that equals 1 if sales deflated by industry total sales/the number of firms in the industry is of top quartile, and 0 otherwise; sales is Compustat #12
C-score	The firm-year measure of conservatism as in Khan and Watts (2009).
CR	The conservatism ratio measure of Callen et al. (2010) computed as the earnings surprise divided by earnings news.
NOA	Negative cumulative non-operating accruals over the sample period deflated by beginning total assets, multiplied by negative one, as in Givoly and Hayn (2000).

Variable	Definition
Bankruptcy	A dummy variable that takes one if the Altman score is < 1.81 and the firm filed for Chapter 11.
Earnings	Net income before extraordinary items (Compustat #18), scaled by lagged market value of equity (Compustat #125 * Compustat #199).
RET	Annual stock return from nine months before fiscal year-end of three months after fiscal year-end from CRSP.
ROA	Net income (Compustat #172) divided by total assets (Compustat #6).
ETL	EBITDA (Compustat #13) divided by total liabilities (Compustat #181). EBITDA is earnings before interest, taxes, depreciation, and amortization.
LTA	Total liabilities (Compustat #181) divided by total assets (Compustat #6).
LSIGMA	The standard deviation of the residual return from a regression of twelve monthly returns of the firm on monthly returns of the market index.
Size	The natural log of market value of equity (Compustat #25 * Compustat #199).
Leverage	Total debt (Compustat #9 + Compustat #34) scaled by total assets (Compustat #6).
MTB	The market-to-book ratio ((Compustat #25 * Compustat #199) / Compustat #60).
LitiCost-Aud	A binary variable that equals one if the code of a firm’s auditor (Compustat #149) is from one to eight, and zero otherwise.
TaxCost	Following Qiang (2007), we measure TaxCost as the association between book income and tax income estimated from time-series regression TX_jt = β_0j + β_jt BKTX_jt + ε_jt for firm j over the sample period, where BKTX_jt is tax expense for firm j in year t (Compustat #16) and TX jt is tax expense minus deferred tax expense (Compustat #16 – Compustat #50); all variables are deflated by lagged total assets (Compustat #6).
Reg	The firm’s regulation cost is measured following Qiang (2007). It a dummy variable that equals 1 if sales deflated by industry total sales/the number of firms in the industry is of top quartile, and 0 otherwise; sales is Compustat #12
C-score	The firm-year measure of conservatism as in Khan and Watts (2009).
CR	The conservatism ratio measure of Callen et al. (2010) computed as the earnings surprise divided by earnings news.
NOA	Negative cumulative non-operating accruals over the sample period deflated by beginning total assets, multiplied by negative one, as in Givoly and Hayn (2000).