The Effects of Regulatory Scrutiny on Tax Avoidance: An Examination of SEC Comment Letters

2016 ◽  
Vol 91 (6) ◽  
pp. 1751-1780 ◽  
Author(s):  
Thomas R. Kubick ◽  
Daniel P. Lynch ◽  
Michael A. Mayberry ◽  
Thomas C. Omer
Keyword(s):  
Indirect Effect ◽  
Avoidance Behavior ◽  
Tax Avoidance ◽  
Regulatory Scrutiny ◽  
Comment Letters ◽  
To Receive ◽  
Tax Costs

ABSTRACT This study examines the tax avoidance behavior of firms prior to the issuance, and following the resolution, of SEC tax comment letters. We find that firms that appear to engage in greater tax avoidance are more likely to receive a tax-related SEC comment letter. We also find that firms receiving a tax-related SEC comment letter, relative to firms receiving a non-tax comment letter, subsequently decrease their tax avoidance behavior consistent with an increase in expected tax costs. Additionally, we document evidence consistent with other firms that do not receive a comment letter reacting to multiple publicly disclosed tax-related comment letters within their industry by increasing their reported GAAP ETR, consistent with an indirect effect of regulatory scrutiny on certain types of tax avoidance.

The Effects of Regulatory Scrutiny on Tax Avoidance: An Examination of SEC Comment Letters

2014 ◽  
Author(s):  
Thomas R. Kubick ◽  
Dan Lynch ◽  
Michael A. Mayberry ◽  
Thomas C. Omer
Keyword(s):  
Tax Avoidance ◽  
Regulatory Scrutiny ◽  
Comment Letters

Network Ties Among Low-Tax Firms

2013 ◽  
Vol 89 (2) ◽  
pp. 483-510 ◽  
Author(s):  
Jennifer L. Brown ◽  
Katharine D. Drake
Keyword(s):  
Social Network ◽  
Avoidance Behavior ◽  
Tax Avoidance ◽  
Executive Directors ◽  
Network Ties ◽  
Board Interlocks ◽  
Network Connections ◽  
Focal Firm ◽  
Avoidance Strategies ◽  
Network Partner

ABSTRACT This study examines (1) whether network ties help explain variation in tax avoidance, and (2) how the relation between network ties and tax avoidance varies depending on the nature and context of those ties. We posit that information on a range of tax-avoidance strategies is shared among firms through their social network connections. Using board interlocks to proxy for these connections, we find that firms with greater board ties to low-tax firms have lower cash ETRs themselves. Ties to low-tax firms are more influential when the focal firm and its network partner are operationally and strategically similar, as are ties created by executive directors. Board ties to low-tax firms are also more influential when the focal firm and its network partner engage the same local auditor. Overall, our results suggest that the influence of firms' network ties on their tax-avoidance behavior depends on the character of those ties.

Institutional Shareholders' Investment Horizons and Tax Avoidance

2012 ◽  
Vol 35 (1) ◽  
pp. 111-134 ◽  
Author(s):  
Inder K. Khurana ◽  
William J. Moser
Keyword(s):  
Avoidance Behavior ◽  
Firm Value ◽  
Tax Avoidance ◽  
Institutional Ownership ◽  
Managerial Opportunism ◽  
Tax Savings ◽  
Institutional Shareholders

ABSTRACT: We investigate whether the level of ownership by institutional shareholders with a long-term horizon is associated with firms' tax avoidance activities. In theory, tax avoidance increases firm value through tax savings; however, institutions with long-term investment horizons are likely to discourage tax avoidance activities if such activities encourage managerial opportunism and reduce transparency. Using a sample of firms with institutional ownership data from 1995–2008, we find less tax avoidance in firms held by long-term institutional shareholders. Probing further, we find these results are generally driven by poorly governed firms. Overall, our results highlight the role of certain types of institutional shareholders in affecting a firm's tax avoidance behavior.

scholarly journals The Usefulness Of The Tax Avoidance Proxy: Evidence From Korea

2016 ◽  
Vol 32 (2) ◽  
pp. 607
Author(s):  
Hyun-Ah Lee
Keyword(s):  
Financial Reporting ◽  
Tax Avoidance ◽  
Tax Planning ◽  
Large Set ◽  
Tax Shelters ◽  
Simultaneous Management ◽  
Tax Reporting ◽  
Tax Costs

This study aims to verify the usefulness of the tax avoidance proxy developed by Desai and Dharmapala (2006) in the setting where accounting-tax alignment is relatively high and aggressive tax planning is restricted. By using a large set of firms in Korea, I empirically test whether the tax avoidance proxy detects the management of book-tax and book-only accruals. My findings show that downward management of book-tax accruals for tax reporting purposes is not detected by the tax avoidance proxy. However, upward management of book-only accruals for financial reporting purposes is captured by the tax avoidance proxy. In addition, the tax avoidance proxy better detects simultaneous management of two accrual components than management of book-tax accruals alone. Lastly, the tax avoidance proxy is more powerful in detecting tax avoidance activities in a sample of firms with high tax and financial reporting costs than in firms that carry high tax costs but low financial reporting costs. The results of this study imply that the tax avoidance proxy can be a good indicator only when used for firms that are conscious of their financial reporting costs and have incentive to manage both taxable and book income at the same time under the setting where book-tax conformity is high and aggressive tax shelters are restricted. This study sheds light on the usefulness of the tax avoidance proxy which has been widely used in the accounting studies and provides a caveat to researchers that the proxy should be employed with caution and in appropriate setting. 

Do more financing obstacles trigger tax avoidance behavior? Evidence from Indian SMEs

2019 ◽  
Vol 44 (1) ◽  
pp. 161-178
Author(s):  
Mohamed A. Elbannan ◽  
Omar Farooq
Keyword(s):  
Avoidance Behavior ◽  
Tax Avoidance

Tax avoidance and firm value: evidence from China

2014 ◽  
Vol 5 (1) ◽  
pp. 25-42 ◽  
Author(s):  
Xudong Chen ◽  
Na Hu ◽  
Xue Wang ◽  
Xiaofei Tang
Keyword(s):  
Avoidance Behavior ◽  
Firm Value ◽  
Agency Costs ◽  
Fixed Effects ◽  
Tax Avoidance ◽  
Developed Countries ◽  
Corporate Tax ◽  
Content Type ◽  
Information Transparency ◽  
Negative Tone

Purpose – The purpose of this study is to examine whether corporate tax avoidance behavior increases firm value in Chinese context. A large number of studies conduct their designs on the consumption that tax avoidance represents wealth transfer from government to enterprises and therefore enhances firm value. This study argues that, contrast to developed countries, tax avoidance does not necessarily add value to opaque Chinese firms relative to transparent counterparts due to higher agency costs. Design/methodology/approach – Using a large sample of Chinese listed-firms data for the period 2001-2009 and fixed effects regression model, this study examines the relation between tax avoidance and firm value. A series of robustness checks are conducted to alleviate the concern of endogeneity. Findings – The authors find that tax avoidance behavior increases agency costs and reduces firm value. The authors further find that information transparency interacts with corporate tax avoidance, moderating the relation between tax avoidance and firm value. Investors in China react negatively to corporate tax avoidance behavior, but this negative reaction could be mitigated by information transparency. The results are robust to a series of alternative treatments, including varied measures, first-order differential approach and 2SLS. Originality/value – The results suggest that tax avoidance does not necessarily increase firm value, part of gains are encroached by self-serving managers. Moreover, investors in China downplay the significance of tax avoidance, although corporate information transparency could soften their negative tone.

scholarly journals EVALUASI TINDAK LANJUT PENGELAKAN PAJAK MODUS CROSS-BORDER TRANSACTION DI INDONESIA DENGAN KEBIJAKAN AUTOMATIC EXCHANGE OF INFORMATION FOR TAX PURPOSE

Scientax ◽  
2019 ◽  
Vol 1 (1) ◽  
pp. 58-74
Author(s):  
Ryan Mohammad ◽  
Helmi Zus Rizal
Keyword(s):  
Research Design ◽  
Significant Role ◽  
Avoidance Behavior ◽  
Tax Avoidance ◽  
Difference In Difference ◽  
Indonesian Government ◽  
Financial Centre ◽  
Cross Border ◽  
Exchange Of Information ◽  
Compliance Behavior

The Implementation of Exchange of Information for Tax Purposes policy in the second quarter of 2017 is Indonesian Government efforts to mitigate tax avoidance behavior by using a cross-border transaction. In this paper, we research the effect of the policy to Indonesian resident behavior compliance with Difference-in-difference research design using cross-border deposit Indonesian resident data as a proxy for behavior compliance Indonesian resident who does cross border transaction. The observation started from the first quarter of 2008 until the first quarter of 2019, which results in the decrease of cross-border deposit Indonesian resident in Offshore Financial Centre about 25,9%. Furthermore, the results continue that not every cross-border deposit Indonesian resident repatriated or declared in Indonesian, but shifting into other countries who had not to comply to exchange of information policies around 4,6%. These results suggest that the implementation exchange of information for tax purpose policies had a significant role to increase the enforce compliance behavior of Indonesian resident.

scholarly journals The Decreasing Trend in U.S. Cash Effective Tax Rates: The Role of Growth in Pre-tax Income

2020 ◽  
Author(s):  
Alexander Edwards ◽  
Adrian David Kubata ◽  
Terry Shevlin
Keyword(s):  
Convex Function ◽  
Avoidance Behavior ◽  
Tax Avoidance ◽  
Downward Trend ◽  
Tax Rates ◽  
Corporate Tax ◽  
Effective Tax Rates ◽  
Over Time ◽  
Stable Linear

We develop a linear corporate tax function where taxes paid are regressed on pre-tax income and an intercept. We show that if the intercept is positive, cash ETRs are a convex function of pre-tax income. We present large sample evidence consistent with this ETR-convexity. Thus, although firms may have stable linear tax functions (i.e., constant parameters in the linear tax model) representing stable tax avoidance behavior, ETRs can change over time because of growth in pre-tax income. Consequently, simply examining changes (or differences) in cash ETRs is nondiagnostic about whether tax avoidance has changed over time (or differs across firms). We illustrate our argument by showing that all of the observed downward trend in cash ETRs documented by Dyreng et al. (2017) can be explained by growth in pre-tax income. The wholesale concern about increased tax avoidance over time might be overstated.

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