An Examination of Corporate Tax Shelter Participants

2009 ◽  
Vol 84 (3) ◽  
pp. 969-999 ◽  
Author(s):  
Ryan J. Wilson
Keyword(s):  
Financial Reporting ◽  
Abnormal Returns ◽  
Wealth Creation ◽  
Corporate Tax ◽  
Managerial Opportunism ◽  
Reporting Practices ◽  
Tax Shelter ◽  
Ex Post ◽  
Tax Shelters ◽  
Aggressive Financial Reporting

ABSTRACT: Recent evidence suggests that corporate tax shelters have become important corporate instruments for reducing tax burden. Based on a sample of identified tax shelter participants, I develop a profile of the type of firm that likely engages in tax sheltering. The model detects tax shelter participants through the use of variables predicted to be either affected by or associated with tax sheltering. I find that firms actively engaged in tax sheltering exhibit larger ex post book-tax differences and more aggressive financial reporting practices. Using this model of tax shelter firm characteristics, I identify a broad sample of predicted tax shelter firms from the population of firms. I then examine whether tax sheltering is associated with wealth creation for shareholders or with managerial opportunism. I find that active tax shelter firms with strong corporate governance exhibit positive abnormal returns. This finding is consistent with tax sheltering being a tool for wealth creation in well-governed firms.

Seeking Shelter: Empirically Modeling Tax Shelters Using Financial Statement Information

2010 ◽  
Vol 85 (5) ◽  
pp. 1693-1720 ◽  
Author(s):  
Petro Lisowsky
Keyword(s):  
Financial Statement ◽  
Tax Rates ◽  
Corporate Tax ◽  
Effective Tax Rates ◽  
Tax Havens ◽  
Tax Aggressiveness ◽  
Fin 48 ◽  
Tax Shelter ◽  
Long Run ◽  
Tax Shelters

ABSTRACT: Using confidential tax shelter and tax return data obtained from the Internal Revenue Service, this study develops and validates an expanded model for inferring the likelihood that a firm engages in a tax shelter. Results show that tax shelter likelihood is positively related to subsidiaries located in tax havens, foreign-source income, inconsistent book-tax treatment, litigation losses, use of promoters, profitability, and size, and negatively related to leverage. Supplemental tests show that total book-tax differences (BTDs) and the contingent tax liability reserve are significantly related to tax shelter usage, while discretionary permanent BTDs and long-run cash effective tax rates are not. Finally, the model is weaker, yet still significant, in the FIN 48 disclosure environment. This research provides investors and policymakers with an extended, validated measure to calculate the presence of extreme cases of corporate tax aggressiveness. Such information could also aid analysts and other tax and non-tax researchers in assessing the benefits and risks of firm behavior.

Attention to Evidence of Aggressive Financial Reporting and Intentional Misstatement Judgments: Effects of Experience and Trust

2007 ◽  
Vol 19 (1) ◽  
pp. 215-229 ◽  
Author(s):  
Jacob M. Rose
Keyword(s):  
Financial Reporting ◽  
Experimental Analysis ◽  
Reporting Practices ◽  
Specific Experience ◽  
Aggressive Financial Reporting ◽  
Dispositional Trust

This study extends prior research by examining the effects of dispositional trust, induced skepticism, and fraud-specific audit experience on attention to aggressive financial reporting practices and judgments of potential misstatement. In an experimental analysis using 125 practicing auditors, this study finds that auditors who are less trusting of others attend more to evidence of aggressive reporting than do more trusting auditors, and higher levels of induced skepticism increase attention to aggressive reporting. Further, auditors who pay more attention to evidence of aggressive reporting are more likely to believe that intentional misstatement occurred. General audit experience was not a predictor of auditors' attention to aggressive reporting or auditors' judgments about intentional misstatements. Auditors with more fraud-specific experience, however, were more likely than auditors with less fraud-specific experience to believe that intentional misstatement had occurred when evidence of aggressive reporting exists.

Reporting on the Past: A New Approach to Improving Accounting Today

1999 ◽  
Vol 13 (4) ◽  
pp. 315-322 ◽  
Author(s):  
Russell J. Lundholm
Keyword(s):  
Financial Reporting ◽  
Financial Statements ◽  
Financial Accounting ◽  
Practical Implementation ◽  
Wealth Creation ◽  
The Past ◽  
Knowledge Based ◽  
Ex Post ◽  
Knowledge Based Economy ◽  
Accounting Model

In the last few years the financial accounting model has been attacked on a number of fronts. Some argue that the model reports irrelevant information in today's knowledge-based economy, while others argue that the model's reporting discretion makes the results unreliable. Accruals allow the model to report wealth creation or depletion in a more timely manner, yet they also allow abuse when the underlying estimates are intentionally distorted. But surprisingly, the accuracy of the estimates underlying the accruals is never examined; rather current accruals are mixed together with the reversals of prior accruals. I propose that the financial reporting model be amended to report on the ex post accuracy of a firm's prior estimates. Doing so will identify firms that have abused their reporting discretion in the past and provide valuable information about the expected credibility of the firm's disclosures in the present. Firms will also have a greater incentive to make accurate estimates and accruals if they know that opportunistic estimates will be explicitly revealed in the future. Finally, accounting regulators might be more inclined to recognize nontraditional assets in the financial statements if a system is in place that gives firms an incentive to accurately estimate the value of these assets. In this paper I give an example of the type of disclosure I am proposing, discuss the benefits it offers to investors, and address some practical implementation issues.

Are Corporate Risk-Taking Practices Indicative of Aggressive Reporting Practices?

2017 ◽  
Vol 40 (1) ◽  
pp. 31-55 ◽  
Author(s):  
Mary Margaret Frank ◽  
Luann J. Lynch ◽  
Sonja Olhoft Rego ◽  
Rong Zhao
Keyword(s):  
Financial Reporting ◽  
Risk Taking ◽  
Positive Association ◽  
Managerial Opportunism ◽  
Reporting Practices ◽  
Sarbanes Oxley ◽  
Organic Growth ◽  
Asset Growth ◽  
Corporate Risk

ABSTRACT We examine empirically whether the manner of risk-taking in which firms engage is associated with aggressive reporting practices. Theoretical and anecdotal evidence suggests that firms face a trade-off between risk-taking and managerial opportunism as they seek to produce higher returns. In the period before the Sarbanes-Oxley Act of 2002 (SOX), we find that firms with more risk-taking through external asset growth are more likely to engage in aggressive reporting, but the reverse is true for firms with a practice of risk-taking through organic growth. Consistent with evidence in prior research on the improved quality of financial reporting after SOX, the positive association between a practice of risk-taking through asset growth and aggressive reporting is attenuated in the post-SOX period.

Voluntary versus mandatory non-financial disclosure

2019 ◽  
Vol 28 (5) ◽  
pp. 781-802 ◽  
Author(s):  
Federica Doni ◽  
Silvio Bianchi Martini ◽  
Antonio Corvino ◽  
Michela Mazzoni
Keyword(s):  
Financial Reporting ◽  
Financial Information ◽  
Communication Process ◽  
Initial Assessment ◽  
Financial Reports ◽  
Content Type ◽  
Reporting Practices ◽  
European Directive ◽  
Ex Post

Purpose The recent European Union Directive 95/2014 enforced a radical shift from voluntary to mandatory disclosure of non-financial information. Given radical changes in reporting practices, there is an urgent need to assess the firms’ attitude to disclose non-financial information regarding the new requirement. This paper aims to investigate whether the quantity and quality of non-financial information, voluntarily disclosed in the years before the directive came into force, were linked to the level of compliance. Design/methodology/approach Selecting a sample of 60 Italian companies from the obliged entities, the authors carried out a manual content analysis on corporate reports and developed some research hypotheses to explore if their sustainability practices can affect non-financial disclosures required by the Italian adoption of the European directive (i.e. Legislative Decree 254/2016). Findings Evidence showed that prior skills and competencies in non-financial reporting made a significant contribution especially regarding to the presence of business model, but further efforts are expected to improve the quality of non-financial reports. Practical implications This study yields an initial assessment of the implementation of the European directive in Italy. It may, therefore, help policymakers to identify ways to improve the harmonization of reporting practices. Preparers can also be supported in choosing different positioning of reporting on non-financial information. Originality/value This research provides interesting insights into the ex ante and ex post adoption of the European directive by investigating how Italian companies are reacting to regulatory and institutional requirements. One of the main problems remains the lack of a shared understanding of the term “non-financial”, which can make the communication process difficult and unclear.

Does the Presence of a General Counsel in Top Management Affect Audit Effort and Audit Outcomes?

2020 ◽  
Vol 34 (3) ◽  
pp. 39-59
Author(s):  
Marcus R. Brooks ◽  
Stephanie A. Hairston ◽  
Phillip Kamau Njoroge ◽  
Ji Woo Ryou
Keyword(s):  
Financial Reporting ◽  
Reporting Quality ◽  
Data Availability ◽  
Top Management ◽  
General Counsel ◽  
Audit Risk ◽  
Reporting Practices ◽  
Audit Market ◽  
Reporting Process ◽  
Aggressive Financial Reporting

SYNOPSIS This study examines whether the presence of a general counsel (GC) in top management affects audit effort and audit outcomes. Hopkins, Maydew, and Venkatachalam (2015) find that firms with GCs in top management have lower financial reporting quality and tolerate more aggressive financial reporting practices, which likely influences audit risk. Given the GCs' influence on the financial reporting process, we posit that auditors of firms with GCs in top management increase the amount of effort they expend to provide reasonable assurance that financial statements are stated fairly. We find that the presence of GCs in firms' top management is positively associated with audit effort but does not directly affect the likelihood that these firms will receive unqualified audit opinions that contain explanatory language. Our findings suggest that GCs influence the external audit market by participating in the financial reporting process. JEL Classifications: M42. Data Availability: Data are available from the public sources cited in the text.

Investor Perceptions of Government Deregulation: Evidence from Section 404 of the Sarbanes-Oxley Act

2020 ◽  
Author(s):  
Benjamin W Hoffman ◽  
John L. Campbell ◽  
Jason L. Smith
Keyword(s):  
Financial Reporting ◽  
Government Regulation ◽  
Abnormal Returns ◽  
Reporting Quality ◽  
Internal Controls ◽  
Litigation Risk ◽  
Section 404 ◽  
Fraud Risk ◽  
Sarbanes Oxley ◽  
Public Company

We investigate the stock market's reaction to events leading up to the Securities and Exchange Commission's (SEC) and Public Company Accounting Oversight Board's (PCAOB) 2007 regulatory changes that reduced the scope of and documentation requirements for assessments of firms' internal controls over financial reporting (ICFR), as required by Section 404 of the Sarbanes-Oxley Act. The stated goal of these regulations was to reduce firms' and auditors' compliance costs with mandatory ICFR assessments, while maintaining the effectiveness of these assessments. We examine abnormal returns surrounding key dates leading to the passage of these regulations and offer two main findings. First, investors reacted negatively on key event dates, suggesting that investors viewed the regulations as likely to reduce financial reporting quality rather than to drive firm and audit efficiencies. Second, this negative market reaction is larger when ICFR effectiveness should matter most - when firms are more complex, have higher litigation risk, and greater fraud risk. In additional analysis, we find that restatements increase in the post-regulation time period, consistent with investors' concerns that the effect of the legislation would be a reduction in ICFR effectiveness. Overall, our results may imply that investors prefer stronger government regulation when it comes to the assessments of a firm's internal controls over financial reporting.

scholarly journals The Impact of CSR on the Capital Structure of High-Tech Companies in Poland

2021 ◽  
Vol 13 (10) ◽  
pp. 5467
Author(s):  
Barbara Grabinska ◽  
Dorota Kedzior ◽  
Marcin Kedzior ◽  
Konrad Grabinski
Keyword(s):  
Capital Structure ◽  
Financial Reporting ◽  
Academic Research ◽  
Debt Financing ◽  
High Tech ◽  
High Tech Industry ◽  
Reporting Practices ◽  
Csr Reporting ◽  
The Impact ◽  
The Capital Structure

So far, CSR’s role in the high-tech industry is not fully explained by academic research, especially concerning the most burdensome obstacle to firms’ growth: acquiring debt financing. The paper aims to solve this puzzle and investigate whether young high-tech companies can attract more debt by engaging in CSR activity. To address the high-tech industry specificity, we divided CSR-reporting practice into three broad categories: employee, social, and environmental and analyzed their impact on the capital structure. Our sample consists of 92 firm-year observations covering the period 2014–2018. Using a regression method, we found out that only employee CSR plays a statistically significant role in shaping capital structure. We did not find evidence for the influence of the other types of CSR-reporting practices. The results suggest that employees are the key resource of high-tech companies, and, for this reason, they are at the management’s focus. This fact is visible at the financial reporting level and, as we interpret results, is also considered by credit providers. In a more general way, our results suggest that firms tend to choose CSR based on the importance of crucial resources.

Financial Reporting Practices in France

1976 ◽  
Vol 32 (1) ◽  
pp. 39-49 ◽  
Author(s):  
M. Edgar Barrett ◽  
Jean-Louis Roy
Keyword(s):  
Financial Reporting ◽  
Reporting Practices
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