The Incidence, Valuation and Management of Tax-related Reputational Costs: Evidence from a Period of Protest

2021 ◽  
Author(s):  
Dan S. Dhaliwal ◽  
Theodore H Goodman ◽  
P.J. Hoffman ◽  
Casey M Schwab
Keyword(s):  
Media Coverage ◽  
Abnormal Returns ◽  
Tax Avoidance ◽  
Social Protest ◽  
Tax Rates ◽  
Firm Characteristics ◽  
Political Costs ◽  
Time Invariant ◽  
Media Sentiment ◽  
Reputational Costs

We examine the incidence, valuation and management of tax-related reputational costs during 2011, a year of extensive social protest that temporarily increased scrutiny of corporate tax avoidance. We report three main results. First, tax avoidance is positively associated with negative media sentiment during the protest period (i.e., 2011). Second, a hedge portfolio long (short) in low (high) tax avoidance firms generates positive abnormal returns during the protest period. Third, firms experiencing the largest reputational costs during the protest period report higher tax rates in subsequent years. Supplemental analyses indicate tax-related media coverage increased during the protest period, and that the results are unlikely driven by political costs or other time-invariant firm characteristics. Our findings suggest that tax-related reputational costs are not pervasive. Instead, these costs only occur during periods of unusually high scrutiny, which helps explain prior studies' difficulties in providing large-sample evidence of tax-related reputational costs.

Examining Tax Strategy Choice

2021 ◽  
Author(s):  
Stevanie S. Neuman
Keyword(s):  
Tax Avoidance ◽  
Theoretical Work ◽  
Tax Planning ◽  
Tax Rates ◽  
Firm Characteristics ◽  
Effective Tax Rates ◽  
Tax Research ◽  
Reputational Costs ◽  
Distinct Approach ◽  
Strategy I

Most recent tax research examines the level of firms' effective tax rates (ETRs), focusing on tax avoidance. However, theoretical work and research on book-tax tradeoffs and reputational costs indicate some firms have other tax planning goals. Moreover, anecdotal evidence suggests consistent tax outcomes are important; therefore, the volatility of ETRs may be an alternative aspect of firms' tax planning. In this study, I find some firms utilize a second, distinct approach to tax strategy - maintaining low ETR volatility - by documenting systematic differences in firm characteristics associated with each tax strategy approach and a predictable shift in characteristics when firms change tax strategies. In combination, these results identify at least two distinct approaches to tax strategy. I also find firms exhibiting low ETR volatility earn significantly higher median buy-and-hold returns than firms exhibiting low ETR levels, consistent with benefits to alternative tax strategies.

An Examination of Reputational Costs and Tax Avoidance: Evidence from Firms with Valuable Consumer Brands

2017 ◽  
Vol 39 (1) ◽  
pp. 67-93 ◽  
Author(s):  
Chelsea Rae Austin ◽  
Ryan J. Wilson
Keyword(s):  
Tax Avoidance ◽  
Tax Rates ◽  
Effective Tax Rates ◽  
Reputational Costs

ABSTRACT We expect firms with the greatest exposure to reputational damage among consumers will engage in lower levels of tax avoidance to minimize unwanted scrutiny that could impair the firms' reputation. We identify a set of firms with valuable consumer reputation using Harris Interactive's EquiTrend survey, which surveys consumers about their perceptions of valuable and prominent brands. We find evidence in support of our hypothesis that firms with valuable brands will engage in less tax avoidance. Specifically, we find a positive and significant association between our measure of reputation and both the GAAP and cash effective tax rates (measured over one and three years). We find mixed evidence on whether there is a negative and significant association between reputation and the probability the firm is engaging in tax sheltering.

Joint Audit Engagements and Client Tax Avoidance: Evidence from the Italian Statutory Audit Regime

2018 ◽  
Vol 41 (1) ◽  
pp. 31-58 ◽  
Author(s):  
Pietro A. Bianchi ◽  
Diana Falsetta ◽  
Miguel Minutti-Meza ◽  
Eric Weisbrod
Keyword(s):  
Fixed Effects ◽  
Tax Avoidance ◽  
Data Availability ◽  
Tax Rates ◽  
Firm Characteristics ◽  
Professional Networks ◽  
Effective Tax Rates ◽  
Accounting Firms ◽  
The Public ◽  
Professional Network

ABSTRACT Under the Italian statutory audit regime, three individual accountants are jointly appointed to audit each client's annual financial statements and sign off on the tax return. These individuals can belong to the same or different accounting firms and through multiple and repeated collaborations they form a professional network. We use network measures of centrality to capture individuals' ability to acquire and apply tax expertise across clients. We demonstrate that clients engaging better-connected individual auditors have comparatively lower effective tax rates. Our results are robust to controlling for a number of client, individual, and accounting firm characteristics, as well as for alternative network connections between clients. We also use instrumental variables, individual fixed effects, and matching to mitigate the effect of endogenous pairing of clients and auditors. Our findings demonstrate that in a joint audit environment, individual auditor professional networks have consequences for tax outcomes. Data Availability: Data are obtainable from the public sources cited in the text and are available upon request.

Tax Avoidance and Tunneling: Empirical Analysis from an Agency Perspective

2015 ◽  
Vol 15 (3) ◽  
pp. 49-66 ◽  
Author(s):  
K. Hung Chan ◽  
Phyllis Lai Lan Mo ◽  
Tanya Tang
Keyword(s):  
Corporate Governance ◽  
Transition Economy ◽  
Tax Avoidance ◽  
Economic Consequences ◽  
Tax Rates ◽  
Agency Conflicts ◽  
Firm Characteristics ◽  
Minority Shareholders ◽  
Effective Tax Rates ◽  
Highly Correlated

ABSTRACT Taking advantage of the agency conflicts between controlling shareholders and minority shareholders and the weak corporate governance in a transition economy, we investigate the relationship between tax avoidance (proxied by effective tax rates) and tunneling (proxied by related-party lending) from a principal-principal agency perspective. We find that corporate tax avoidance is positively associated with tunneling after controlling for firm characteristics, corporate governance, and institutional factors that affect tunneling. This relationship is more pronounced for firms with cash shortages and in periods with relatively weak investor protection. In addition, the value-enhancing implications of tax avoidance are reduced for firms in which tax avoidance is highly correlated with tunneling. By demonstrating the existence of tunneling-related tax avoidance and its economic consequences, this study sheds light on the emerging agency perspective on tax avoidance. JEL Classifications: G18; H20; M41.

Media Coverage of Corporate Taxes

2018 ◽  
Vol 94 (5) ◽  
pp. 83-116 ◽  
Author(s):  
Shannon Chen ◽  
Kathleen Schuchard ◽  
Bridget Stomberg
Keyword(s):  
Media Coverage ◽  
Tax Avoidance ◽  
Data Availability ◽  
Corporate Taxes ◽  
Tax Rates ◽  
Effective Tax Rates ◽  
Economic Recessions ◽  
External Stakeholders ◽  
The Media ◽  
Negative Tone

ABSTRACT Managers express growing concern over media coverage of corporate taxes, yet no large-sample empirical study examines this phenomenon. As a first step to fill this void, we identify factors associated with the likelihood and negative tone of media tax coverage and examine firms' tax avoidance behavior following media tax coverage. We find the likelihood of media tax coverage is greater for firms with GAAP effective tax rates below the top U.S. statutory rate of 35 percent and for firms with greater visibility. The degree of negative tone is increasing in cash tax avoidance and firm size. We also find evidence of more frequent and more negative tax coverage during economic recessions. We find no evidence that firms reduce their tax avoidance following media coverage. Although our analyses are subject to limitations, our results suggest the media may not have the same influence over corporate tax policy as other external stakeholders. JEL Classifications: H25; H26; H20; M41; G39. Data Availability: Data are available from public sources identified in the paper.

The role of the media in socially responsible investing

2020 ◽  
Vol 38 (4) ◽  
pp. 823-841 ◽  
Author(s):  
Shan Lei ◽  
Yafei Zhang
Keyword(s):  
Media Coverage ◽  
News Coverage ◽  
Negative Relationship ◽  
Tax Avoidance ◽  
Computer Assisted ◽  
Media Content ◽  
Socially Responsible ◽  
Content Type ◽  
Media Sentiment ◽  
The Impact

PurposeThis study aims to understand how media content and media sentiment in corporate social responsibility (CSR) news coverage affect investment performance, as reflected in the S&P 500 Environmental and Socially Responsible Index from 2010 to 2016.Design/methodology/approachComputer-assisted content analysis and sentiment analysis are employed to analyze 818 CSR-related newspaper articles from mainstream newspapers. Autoregressive model is used to comprehend socially responsible investment (SRI) performance.FindingsThis study reveals the impact of media content and media sentiment of CSR-related news articles on SRI. The authors’ findings indicate that such topics as recognition of a company's CSR contributions in CSR-related news articles are positively associated with SRI performance, whereas topics such as tax avoidance and environmental protection show a negative relationship with SRI performance. In addition, this study contributes to the authors’ understanding of framing bias in investment by confirming a significant positive association between an uncertain or constraining media sentiment and SRI performance, as well as a negative relationship between a litigious sentiment and SRI performance.Originality/valueThere has been limited attention to examining the effect of media coverage of CSR on the financial market. Since SRI is one of the most useful financial indices for SRIs, it is meaningful to explore the relationship between media coverage of CSR and SRI. To fill the research gap, this study specifically examines how media coverage of CSR-related issues is associated with SRI performance.

A Study of Perceived Ethicality of Low Corporate Effective Tax Rates

2017 ◽  
Vol 32 (1) ◽  
pp. 87-104 ◽  
Author(s):  
F. Todd DeZoort ◽  
Troy J. Pollard ◽  
Edward J. Schnee
Keyword(s):  
Mediation Analysis ◽  
General Public ◽  
Tax Avoidance ◽  
Tax Rates ◽  
Perceived Fairness ◽  
Effective Tax Rate ◽  
Effective Tax Rates ◽  
Tax Rate ◽  
Policy Practice ◽  
Participant Group

SYNOPSIS U.S. corporations have the ability to avoid paying domestic taxes to achieve an effective tax rate that is much lower than the statutory federal tax rate. This study evaluates the extent that individuals differ in their attitudes about the ethicality of corporations avoiding domestic taxes to achieve low effective tax rates. We also examine the extent to which the specific tax avoidance method used by corporations to access a low effective tax rate affects perceived ethicality. Eighty-two members of the general public and 112 accountants participated in an experiment with two participant groups and three tax avoidance methods manipulated randomly between subjects. The results indicate a significant interaction between participant group and tax avoidance method, with the general public considering shifting profits out of the country to achieve a low effective tax rate to be highly unethical, while the accountants find tax avoidance from carrying forward prior operating losses to be highly ethical. Further, mediation analysis indicates that perceived fairness and legality mediate the effects of participant type on perceived ethicality. Mediation analysis also reveals that sense of fairness and legality mediate the link between tax avoidance method and perceived ethicality. We conclude by considering the study's policy, practice, and research implications.

scholarly journals Assessing impact of base erosion and profit shifting on performance of subsidiaries of multinational corporations in Baltic countries

Equilibrium ◽  
2019 ◽  
Vol 14 (2) ◽  
pp. 277-293
Author(s):  
Egidijus Kundelis ◽  
Renata Legenzova
Keyword(s):  
Multinational Corporations ◽  
Empirical Research ◽  
Tax Avoidance ◽  
Empirical Literature ◽  
Company Performance ◽  
Tax Rates ◽  
Profit Shifting ◽  
Baltic Countries ◽  
The Baltic ◽  
The Impact

Research background: The problem of base erosion and profit shifting by multi-national corporations has been debated from different perspectives because of its multiple impact on the key actors in the economy. Studies refer to its positive impact on companies via corporate taxes saved, but its negative impact on governments via reduced tax collection. A number of empirical studies conducted in different countries support the substantial BEPS impact on company performance, but report differences in its magnitude. Other authors claim that, despite a wide range of tax avoidance opportunities available, tax avoidance is limited due to institutional measures imposed (tax audits, penalties for non-compliance) and high implementation costs. A majority of the previous empirical research covered large countries (USA, Germany) or regions (e.g. Europe), but there is a gap in the re-search assessing the BEPS impact on multinational corporations’ subsidiaries’ performance in countries with lower corporate income tax rates such as the Baltic countries. Purpose of the article: To assess the impact of base erosion and profit shifting on multinational corporations’ subsidiaries’ performance in the Baltic countries. Methods: Empirical research is conducted based on the framework employed by Hines and Rice (1994) to measure BEPS impact on company performance. Regression analysis with fixed effects was applied to a sample of 3,422 Latvian, Lithuanian and Estonian subsidiaries of multinational corporations, which are characterized by low corporate tax rates.  The data for the period of 2007–2015 was retrieved from the Amadeus database. Findings & Value added: The research revealed that Baltic countries’ tax differentials between multinational corporations’ parent and subsidiary countries might have a significant impact on the subsidiary’s financial performance. When the tax rate differences between Baltic and the foreign countries decrease by 1%, reported profits in Baltic countries increase by 2.3%, indicating profit-shifting behaviour. This is in line with the empirical literature and practices applied by multinational corporations. It is also in favour of anti-tax avoidance measures introduced by the EC to be adopted by Baltic and other EU countries.

scholarly journals PENGARUH PENGHINDARAN PAJAK TERHADAP BIAYA HUTANG PASCA PERUBAHAN TARIF PAJAK BADAN PADA PERUSAHAAN MANUFAKTUR YANG TERDAFTAR DI BURSA EFEK INDONESIA

2016 ◽  
Vol 3 (2) ◽  
pp. 113
Author(s):  
Nining Purwanti
Keyword(s):  
Panel Data Analysis ◽  
Tax Avoidance ◽  
Negative Influence ◽  
Cost Of Debt ◽  
Tax Rates ◽  
Rate Reduction ◽  
Tax Rate ◽  
Study Find ◽  
Tax Reduction ◽  
The Cost

The aim of the research is to analyze tax avoidance behavior to cost of debt moderated by tax rates changes, on manufacturing company in Indonesia in 2008-2010. Panel data analysis is used in this research. In this study usingbook tax gap to measure tax avoidance and using the models used by Lim (2010), Dwi Martani (2011) and Widya Sartika (2012) to meansure cost of debt. The study find that tax avoidance has negative influence on cost of debt. Tax avoidance creates a risk thereby increasing the cost of debt. In the period before tax rate reduction the influence of tax avoidance on cost of debt smaller compare after period of tax reduction, this indicates the presence of earning management conducted by the company before tax rate reduction.

scholarly journals Policing and Racial (In)Justice in the Media: Newspaper Portrayals of the “Black Lives Matter” Movement

2020 ◽  
Vol 1 (1) ◽  
Author(s):  
Janani Umamaheswar
Keyword(s):  
Media Coverage ◽  
Social Protest ◽  
Negative Consequences ◽  
Political Climate ◽  
Protest Movements ◽  
The Public ◽  
Black Lives Matter ◽  
Recent Emergence ◽  
Public Nuisance ◽  
The Media

The “Black Lives Matter” movement, centered on fighting racial injustice and inequality (particularly in the criminal justice system), has garnered a great deal of media attention in recent years. Given the relatively recent emergence of the movement, there exists very little scholarly research on media portrayals of the movement. In this article, I report findings from a qualitative examination of major newspaper portrayals of the Black Lives Matter (BLM) movement between April and August 2016, before the particularly divisive 2016 presidential election. Inductive textual analyses of 131 newspaper articles indicate that, although the movement’s goals were represented positively and from the perspective of members of the movement, the newspapers politicized and sensationalized the movement, and they focused far more on supposed negative consequences of the movement. I discuss these findings by drawing on the “protest paradigm” and the “public nuisance paradigm” in media coverage of social protest movements, arguing that the latter is particularly useful for interpreting portrayals of Black Lives Matter in the prevailing US political climate.

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