Journal article
An Examination of the Impact of Tax Avoidance on the Readability of Tax Footnotes
The Journal of the American Taxation Association, Vol.40(1), pp.1-29
03/01/2018
DOI: 10.2308/atax-51812
Abstract
ABSTRACT Due to the proprietary nature of tax returns, the tax footnote is the primary source of information for stakeholders about a firm's tax position. However, studies suggest the tax authority acquires information in tax disclosures, creating a trade-off for managers on whether to provide decision-useful information for stakeholders or conceal information from the tax authority. We investigate this trade-off by examining the readability of tax footnotes. We find a positive association between tax avoidance and tax footnote readability for firms with tax avoidance below the industry-year median, consistent with managers highlighting good performance in the form of tax savings with straightforward disclosures. In contrast, we find a negative association between tax avoidance and tax footnote readability for firms with levels of tax avoidance above the industry-year median, consistent with managers concealing tax avoidance from the tax authority. Reinforcing these results, we find that investors place a premium (discount) on tax avoidance when the tax footnote is straightforward in firms with tax avoidance below (above) the industry-year median.
Details
- Title: Subtitle
- An Examination of the Impact of Tax Avoidance on the Readability of Tax Footnotes
- Creators
- Kerry K Inger - Auburn UniversityMichele D Meckfessel - University of Missouri–St. LouisMi (Jamie) Zhou - Virginia Commonwealth UniversityWeiguo (Patrick) Fan - Virginia Polytechnic Institute and State University
- Resource Type
- Journal article
- Publication Details
- The Journal of the American Taxation Association, Vol.40(1), pp.1-29
- DOI
- 10.2308/atax-51812
- ISSN
- 0198-9073
- eISSN
- 1558-8017
- Language
- English
- Date published
- 03/01/2018
- Academic Unit
- Business Analytics
- Record Identifier
- 9984083869502771
Metrics
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