1,721,009 research outputs found
What do firms do when dividend tax rates change? An examination of alternative payout responses
No full textThis paper investigates whether investor-level taxes affect corporate payout policy decisions. We predict and find a surge of special dividends in the final months of 2010 and 2012, immediately before individual-level dividend tax rates were expected to increase. We also find evidence that immediately before the expected tax increases, firms altered the timing of their regular dividend payments by shifting what would normally be January regular dividend payments into the preceding December. To our knowledge this is the first evidence in the literature about changes in the timing of regular dividend payments in response to tax law changes. For both actions (specials and shifting), we find that it was more likely for a firm to respond to individual-level tax rates if insiders owned a relatively large amount of the firm. Overall, our paper provides evidence that managers consider individual-level taxes in making corporate payout decisions. Keywords: Dividend taxes, payout polic
Taking the Long Way Home: U.S. Tax Evasion and Offshore Investments in U.S. Equity and Debt Markets
Full text linkWe empirically investigate one form of illegal investor-level tax evasion and its effect on foreign portfolio investment. In particular, we examine a form of round-tripping tax evasion in which U.S. individuals hide funds in entities located in offshore tax havens and then invest those funds in U.S. securities markets. Employing Becker's (1968) economic theory of crime, we identify the tax evasion component by examining how foreign portfolio investment varies with changes in the incentives to evade and the risks of detection. To our knowledge, this is the first empirical evidence of investor-level tax evasion affecting cross-border equity and debt investment
A review of tax research
Full text linkIn this paper, we present a review of tax research. We survey four main areas of the literature: (1) the informational role of income tax expense reported for financial accounting, (2) corporate tax avoidance, (3) corporate decision-making including investment, capital structure, and organizational form, and (4) taxes and asset pricing. We summarize the research areas and questions examined to date and what we have learned or not learned from the work completed thus far. In addition, we provide our opinion as to the interesting and important issues for future research
The effect of repatriation tax costs on U.S. multinational investment
Full text linkThis paper investigates whether the U.S. repatriation tax for U.S. multinational corporations affects foreign investment. Our results show that the locked-out cash due to repatriation tax costs is associated with a higher likelihood of foreign (but not domestic) acquisitions. We also find a negative association between tax-induced foreign cash holdings and the market reaction to foreign deals. This result suggests that the investment activity of firms with high repatriation tax costs is viewed by the market as less value-enhancing than that of firms with low tax costs, consistent with foreign investment of firms with high repatriation tax costs possibly reflecting agency-driven behavior. Keywords: Cash; Investment; Ta
The taxman cometh: Does tax uncertainty affect corporate cash holdings?
No full textWe examine whether firms hold more cash in the face of tax uncertainty. Because of gray areas in the tax law and aggressive tax avoidance, the total amount of tax that a firm will pay is uncertain at the time it files its returns. The tax authorities can challenge and disallow the firm’s tax positions, demanding additional cash tax payments. We hypothesize that firms facing greater tax uncertainty hold cash to satisfy these potential future demands. We find that both domestic firms and multinational firms hold larger cash balances when subject to greater tax uncertainty. In terms of economic significance, we find that the effect of tax uncertainty on cash holdings is comparable to that of repatriation taxes. Our evidence adds to knowledge about the real effects of tax avoidance and provides a tax-based precautionary explanation for why there is such wide variation in cash holdings across firms
Audit fees and book-tax differences
Full text linkWe investigate whether book-tax differences are associated with higher audit fees, a proxy for auditor risk assessments and auditor effort. Our evidence suggests that there is a significantly positive relation. Further, this association is larger for firms that appear to have managed earnings (i.e., have high accruals) relative to those that are tax avoiders (i.e., have low cash effective tax rates). Our evidence is consistent with large book-tax differences representing an observable proxy for earnings management that is associated with auditor decisions. Our study contributes to capital market research that examines audit fees, as well as other research that examines the usefulness of book-tax differences for market participants.Ernst & Young (Faculty Fellowship in Accounting
Real Effects of Accounting Rules: Evidence from Multinational Firms' Investment Location and Profit Repatriation Decisions
Full text linkWe analyze survey responses from nearly 600 tax executives to better understand corporate decisions about real investment location and profit repatriation. Our evidence indicates that avoiding financial accounting income tax expense is as important as avoiding cash income taxes when corporations decide where to locate operations and whether to repatriate foreign earnings. This result is important in light of the recent research about whether financial accounting affects investment and in light of the decades of research on foreign investment that examines the role of cash income taxes but heretofore has not investigated the importance of financial reporting effects. Our analysis suggests that financial reporting is an important factor to be considered in the policy debates focused on bringing investment to the United States
Where do firms manage earnings?
Full text linkDespite decades of research on how, why, and when companies manage earnings, there is a paucity of evidence about the geographic location of earnings management within multinational firms. In this study, we examine where companies manage earnings using a sample of 2,067 U.S. multinational firms from 1994 to 2009. We predict and find that firms with extensive foreign operations in weak rule of law countries have more foreign earnings management than companies with subsidiaries in locations where the rule of law is strong. We also find some evidence that profitable firms with extensive tax haven subsidiaries manage earnings more than other firms and that the earnings management is concentrated in foreign income. Apart from these results, we find that most earnings management takes place in domestic income, not foreign income.Arthur Andersen (Firm) (Arthur Andersen Faculty Fund
The Effect of Tax Authority Monitoring and Enforcement on Financial Reporting Quality
Full text linkThis paper examines the relation between tax enforcement and financial reporting quality. The government, due to its tax claim on firm profits, is de facto the largest minority shareholder in almost all corporations. Therefore, the government, like other shareholders, has an interest in the accurate reporting of (taxable) income and preventing insiders from siphoning corporate funds to obtain private benefits. We hypothesize and find evidence that higher tax enforcement by the tax authority has a positive association with financial reporting quality. Further, we find that this association is generally stronger when other monitoring mechanisms are weaker. Our evidence is consistent with the predictions from the Desai, Dyck, and Zingales (2007) theory that the tax authority provides a monitoring mechanism of corporate insiders. Our paper also adds to the literature on the determinants of financial reporting quality and how the relation between accounting standards and reporting outcomes depends on country-level institutions.University of Michigan. Harry Jones Endowment for Earnings Quality Researc
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