Taxes and Financial Constraints: Evidence from Linguistic Cues

• 成果类型: Article
• 署名作者: Law, Kelvin K. F.; Mills, Lillian F.
• 署名单位: Tilburg University; University of Texas System; University of Texas Austin
• 刊物名称: JOURNAL OF ACCOUNTING RESEARCH
• ISSN/ISSBN: 0021-8456
• DOI: 10.1111/1475-679X.12081
• 发表日期: 2015
• 页码: 777-819
• 关键词: ANNUAL-REPORT READABILITY; information-content; ANALYSTS FORECASTS; CURRENT EARNINGS; Cash flows; FIN 48; firm; DISCLOSURES; avoidance; incentives

摘要

Using a new measure of financial constraints based on firms' qualitative disclosures, we find that financially constrained firmsfirms that use more negative words in their annual reportspursue more aggressive tax planning strategies as evidenced by: (1) higher current and future unrecognized tax benefits, (2) lower short- and long-run current and future effective tax rates, (3) increase in tax haven usage for their material operations, and (4) higher proposed audit adjustments from the Internal Revenue Service. We exploit the unexpected closures of local banks as exogenous liquidity shocks to show that firms' external financial constraints affect their tax avoidance strategies. Overall, the linguistic cues in firms' qualitative disclosures provide incremental information beyond traditional accounting variables or commonly used effective tax rates to reveal and predict tax aggressiveness, both contemporaneously and in the future.