Tax avoidance and firm value: does qualitative disclosure in the tax footnote matter?

• 成果类型: Article
• 署名作者: Luo, Le; Ma, Mark Shuai; Omer, Thomas C.; Xie, Hong
• 署名单位: Central University of Finance & Economics; Pennsylvania Commonwealth System of Higher Education (PCSHE); University of Pittsburgh; University of Nebraska System; University of Nebraska Lincoln; University of Kentucky
• 刊物名称: REVIEW OF ACCOUNTING STUDIES
• ISSN/ISSBN: 1380-6653
• DOI: 10.1007/s11142-023-09773-w
• 发表日期: 2024
• 页码: 2927-2970
• 关键词: risk-factor disclosures; earnings; INFORMATION; Aggressiveness; READABILITY; valuation; POWER; cost

摘要

This study examines whether qualitative disclosure in tax footnotes affects the market valuation of tax avoidance activities. We predict that more disclosures in tax footnotes mitigate investors' concerns over the agency risk of managers engaging in potentially illegal tax avoidance and improve the transparency of firm performance, thus increasing firm valuation. Consistent with the prediction, we find that the market valuation of tax avoidance increases when firms' tax footnotes disclose more qualitative information related to their tax avoidance activities. We provide several tests to show mechanisms underlying our main findings and mitigate concerns about alternative explanations. Overall, our study suggests that the tax-related disclosures in tax footnotes are useful for investors assessing the value of tax avoidance.