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Transparency, Information Shocks, and Tax Avoidance

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  • Jon N. Kerr

Abstract

This study helps provide clarity to the prior mixed findings on the association between financial reporting transparency and tax avoidance by studying the effect that transparency has on tax avoidance in a cross‐country sample through aggregate‐ and firm‐level tests. Results using firm‐ and country‐level (aggregate) measures of transparency and tax avoidance show that countries and firms with greater levels of transparency exhibit lower levels of tax avoidance and that the effect of country‐level transparency is incremental to firm‐level transparency. Furthermore, results of difference‐in‐difference tests using the adoption of IFRS and the initial enforcement of insider trading laws around the world as exogenous shocks that increase transparency find that transparency has a statistically and economically significant effect on tax avoidance and address empirical concerns regarding endogeneity and reverse causality not fully addressed in the prior research. The results of these tests as well as tests that address potential correlated but omitted variables suggest that financial transparency is an important tool which regulators can use in battling tax avoidance. Transparence, chocs d'information et évitement fiscal En étudiant l'incidence de la transparence de l'information financière sur l’évitement fiscal dans un échantillon multipays, à l'aide de tests agrégés et de tests à l’échelon des sociétés, l'auteur jette un éclairage utile sur les constatations mitigées des études antérieures au sujet de la relation entre transparence et évitement fiscal. Les résultats de l'application de mesures de la transparence et de l’évitement fiscal à l’échelon des sociétés et à celui des pays (agrégé) indiquent que les pays et les sociétés auxquels sont associés des niveaux de transparence supérieurs affichent des niveaux inférieurs d’évitement fiscal et que l'incidence de la transparence à l’échelon des pays s'ajoute à celle de la transparence à l’échelon des sociétés. En outre, les résultats de tests des écarts dans les différences — dans lesquels l'adoption des IFRS et l'entrée en vigueur initiale des lois visant à prévenir les délits d'initiés dans le monde sont utilisées comme chocs exogènes augmentant la transparence — montrent que la transparence a une incidence statistiquement et économiquement significative sur l’évitement fiscal et nous renseignent sur des préoccupations empiriques relatives à l'endogénéité et la causalité inverse qui n'ont pas été entièrement explorées dans les études précédentes. Les résultats de ces tests ainsi que de tests portant sur des variables potentiellement corrélées mais omises semblent indiquer que la transparence de l'information financière est un outil important que peuvent utiliser les autorités de réglementation dans leur lutte contre l’évitement fiscal.

Suggested Citation

  • Jon N. Kerr, 2019. "Transparency, Information Shocks, and Tax Avoidance," Contemporary Accounting Research, John Wiley & Sons, vol. 36(2), pages 1146-1183, June.
  • Handle: RePEc:wly:coacre:v:36:y:2019:i:2:p:1146-1183
    DOI: 10.1111/1911-3846.12449
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    Cited by:

    1. Zhu, Jun & Ho, Kung-Cheng & Luo, Sijia & Peng, Langchuan, 2023. "Pandemic and tax avoidance: Cross-country evidence," Economic Modelling, Elsevier, vol. 124(C).
    2. Lee, Cheng-Hsun & Bose, Sudipta, 2021. "Do family firms engage in less tax avoidance than non-family firms? The corporate opacity perspective," Journal of Contemporary Accounting and Economics, Elsevier, vol. 17(2).
    3. Sabri Boubaker & Imen Derouiche & Hung Nguyen, 2022. "Voluntary disclosure, tax avoidance and family firms," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 26(1), pages 129-158, March.
    4. Bigus, Jochen & Weicker, Marina, 2024. "Relationship banking and firms’ earnings quality – Does it matter whether banks are creditors or owners?," Journal of Banking & Finance, Elsevier, vol. 159(C).
    5. Athira, A. & Ramesh, Vishnu K., 2023. "COVID-19 and corporate tax avoidance: International evidence," International Business Review, Elsevier, vol. 32(4).
    6. Chen, Hanwen & Liu, Siyi & Wang, Junjie & Wu, Zhijuan, 2022. "The effect of geographic proximity on corporate tax avoidance: Evidence from China," Journal of Corporate Finance, Elsevier, vol. 72(C).
    7. Xiang, Junyi & Zhu, Ling & Kong, Dongmin, 2023. "Labor cost and corporate tax avoidance," Journal of Economic Behavior & Organization, Elsevier, vol. 205(C), pages 338-358.
    8. Wang, Changrong & Richardson, Grant & Cao, Yanming, 2024. "Long live the walking dead? Corporate tax avoidance and zombie firms in China," The British Accounting Review, Elsevier, vol. 56(3).
    9. Andrew M. Bauer & Junxiong Fang & Jeffrey Pittman & Yinqi Zhang & Yuping Zhao, 2020. "How Aggressive Tax Planning Facilitates the Diversion of Corporate Resources: Evidence from Path Analysis†," Contemporary Accounting Research, John Wiley & Sons, vol. 37(3), pages 1882-1913, September.
    10. Hossain, Mahmud & Mitra, Santanu, 2023. "Does headquarters location matter in corporate tax avoidance?," Journal of Financial Stability, Elsevier, vol. 64(C).
    11. Jianqiao Huang & Yunsen Chen & Xin Dai & Xiaoran Ni, 2022. "Stock market liberalisation and corporate cash holdings: evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(S1), pages 1925-1955, April.
    12. Xiang, Junyi & Zhang, Hongxiang & Dang, Dingyu & Guan, Jing, 2023. "Involuntary political connections and private firms' tax avoidance," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    13. Qingyuan Li & Edward L. Maydew & Richard H. Willis & Li Xu, 2023. "Taxes and director independence: evidence from board reforms worldwide," Review of Accounting Studies, Springer, vol. 28(2), pages 910-957, June.

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