Does mandatory tax disclosure mitigate tax expense anomaly? Evidence from FIN 48

Huimin Song, Xuedan Tao, Wang, Huabing (Barbara), Jinkang Zhang and Linlin Zhang

Finance Research Letters, 2024, vol. 59, issue C

Abstract: Financial Interpretation No. 48 (FIN 48) mandates the disclosure of uncertain tax positions for U.S. public firms. Exploring its impact on market efficiency, we find a reduction in the tax expense anomaly as documented by Thomas and Zhang (2011) for affected firms. The effect is stronger for affected firms with higher disclosure quality, accuracy, and transient institutional shareholding, and it cannot be explained by increased analyst tax forecasts or decreased predictability of tax expenses for future profitability. Our findings suggest that the mandatory tax disclosure under FIN 48 encourages investors to assess the implications of tax information for stock prices.

Keywords: Tax uncertainty; Tax expense anomaly; FIN 48; Uncertain tax benefits; Uncertain tax positions; Tax disclosure (search for similar items in EconPapers)
JEL-codes: G12 G14 H25 M41 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:59:y:2024:i:c:s1544612323010589

DOI: 10.1016/j.frl.2023.104686

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