Supporting Tax Policy Change Through Accounting Discretion: Evidence from the 2012 Elections

Vishal P. Baloria () and Kenneth J. Klassen ()
Additional contact information
Vishal P. Baloria: Carroll School of Management, Boston College, Chestnut Hill, Massachusetts 02467
Kenneth J. Klassen: School of Accounting and Finance, University of Waterloo, Waterloo, Ontario N2L 3G1, Canada

Management Science, 2018, vol. 64, issue 10, 4893-4914

Abstract: Some corporations attempt to lessen their tax burden through involvement in the legislative process. We identify firms that contributed to congressional candidates who favor reductions in the U.S. corporate statutory tax rate. This support created a temporary incentive to manage effective tax rates (ETRs) up. We document that these firms increased their reported effective tax rate in the two calendar quarters preceding the 2012 election relative to adjacent periods and other firms supporting candidates in the same election. We find that the variation in upward ETR management is correlated with firm-level proxies for potential reputational costs, capital markets costs, and long-run tax burdens. The variation in upward ETR management is also correlated with firm-candidate-level proxies for strength of relationships and competitiveness of election races. Our findings provide new evidence on accounting choices in support of corporate political activity and on the political cost hypothesis in the tax setting.

Keywords: corporate political activity; financial reporting choices; political costs hypothesis (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://doi.org/10.287/mnsc.2017.2842 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:64:y:2018:i:10:p:4893-4914

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().