EconPapers    
Economics at your fingertips  
 

When do firms highlight their effective tax rate?

Vanessa Flagmeier, Jens Müller and Caren Sureth

No 259, arqus Discussion Papers in Quantitative Tax Research from arqus - Arbeitskreis Quantitative Steuerlehre

Abstract: This study examines the visibility of the GAAP effective tax rate (ETR) in firms' financial statements as a distinct disclosure choice. Applying a game-theory disclosure model for voluntary disclosure strategies of firms to a tax setting, we argue that firms face a trade-off in their ETR disclosure decisions. On the one hand, firms have an incentive to enhance their ETR disclosure when the ratio offers shareholders "favourable conditions", for example in terms of higher expected after-tax cash-flows. On the other hand, the disclosure of a favourable low ETR could attract the attention of tax auditors and the public and ultimately result in disclosure costs. We empirically test disclosure behaviour by examining the relation between disclosure visibility and different ETR conditions that reflect different stakeholder-specific costs and benefits. While we find that unfavourable ETR conditions are not highlighted, we observe higher disclosure visibility for favourable ETRs (smooth, close to the industry average, decreasing). Additional analyses reveal that this high visibility is characteristic of firm-years with only moderately decreasing ETRs at usual ETR levels, while extreme ETRs are not highlighted. Interestingly and in contrast to our main results, a subsample of family firms do not seem to highlight favourable ETRs.

Keywords: Effective tax rate; Cost-benefit trade-off; Disclosure decision; Reputational costs; Tax disclosure (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-acc, nep-exp, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/224474/1/1732432961.pdf (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:zbw:arqudp:259

Access Statistics for this paper

More papers in arqus Discussion Papers in Quantitative Tax Research from arqus - Arbeitskreis Quantitative Steuerlehre
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().

 
Page updated 2024-07-01
Handle: RePEc:zbw:arqudp:259