Purpose
This paper aims to analyse the determinants of the proportion of quantitative data in financial statement footnote disclosures. Quantitative data represents “hard” information and has been considered to be more persuasive than qualitative data. The primary focus is on income tax footnotes because revenue agents use them as a reference in tax audits, and citizen groups use them to analyse tax inequalities. This study posits that firms with lower effective tax rates (“tax aggressive” firms) disclose less quantitative data in their income tax footnotes.
Design/methodology/approach
The multivariate analysis uses data from the contents of income tax footnotes extracted from 10-K filings in eXtensible Business Reporting Language (XBRL). It uses the alphanumeric characters identified in the income tax footnotes to calculate the proportion of quantitative data relative to the entire footnote disclosure as the dependent variable in a multivariate regression analysis.
Findings
The findings show that firms which avoid more taxes disclose less quantitative data in income tax footnotes after controlling for the readability of the income tax footnotes and the entire annual report. Therefore, firms seem to reduce the publication of measurable data accessible to revenue agencies and citizen groups.
Originality/value
This analysis provides evidence that firms weigh the financial reporting requirements and tax audit risks when they disclose quantitative income tax data. Also, it supports the Financial Accounting Standards Board’s (FASB’s) proposal to require more disaggregated income tax disclosure. To the researcher’s knowledge, this is the first analysis that focuses on the determinants of disclosing quantitative data in income tax footnotes.
We examine earnings management in non-publicly listed companies, with a focus on for-profit (FP) hospice organizations, and extend the accounting earnings management literature to the hospice industry. FP hospice organizations file Medicare cost reports that include complete financial statements not otherwise publicly available. Managers of FP hospice organizations have incentives to manage earnings to increase performancebased bonuses, meet or beat bond covenant requirements, or avoid public scrutiny. We find total accruals are significantly positively associated with profitability, debt, and size factors. However, discretionary accruals are significantly negatively associated with debt and size, but not profitability. Thus, monitoring and political cost factors appear to effectively mitigate earnings management in this industry sector.
In past decades, corporate debt levels have risen to historical highs and remained elevated. This study examines one of the key reasons that caused the high debt levels--income taxes. Specifically, this study contrasts the effects of tax planning on corporate debt levels in domestic companies (DCs) and multinational companies (MNCs) in the United States. It also explores how stock repurchase enhances such effects. The findings show that the association between debts and the outcomes of tax of planning is stronger in DCs than in MNCs. This suggests that DCs are more likely to use debt tax shields than MNCs. In addition, compared to tax-efficient DCs, tax-efficient MNCs are more likely to borrow in order to repurchase stock, resulting high debt levels. Moreover, the study provides evidence that the credit rating adjusts DCs' and MNCs' credit ratings when they raise debts to repurchase stocks.
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