Data Truncation Bias and the Mismeasurement of Corporate Tax Avoidance

Henry, Erin; Sansing, Richard C.

doi:10.2139/ssrn.2329694

Cited by 33 publications

(26 citation statements)

References 25 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…We find that the estimated speed of adjustment is 70.8 percent when loss firms are included in our sample, which is comparable to the estimated adjustment speed (69.2 percent) when loss firms are excluded . We also consider an alternative measure of tax avoidance proposed by Henry and Sansing () that does not require the removal of loss observations . Using this alternative measure, the estimated adjustment speed is 67.2 percent, which is similar to the adjustment speed from our primary analysis.…”

Section: Sensitivity Analysismentioning

confidence: 99%

See 1 more Smart Citation

How Quickly Do Firms Adjust to Optimal Levels of Tax Avoidance?

Kim

McGuire²,

Savoy

et al. 2019

Contemporary Accting Res

View full text Add to dashboard Cite

The trade‐off literature asserts that managers weigh the direct benefits of tax avoidance against the associated nontax costs. This literature implies each firm has a unique optimal level of tax avoidance that balances these costs and benefits. Our study is the first to document how quickly the average firm moves toward its optimal level of tax avoidance. We find that the typical firm converges toward its optimum at a rate that ranges from approximately 69 to 84 percent over a three‐year period, depending upon model specifications. Consistent with asymmetric levels of frictions across the tax avoidance distribution, we find the speed of adjustment is greater for firms below their optimal level of tax avoidance than for firms above. We perform additional cross‐sectional analyses to provide insight into some of the frictions that prevent firms from adjusting completely to their optimal level of tax avoidance. We generally find growth firms exhibit slower adjustment speeds and provide limited evidence that both multinational firms and income‐mobile firms exhibit faster adjustment speeds.

show abstract

Section: Sensitivity Analysismentioning

confidence: 99%

“…The Henry and Sansing () measure is defined as cash taxes paid less pre‐tax income times the statutory tax rate scaled by the market value of assets.…”

mentioning

confidence: 99%

How Quickly Do Firms Adjust to Optimal Levels of Tax Avoidance?

Kim

McGuire²,

Savoy

et al. 2019

Contemporary Accting Res

View full text Add to dashboard Cite

show abstract

“… Rather than adopt the asset scalar for tax expense suggested by Henry and Sansing (), which introduces other sources of noise due to variance in ROAs across industries, we conduct robustness tests omitting loss observations. Inferences with respect to H1 and H2 are similar if we exclude firm‐years with either a U.S. or worldwide pretax loss from the sample (untabulated).…”

mentioning

confidence: 99%

Does FIN 48 Improve Firms' Estimates of Tax Reserves?

Gleason

Mills

Nessa

2017

Contemporary Accting Res

View full text Add to dashboard Cite

This paper examines whether the increased accounting guidance and reporting requirements of FIN 48 impact the adequacy and accuracy of tax reserves and the effect of auditor‐provided tax services on tax reserves. While we do not find FIN 48 affected the adequacy or accuracy of tax reserves on average, FIN 48 eliminated the differences in the tax reserve adequacy of firms with and without auditor‐provided tax services that existed prior to its adoption. We also find evidence of less premature releasing of tax reserves post‐FIN 48. Our evidence is consistent with an increase in the comparability of reserves for firms that do and do not purchase auditor‐provided tax services, consistent with one of the FASB's objectives for FIN 48.

show abstract

“…We do not employ the variability of ETRs in our study because doing so would not allow us to separate the influence of BI and TI on earnings predictability and market-based measures of firm risk. Also, we are motivated by concerns raised by Henry & Sansing (2014) about using pre-tax book income as a deflator in the ETR measure in the presence of a confounding relation between pre-tax book income and financial reporting incentives.…”

mentioning

confidence: 99%

Taxable Income and Firm Risk

Dhaliwal

Lee

Pincus

et al. 2017

The Journal of the American Taxation Association

View full text Add to dashboard Cite

We examine whether estimated taxable income provides incremental information about firms' operating risk. We develop taxable income-based measures that should be useful in assessing risk in a simple earnings predictability model. In our empirical tests these taxable income-based measures explain cross-sectional variation in the predictability and variability of future pre-tax financial performance. Further, these measures are associated with predictable variation in market-based measures of firm risk. Our findings shed light on how accounting information -specifically, book income and tax income -impact investors' assessment of firm risk as well as improving our understanding of the extent and nature of information contained in estimated taxable income.

show abstract

Data Truncation Bias and the Mismeasurement of Corporate Tax Avoidance

Cited by 33 publications

References 25 publications

How Quickly Do Firms Adjust to Optimal Levels of Tax Avoidance?

How Quickly Do Firms Adjust to Optimal Levels of Tax Avoidance?

Does FIN 48 Improve Firms' Estimates of Tax Reserves?

Taxable Income and Firm Risk

Contact Info

Product

Resources

About