Do Publicly Disclosed Tax Reserves Tell Us About Privately Disclosed Tax Shelter Activity?

Lisowsky, Petro; Robinson, Leslie A.; Schmidt, Andrew

doi:10.2139/ssrn.1481488

Cited by 70 publications

(88 citation statements)

References 40 publications

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“…For instance, the NATF coefficient is positively and significantly associated with AUTB_PUTB , UTB_LN , and UTB_TA ( p < .10 or better) (Lassila & Smith, ). The SIZE coefficient is positively and significantly associated with AUTB_PUTB and UTB_TA ( p < .01), indicating that large firms are more likely to record higher UTB estimates (Lisowsky et al, ). The PROFIT coefficient is positively and significantly associated with AUTB > PUTB ( p < .01), showing that profitable firms have more aggressive tax positions (Rego & Wilson, ) in the form of larger differences positively and significantly associated with AUTB_PUTB ( p < .10), as expected (Mills et al, ).…”

Section: Resultsmentioning

confidence: 99%

“…We are then able to quantify whether abnormal UTB amounts (i.e., where there is under‐ or overreserving) are associated with a particular area of income shifting. Lisowsky et al () argue that an underestimation of UTB (i.e., actual UTB less than expected UTB) may occur if a firm wants to reduce the amount of information reported to the IRS or engages in particularly aggressive tax avoidance activities.…”

Section: Methodsmentioning

confidence: 99%

“…NATF is measured as the natural logarithm of nonaudit tax fees provided to the auditor. Large firms are expected to record higher UTB estimates as they tend to engage in more complex tax arrangements involving many facets of tax law, so they have higher tax compliance and planning costs (Lassila & Smith, ; Lisowsky et al, ). We expect NATF to have a positive sign.…”

Section: Methodsmentioning

confidence: 99%

“…As prior research has provided strong evidence that UTBs are an effective proxy of a firm's tax avoidance or tax sheltering activities (e.g. Blouin et al, ; Hutchens & Rego, ; Lisowsky et al, ; Neuman et al, ; Rego & Wilson, ), it is likely that tax arrangements will be inherently more riskier and uncertain, resulting in larger UTB estimates…”

Section: Tax Aggressiveness External Audit and Unrecognized Tax Benmentioning

confidence: 99%

See 3 more Smart Citations

Uncertain tax benefits, international tax risk, and audit specialization: Evidence from US multinational firms

2018

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The purpose of this study is twofold. First, it examines the association between income‐shifting arrangements consisting of transfer pricing aggressiveness, tax haven use and foreign tax rate differentials, and Financial Interpretation No. 48 (FIN48, now ASC740–10‐25) unrecognized tax benefits (UTBs). Second, it analyzes the impact of audit specialization on the association between income‐shifting arrangements and UTBs. Using a dataset of 286 US multinational firms over the 2007–2016 period (2,097 firm‐years), our regression results show that income‐shifting arrangements represented by transfer pricing aggressiveness, tax haven use and foreign tax rate differentials are significantly positively associated with UTBs. We also observe that audit specialization magnifies the positive association between transfer pricing aggressiveness and UTBs, and foreign tax rate differentials and UTBs. Finally, in additional analysis we provide some evidence that the positive association between income‐shifting arrangements and UTBs is magnified in the post‐2010 uncertain tax position reporting requirement period. Overall, our study extends prior research on the topic of audit characteristics (i.e., audit specialization) and tax aggressiveness.

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Section: Resultsmentioning

confidence: 99%

Section: Methodsmentioning

confidence: 99%

Section: Methodsmentioning

confidence: 99%

Section: Tax Aggressiveness External Audit and Unrecognized Tax Benmentioning

confidence: 99%

See 2 more Smart Citations

Uncertain tax benefits, international tax risk, and audit specialization: Evidence from US multinational firms

2018

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“…Lisowsky et al (2013) suggest that the probability of engaging in tax sheltering, discretionary permanent book-tax difference, permanent book-tax difference, book-tax difference, and cash ETR all capture the varying degree of tax aggressiveness, from most to least aggressive. We consider tax sheltering and permanent book-tax differences as the two most aggressive form of tax avoidance and also use ETR as the least aggressive form of tax avoidance.…”

Section: Empirical Modelmentioning

confidence: 99%

Auditor-provided tax services and stock price crash risk

Habib

Hasan

2015

Accounting and Business Research

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This paper examines whether auditor-provided tax services affect stock price crash risk: an important consideration for stock investors. Provision of tax services by incumbent auditors could accentuate or attenuate crash risk depending on whether such services give rise to knowledge spillover or impair auditor independence. The study investigates two channels through which tax services might affect crash risk: earnings management in tax expenses and tax avoidance. Also examined is whether the association between tax services and crash risk is moderated by the particular business strategy that organizations pursue. A two-stage model is used to control for the potential endogeneity inherent in the selection of auditors for tax services. Empirical findings reveal that auditor-provided tax services attenuate crash risk by constraining both earnings management in tax expenses and tax avoidance. Further evidence shows that auditor-provided tax services reduce crash risk for firms following innovator business strategies. Taken together, empirical findings reported in this study support knowledge spillover benefits, that is, insights gained from tax services can enhance audit effectiveness.

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Tax avoidance and over‐investment: The role of the information environment

Feng

2020

J Corp Accounting Finance

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We investigate whether the association between tax avoidance and over‐investment is moderated by a firm's information environment. Prior research (Blaylock, 2016) finds no association between tax avoidance and over‐investment, but the study did not consider the impact of financial reporting quality (FRQ). It seems likely that FRQ is a moderating variable because Balakrishnan, Blouin, and Guay (2012) find that a firm's information environment is affected by tax planning while Biddle and Hilary (2006) find that FRQ is negatively associated with investment. We find that tax avoidance is positively associated with over‐investment when the information environment is weak, and that having a richer information environment mitigates this association. Our results are robust across multiple measures of tax avoidance and multiple proxies for the quality of the information environment. In addition, our results hold after propensity score matching, controlling for governance and the firm's internal resources, partitioning on managerial ability, and in a change analysis. These findings highlight the important role of financial information in corporate investment behavior and enhance our understanding of the link between tax avoidance and agency costs.

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Do Publicly Disclosed Tax Reserves Tell Us About Privately Disclosed Tax Shelter Activity?

Cited by 70 publications

References 40 publications

Uncertain tax benefits, international tax risk, and audit specialization: Evidence from US multinational firms

Uncertain tax benefits, international tax risk, and audit specialization: Evidence from US multinational firms

Auditor-provided tax services and stock price crash risk

Tax avoidance and over‐investment: The role of the information environment

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