Increasing tax transparency: investor reactions to the country-by-country reporting requirement for EU financial institutions

Dutt, Verena; Ludwig, Christopher A.; Nicolay, Katharina; Vay, Heiko; Voget, Johannes

doi:10.1007/s10797-019-09575-4

Cited by 36 publications

(35 citation statements)

References 41 publications

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Section: Introductionsupporting

confidence: 85%

“…Our paper supplements a few concurrent studies on the consequences of public CbCR under CRD IV (e.g., Brown 2018;Dutt et al 2018;. Our findings are consistent with the results of Dutt et al (2018) and Brown (2018) but differ from those of . 3 Dutt et al (2018) investigate the stock price reaction around the day of the decision, including CbCR in CRD IV, and document a lack of noticeable market response.…”

Section: Introductionsupporting

confidence: 85%

See 1 more Smart Citation

Does Public Country‐by‐Country Reporting Deter Tax Avoidance and Income Shifting? Evidence from the European Banking Industry*

Joshi

Outslay

Persson

et al. 2020

Contemporary Accting Res

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In this study, we examine the effect of increased tax transparency on the tax planning behavior of European banks. In 2014, the European Union introduced public country-by-country reporting requirements to the banking industry. Treating this new requirement as an exogenous shock, we find limited evidence consistent with a decline in income shifting by the banks' financial affiliates in the post-adoption period (starting from 2015). We do not, however, find robust evidence of a significant change in the consolidated book effective tax rates among the affected banks. Our findings suggest that increased transparency from public countryby-country reporting can deter tax-motivated income shifting but that it did not appear to materially influence the banks' overall tax avoidance. Our findings have policy implications for the ongoing debate between the European Parliament, the Organisation for Economic Cooperation and Development, and accounting standard-setting bodies on whether to require multinationals to publish country-by-country reports.

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Section: Introductionsupporting

confidence: 85%

Section: Introductionsupporting

confidence: 85%

Does Public Country‐by‐Country Reporting Deter Tax Avoidance and Income Shifting? Evidence from the European Banking Industry*

Joshi

Outslay

Persson

et al. 2020

Contemporary Accting Res

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“…Johannesen and Larsen (2016) document a considerable negative capital market response around two of four key dates in the legislation process of the EU Accounting Directive, which introduced a CbCR obligation for EU companies in the extractive industries. The results of Dutt et al (2019), however, are suggestive of a zero investor response to the surprising political decision to include a CbCR requirement for EU financial institutions in the CRD IV. They conclude that investors expected a simultaneous decline in banks' tax avoidance opportunities and in information asymmetries between managers and shareholders, such that negative and positive stock price reactions offset each other on average.…”

Section: Impact and Information Content Of Cbcrmentioning

confidence: 90%

“…First, we shed light on the effectiveness of CbCR. While a few recent studies analyze the impact of CbCR on EU banks' tax avoidance behavior (Joshi et al 2018;Overesch and Wolff 2019) and on their stock prices (Dutt et al 2019), empirical evidence on the information content of the published data itself is at an early stage (Bouvatier et al 2018;Fatica and Gregori 2018;Janský 2018). We provide comprehensive descriptive evidence on the CbCR data published by more than 100 EU banks and apply refined regression specifications to estimate the tax sensitivity of reported profits.…”

Section: Introductionmentioning

confidence: 99%

Can European Banks’ Country-by-Country Reports Reveal Profit Shifting? An Analysis of the Information Content of EU Banks’ Disclosures

et al. 2019

Self Cite

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We create a novel database of hand-collected information from the country-by-country reports (CbCRs) of more than 100 multinational bank groups headquartered in the EU for 2014-2016. We compare this new dataset with information from Orbis and Bank Focus to assess in how far the new disclosure obligation increased transparency on banks' tax avoidance behavior. Our descriptive analysis shows that CbCRs uncover a large fraction of worldwide profits and real activities in terms of employees of EU bank groups, especially in tax havens. We also document a striking disconnect between reported profits and real activity, noting considerable heterogeneity between different tax havens and bank groups from different headquarter countries. Regression analysis based on CbCR data and Bank Focus data leads us to expect a tax semi-elasticity of banks' reported profits of about-4.6. In this regard, CbCRs are indicative of a more pronounced tax sensitivity than conventional databases suggest. However, the lack of important economic variables (total assets and staff cost) impedes an exact estimation of banks' profit shifting based on CbCR data alone and with standard methods. These insights are especially relevant in the context of the ongoing political discussions whether to introduce a public CbCR for all large multinational firms in the EU.

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“…Several studies investigate both public and non-public CbCR and its real effects (R. J. Brown, 2018;Dutt, Ludwig, Nicolay, Vay, & Voget, 2019;Eberhartinger, Speitmann, & Sureth-Sloane, 2020;Joshi, Outslay, & Persson, 2020;Overesch & Wolff, 2017;Simone & Olbert, 2019). While it is known that the information disclosed through CbCR is potentially misleading none of these studies scrutinizes the extend to which misperception impedes transparency and generates undesired implications.…”

Section: Corporate Tax Misperceptionmentioning

confidence: 99%

Tax Misperception and Its Effects on Decision Making – a Literature Review

Blaufus

Chirvi²,

Huber³

et al. 2020

SSRN Journal

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Previous accounting research shows that taxes affect decision making by individuals and firms. Most studies assume that agents have accurate perception regarding their tax burden. However, there is a growing body of literature analyzing whether taxes are indeed perceived correctly. We review 124 studies on the measurement of tax misperception and its behavioral implications. The review reveals that many taxpayers have substantial tax misperceptions that lead to biased decision making. We develop a Behavioral Taxpayer Response Model on the impact of provided tax information on tax perception. Besides individual traits, characteristics of the tax information and the decision environment determine the extent of tax misperception. We discuss opportunities for future research and methodological limitations. While there is much evidence on tax misperception at the individual level, we hardly find any research at the firm level. Little is known about the real effects of managers' tax misperception and on how tax information is strategically managed to impact stakeholders. This research gap is surprising as a large part of the accounting literature analyzes decision making and disclosure of firms. We recommend a mixed-method approach combining experiments, surveys, and archival data analyses to improve the knowledge on tax misperception and its consequences.

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Increasing tax transparency: investor reactions to the country-by-country reporting requirement for EU financial institutions

Cited by 36 publications

References 41 publications

Does Public Country‐by‐Country Reporting Deter Tax Avoidance and Income Shifting? Evidence from the European Banking Industry*

Does Public Country‐by‐Country Reporting Deter Tax Avoidance and Income Shifting? Evidence from the European Banking Industry*

Can European Banks’ Country-by-Country Reports Reveal Profit Shifting? An Analysis of the Information Content of EU Banks’ Disclosures

Tax Misperception and Its Effects on Decision Making – a Literature Review

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