Media Coverage of Corporate Taxes

Abstract

Managers express growing concern over media coverage of corporate taxes, yet no large-sample empirical study examines this phenomenon. As a first step to fill this void, we identify factors associated with the likelihood and negative tone of media tax coverage and examine firms' tax avoidance behavior following media tax coverage. We find the likelihood of media tax coverage is greater for firms with GAAP effective tax rates below the top U.S. statutory rate of 35 percent and for firms with greater visibility. The degree of negative tone is increasing in cash tax avoidance and firm size. We also find evidence of more frequent and more negative tax coverage during economic recessions. We find no evidence that firms reduce their tax avoidance following media coverage. Although our analyses are subject to limitations, our results suggest the media may not have the same influence over corporate tax policy as other external stakeholders. JEL Classifications: H25; H26; H20; M41; G39. Data Availability: Data are available from public sources identified in the paper.

The Effects of Tax Avoidance News on Employee Perceptions of Managers and Firms: Evidence from Glassdoor.com Ratings

“…Second, tax avoidance news is likely somewhat "exogenous" to our models because firms do not exercise control over media coverage. Chen, Schuchard, and Stomberg (2019) find that 1GAAP effective tax rates below 35 percent, (2) brand value, (3) firm size and (4) firms with other news coverage are likely to receive tax news coverage. However, these variables do not clearly bias our estimates.…”

“…Our media sources include all worldwide news media sources (e.g., "newspapers," "news," "newsletters") in LexisNexis. 8 We identify the first mention of a firm's tax avoidance 8 We do not focus on U.S.-only media sources (as in Chen et al 2019) because employees from across the world provide Glassdoor reviews and we are unable to identify the location of the Glassdoor reviewer using scraped data. Our sample covers prominent media sources such as the NYTimes and the Wall Street Journal while also covering local and international news sources, political press releases and editorials, among other things.…”

“…We control for size because large firms receive more media coverage than small firms. The media may "target" large firms for scrutiny more than other firms because larger firms are more well-known (e.g., Chen et al 2019). Thus, we limit media coverage bias by controlling for size.…”

“…Next, we provide evidence that our results are not substantially affected by tax news that occurred prior to our sample period using three approaches. First, we limit our sample to the news events identified by Chen et al (2019) in the S&P 250 to provide a benchmark and also to provide evidence that our results are not sensitive to our identified tax avoidance news. Second, we find that our results are robust after dropping firms that received tax news coverage in the three years prior to our sample period (2005)(2006)(2007)) (see Appendix A in Chen et al 2019).…”

“…First, we limit our sample to the news events identified by Chen et al (2019) in the S&P 250 to provide a benchmark and also to provide evidence that our results are not sensitive to our identified tax avoidance news. Second, we find that our results are robust after dropping firms that received tax news coverage in the three years prior to our sample period (2005)(2006)(2007)) (see Appendix A in Chen et al 2019). Last, we find evidence that our results are robust to explicitly controlling for prior tax news based on the Chen et al (2019) sample.…”