Schedule UTP: Stock Price Reaction and Economic Consequences

Abernathy, John L.; Davenport, Stephan A.; Rapley, Eric T.

doi:10.2308/atax-50246

Cited by 29 publications

(13 citation statements)

References 27 publications

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“…As investors have to rely on the information available on the event date to estimate banks' tax aggressiveness, we use the 2011 financial statements to calculate the ETR. This approach is consistent withAbernathy et al (2013).…”

supporting

confidence: 84%

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

Dutt

Ludwig

Nicolay

et al. 2019

Int Tax Public Finance

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We employ an event study methodology to investigate the stock price reaction around the day of the political decision to include a country-by-country reporting obligation for EU financial institutions. We do not find significant abnormal returns for the banks affected. Sample splits according to the effective tax rate and the degree of B2C orientation do not reveal a more pronounced negative investor response for banks engaging more strongly in tax avoidance or being potentially more concerned about reputational risks, respectively. We conclude that the implementation of a CbCR requirement for EU financial institutions did not trigger a noticeable investor response. Contrary prior findings regarding other public tax disclosure obligations might be driven by the distinct motivation of the rules and the way the information is presented. We contend that capital market reactions to an upcoming increase in tax transparency are not generalizable to other industries and settings, but that consideration must be given to the context and the exact design of the rule.

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supporting

confidence: 84%

“…Prior studies have demonstrated the importance of considering multiple event dates, especially when investigating a legislative procedure (Donohoe & McGill, 2011;Abernathy et al, 2013;Chen, 2017). For this reason, we extend our analysis by two additional events, although noting some caveats regarding these dates.…”

Section: Additional Event Datesmentioning

confidence: 99%

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

Dutt

Ludwig

Nicolay

et al. 2019

Int Tax Public Finance

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“…Our study contributes to the literature in two ways. First, prior research has generally investigated the short-term effects of these three disclosure requirements on firm behavior (e.g., Blouin et al, 2010;Donohoe and McGill, 2011;Robinson and Schmidt, 2013;Abernathy, Davenport, and Rapley, 2013;Towery, 2016). What remains unclear is whether the short-term changes in behavior (if any) have persisted over time.…”

Section: Introductionmentioning

confidence: 99%

Increased Tax Disclosures and Corporate Tax Avoidance

Henry¹,

Massel²,

Towery³

2016

National Tax Journal

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This paper examines whether three recent mandatory tax disclosure regimes (Schedule M-3, FIN 48, and Schedule UTP) are associated with long-term changes in corporate tax avoidance. We find that both the Schedule M-3 and Schedule UTP disclosure regimes are associated with increased levels of tax avoidance while the FIN 48 disclosure regime is associated with decreased levels of tax avoidance. We also posit that these associations could differ for domestic and multinational firms because of the specific information required within each disclosure. We find that the increased tax avoidance associated with Schedule M-3 and Schedule UTP is stronger for domestic firms than for multinational firms. The decreased tax avoidance associated with FIN 48 is also stronger for domestic firms than for multinational firms.

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“…Although a relatively new measure, UTB has been shown to be promising as a useful proxy of tax planning (Abernathy, 2013). Towery (2012) reports that about 77.9 per cent of the reported uncertain tax positions generated permanent differences (that would affect the ETR), 20 per cent of the filed positions generated temporary differences (that RAF 15,1 would not affect the ETR) and only 2.1 per cent generated both permanent and temporary differences.…”

Section: Utb_nonetr As a Useful Measure Of Tax Planningmentioning

confidence: 99%

“…First, the use of UTB as a measure of tax planning is relatively new (i.e. Abernathy, 2013). However, part of the UTB (i.e.…”

Section: Introductionmentioning

confidence: 99%

Does accounting for uncertain tax benefits provide information about the relation between book-tax differences and earnings persistence?

Zhou

2016

Review of Accounting and Finance

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Purpose – This study aims to use research setting provided by the implementation of Financial Accounting Standards Board Interpretation 48 (FIN48) to help develop a further understanding of large positive book–tax differences (LPBTD) and their relationship with earnings persistence. Extant literature indicates that the tax information provided in financial statements, such as large book–tax differences, is useful for detecting earnings management and signals less persistent future earnings. However, more information is needed about the causes of large book–tax differences and their abilities to signal the differences in earnings persistence (Blaylock et al., 2012). Design/methodology/approach – In the first step, temporary book–tax differences are ranked by quintiles based on the approach in Hanlon’s (2005) study and the highest quintile in the sample observations are designated as large positive temporary book–tax differences (LPBTD). In the second step, differences in the persistence of earnings for high tax-planning firms as measured by UTB_NonETR are searched for. In further testing, an ordered logistic model and the Vuong (1989) test are applied to compare both the incremental and the relative ability of UTB_NonETR and Cash-ETR to explain the ranking order of temporary book–tax differences. Findings – The negative relation between temporary differences and earnings persistence is moderated by the level of tax planning as measured by UTB_NonETRs. More specifically, the persistence of earnings appears to be higher for firm-years with large UTB_NonETRs. When comparing the relative power of UTB_NonETR with Cash-ETR, the results indicate that UTB_NonETR is incrementally useful for explaining the ranking orders of temporary book–tax differences. However, it appears that neither UTB_NonETR nor Cash-ETR is relatively more useful over another under the Vuong (1989) test. Originality/value – First, the part of UTB, if recognized, that would not affect earnings (UTB_NonETR) is used as an empirical proxy and its usefulness is tested in the context of book–tax differences and the persistence of earnings. Second, new evidence is provided supporting the predictions, as in Ayers’ et al. (2010) and Blaylock et al.’s (2012) studies, that the level of tax planning will attenuate the negative association between large book–tax differences and earnings quality. Third, the findings can contribute to the post-implementation review of FIN48 (Financial Accounting Foundation, 2012) supporting the argument that FIN48 can provide decision-useful information for financial statement users.

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Schedule UTP: Stock Price Reaction and Economic Consequences

Cited by 29 publications

References 27 publications

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

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

Increased Tax Disclosures and Corporate Tax Avoidance

Does accounting for uncertain tax benefits provide information about the relation between book-tax differences and earnings persistence?

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