The Impact of Standard Setting on Individual Investors: Evidence From SFAS 109

On the Determinants and Effects of Corporate Tax Transparency: Review of an Emerging Literature

“…of capital. In this vein, a recent working paper ofHutchens et al (2020) examines the implementation of SFAS 109 in the 1990s. SFAS 109 reformed the accounting for income taxes under US GAAP and was, in particular, designed to increase the informativeness of financial reporting on deferred taxes.…”

“…SFAS 109 reformed the accounting for income taxes under US GAAP and was, in particular, designed to increase the informativeness of financial reporting on deferred taxes. Exploiting the staggered adoption of the new standard,Hutchens et al (2020) find that individual investors (relative to more sophisticated investors) subsequently increased their stockholdings in firms most affected by SFAS 109. This result indicates that the new standard reduced the informational disadvantages of less sophisticated investors.Unlike stock liquidity and the cost of capital, a growing number of studies investigate the effect of increases in tax transparency on stock prices.…”