Qualitative information disclosure: Is mandating additional tax information disclosure always useful?

Bilicka, Katarzyna ; Casi-Eberhard, Elisa ; Seregni, Carol ; Stage, Barbara

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URL: https://madoc.bib.uni-mannheim.de/60237
URN: urn:nbn:de:bsz:180-madoc-602378
Document Type: Working paper
Year of publication: 2021
The title of a journal, publication series: ZEW Discussion Papers
Volume: 21-047
Place of publication: Mannheim
Publication language: English
Institution: Business School > ABWL, Unternehmensrechnung u. Empirische Kapitalmarktforschung (Daske 2007-)
Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
Außerfakultäre Einrichtungen > Graduate School of Economic and Social Sciences - CDSB (Business Studies)
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: M41 , M48 , H26 , H20,
Keywords (English): tax transparency , tax aggressiveness , profit shifting , regulatory requirements
Abstract: Firms are facing progressively more stringent tax disclosure requirements. In this paper, we examine whether increased qualitative tax transparency leads to intended outcomes using, as an exogenous shock, the 2016 UK reform that mandated the disclosure of a tax strategy for arms above a certain size threshold. We and that arms that have to publish a separate tax strategy report significantly increase their voluntary tax disclosure in the annual reports, but we show no widespread effect on tax avoidance, measured by changes in effective tax rates. We document two mechanisms through which mandating a tax strategy report affects overall tax disclosure. First, we and large changes in disclosure for arms facing high public scrutiny. Second, arms with higher quality of tax strategy reports increase the qualitative discussion of their tax affairs in their annual reports by larger amounts, while arms with lower quality reports show increases in tax avoidance. Our results demonstrate the diffculty of generating a standard that effectively incentivizes desirable behavior when the disclosure mandate is asking for purely qualitative information.

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