Mandatory Adoption of IASB Standards: Value Relevance and Country-Specific Factors

The objective of this study is to investigate if the value relevance of European-listed companies increased after the mandatory application of International Accounting Standards (IAS)/International Financial Reporting Standards (IFRS) and how the value relevance of accounting information prepared under IAS/IFRS is shaped by the specific factors of the country in which companies are domiciled. Results show that the value relevance of financial information during the period companies applied mandatory IAS/IFRS is higher than for the period during which they applied local accounting standards. We also found that countries where accounting and tax are clearly separated show more relevant accounting information. Finally, we found that companies from countries with more legal and public enforcement mechanisms disclose less relevant accounting information under IAS/IFRS.     

Why do people save in cash? Distrust,memories of banking crises,weak institutions and dollarization

The paper analyzes why households hold sizeable shares of their assets in cash at home rather than at banks – a phenomenon that is widespread in many economies but for which information is scarce. Using survey data from ten Central, Eastern and Southeastern European countries, I document the relevance of this behavior and show that cash preferences cannot be fully explained by whether people are banked or unbanked. The analysis reveals that a lack of trust in banks, memories of past banking crises and weak tax enforcement are important factors. Moreover, cash preferences are stronger in dollarized economies where a “safe” foreign currency serves as a store of value.     

The Market Valuation of Cash Dividends and the Tax Differential Theory of Dividend Policy: A Case Revisited

One of the most controversial areas in finance concerns the relevance or irrelevance of dividend policy. Survey results reported by researchers indicate that corporate chief financial officers believe that dividend policy does affect stock prices. One factor that could cause dividend policy to matter is possible tax effects. However, although many maintain that tax treatment would favor low payout, Miller and Scholes argue that tax policy is irrelevant. The latest change in the tax code, which removed the lower capital gains tax rate, provides a unique opportunity to examine the relevance of tax policy alone. This study revisits the Citizens Utilities case, which was used by Long and Poterba. We conclude that the market for Citizens Utilities shares indicates that tax policy does influence value.     

Taxes,Theft, and Firm Performance

This paper examines the interaction between income diversion and firm performance. Using unique Russian banking transaction data, I identify 42,483 spacemen, fly‐by‐night firms created specifically for income diversion. Next, I build a direct measure of income diversion for 45,429 companies and show that it is negatively related to firm performance. I identify the main reason for the observed effect as managerial diversion rather than tax evasion per se. I further show that stricter tax enforcement can improve firm performance: a one standard deviation increase in tax enforcement corresponds to an increase in the annual revenue growth rate of 2.6%.     

IRS Attention

We study how public and private disclosure requirements interact to influence both tax regulator enforcement and firm disclosure. To capture IRS enforcement activities, we introduce a novel data set of IRS acquisition of firms’ public financial disclosures, which we label IRS attention. We examine the implementation of two new disclosure requirements that potentially alter IRS attention: FIN 48, which increased public tax disclosure requirements, and Schedule UTP, which increased private tax disclosure. We find that IRS attention increased following FIN 48 but subsequently decreased following Schedule UTP, consistent with public and private disclosure interacting to influence tax enforcement. We next examine how private tax disclosure requirements under Schedule UTP affected firms’ public disclosure responses. We find that, following Schedule UTP, firms significantly increased the quantity and altered the content of their tax‐related disclosures, consistent with lower tax‐related proprietary costs of disclosure. Our results suggest that changes in SEC disclosure requirements altered the IRS's behavior with regard to public information acquisition, and, relatedly, changes in IRS private disclosure requirements appear to change firms’ public disclosure behavior.     

The value relevance of deferred tax attributed to asset revaluations

Our study focuses on the incremental value relevance of the balance sheet relative to the income statement approach to deferred tax accounting and whether such value relevance is attributable to firms being required to report the deferred tax consequences of asset revaluations. Our results suggest that the increment to deferred tax balances upon adopting the balance sheet approach has value relevance, with such value relevance driven by the deferred taxes on certain asset revaluations (specifically, property, plant and equipment, and equity-accounted investments). We interpret our results as reflecting investors’ preference for the balance sheet approach to deferred tax accounting and their view that deferred taxes on asset revaluations are real liabilities.     

A collateral tax sanction: When does it mimic a welfare-improving tag?

The suspension of a driver’s license or the revocation of a passport or a professional license are used by the tax authorities as sanctions for failure to comply with tax obligations and are referred to as collateral tax sanctions. In this paper, I propose a new rationale for why it may be beneficial to use collateral tax sanctions for the purpose of tax enforcement. By affecting consumption and providing enforcement targeted to a group, collateral tax sanctions may allow the government to impose punishment correlated with an individual’s earning potential. Such punishment also makes the effective tax rates correlated with an individuals’ earning potential and therefore leads to a more effective redistribution of income. I show that the use of collateral tax sanctions could increase the CES social welfare function when the skill distribution of the targeted group first-order stochastically dominates the skill distribution of the other group and the social welfare function is sufficiently concave.     

Earnings surprise and sophisticated investor preferences in India

In this paper, I examine the existence of earnings surprise anomaly for a sample of actively traded stocks in the Bombay Stock Exchange during 2001–2006. I also examine if sophisticated institutional investors, in particular transient investors, exploit the earnings surprise anomaly. My results indicate that using a standard time series model to forecast earnings, there is clear evidence of a post-earnings announcement drift in the Indian market, even after controlling for common factors that affect risk and transaction costs. However, I find very little evidence that indicates transient investors exploit the earnings surprise mispricing. Attribution analysis of hedge portfolio returns based on increases in ownership by transient investors indicates that earnings surprise does not play a role; risk and liquidity does. A direct test of what causes increase in ownership by transient investors provides little support for the role of earnings surprise. Robustness tests also indicate that while earnings surprise is mispriced by the market, the level of transient investor ownership does not mitigate this effect.     

政府财政激励、税收征管动机与企业盈余管理——以财政"省直管县"改革为自然实验的研究

政府对企业利润享有征税权,事实上是几乎所有企业的最大的中小股东,因此有动机对企业进行严格的税收征管,进而影响公司治理。本文以1998-2006年中国工业企业为样本,以财政“省直管县”改革为自然实验,从企业盈余管理的角度对此进行了考察。研究发现:财政“省直管县”改革能够显著抑制县辖区内企业的盈余管理行为,并且仅对具有征管权限的企业发挥作用;同时,当县级政府财政状况较差和税基较大时,财政“省直管县”对辖区内企业盈余管理行为的抑制作用更强,表明财政“省直管县”改革能够激励县级政府加强税收征管,进而改善辖区内企业盈余质量。更进一步地,本文还发现财政“省直管县”改革能够抑制企业逃税,提升县级政府财政收入。本文的研究不仅丰富了政府行为影响公司治理方面的文献,同时也为财政“省直管县”如何缓解县级政府财政困难提供了微观证据。     

The Financial Crisis and the Value‐relevance of Recognised Deferred Tax Assets

The objective of this study is to consider if the value‐relevance of recognised deferred tax assets, which often represent unused tax losses, was affected by the financial crisis. A regression analysis of a sample of Australian and United Kingdom firms reveals that the value‐relevance of recognised deferred tax assets was affected by the financial crisis. However, the impact of the financial crisis differed between the sample countries. The study shows that a plausible explanation for this difference might be found in the tax law of the two countries. Findings of this paper will be of interest to regulators and standard setters, as they highlight how interaction between accounting requirements and tax law affects the relevance of accounting and tax information.     

Governance or reputation? Flexible tax enforcement and excess goodwill: Evidence from the taxpaying credit rating system in China

This study investigates the effect of flexible tax enforcement on firms’ excess goodwill using unique manually collected data on taxpaying credit rating in China from 2014 to 2021. We document that A-rated taxpayer firms have less excess goodwill; A-rated firms reduce excess goodwill by 0.005 vis-a-vis non-A-rated firms, which accounts for 100% of the mean value of excess goodwill. This finding holds after multiple robustness tests and an endogeneity analysis. Moreover, this negative effect is more pronounced in firms with low information transparency, that are non-state-owned and that are located in regions with low tax enforcement intensity. The channel test results suggest that taxpaying credit rating system as flexible tax enforcement reduces firms’ excess goodwill through a reputation-based effect and not a governance-based effect. This study reveals that the taxpaying credit rating system in China as flexible tax enforcement can bring halo effect to A rating firms, thereby limiting irrational M&As and breaking goodwill bubble.     

Taxes and Corporate Policies: Evidence from a Quasi Natural Experiment

We document important interactions between tax incentives and corporate policies using a “quasi natural experiment” provided by a surprise announcement that imposed corporate taxes on a group of Canadian publicly traded firms. The announcement caused a dramatic decrease in value. Prospective tax shields partially offset the losses, adding 4.6% to firm value on average, and vary with the tax status of the marginal investor. Further, firms adjust leverage, payout, cash holdings, and investment in response to changing tax incentives. Overall, the event study and time series evidence supports the view that taxes are important for corporate decision making.     

“Surprise” material weakness disclosures: Effects on audit fees and audit report lags

Prior research shows that many of the companies that disclose material weaknesses in internal control (MWs) do not disclose such weaknesses in earlier quarterly 10-Q filings for the same year—i.e., the year-end MW disclosures are “surprise” disclosures. I first show, using data from 2009 to 2019, that such surprise MWs continue to be the majority of MW disclosures as late as 2019. I find that accelerated filer companies with surprise MWs pay lower fees compared to companies with no-surprise MWs; however, this finding does not hold for non-accelerated filers. I also find that there are no significant differences in the audit report lag of surprise and no-surprise MW disclosers. Thus, the lower audit fee paid by surprise MW disclosure companies may offer a possible explanation for the widespread prevalence of surprise MW disclosures. The results also highlight the importance of the external auditor in public disclosures of MWs. The findings have public policy relevance given the ongoing efforts to expand the set of companies that would be exempt from the auditor attestation of internal controls.     

Tax enforcement and tax havens under formula apportionment

In this paper, we consider optimal tax enforcement policy in the presence of profit shifting toward tax havens. We show that, under separate accounting, tax enforcement levels may be too high due to negative fiscal externalities. In contrast, under formula apportionment, tax enforcement is likely to be too low due to positive externalities of tax enforcement. Our results challenge recent contributions arguing that, under formula apportionment, there is a tendency toward inefficiently high levels of (effective) tax rates.     

Sneaking in the back door? An evaluation of reverse mergers and IPOs

I examine whether the financial reporting quality of firms that access capital markets through reverse mergers differs from that of firms that rely on the traditional and more onerous IPO process. Using a broad sample of reverse merger firms and a propensity-score matched sample of IPOs, I find that reverse merger firms exhibit lower earnings quality as measured by several earnings attributes established in prior literature: accrual quality, earnings persistence, earnings predictability, cash persistence, cash predictability, earnings smoothness, timeliness, and value relevance. I document similar results for firms with low levels of institutional ownership. Differences in earnings quality, however, are attenuated for reverse merger firms with higher levels of institutional ownership. Given recent U.S. Securities and Exchange Commission enforcement actions against Chinese reverse merger firms, I also use a difference-in-differences technique and find that the lower financial reporting of reverse merger firms is actually driven by the non-Chinese reverse merger firms.     

The impact of tax enforcement on corporate investment efficiency: evidence from the tax administration information system

Information technology is essential in tax enforcement. This study found that stronger tax enforcement after the tax administration information system reform improved corporate investment efficiency by reducing excessive investment expenditures. The effect is more significant under higher local government fiscal pressure, poorer external information environments, weaker external corporate governance, and stronger tax avoidance motivation. The main mechanism is based on the quality of the accounting information. This study enriches the literature on the economic consequences of tax enforcement and adds investment efficiency as an influential factor, which provides implications for international governments to use information technology to strengthen tax enforcement.     

The value relevance of corporate tax expenses in the presence of partisanship: International evidence

This study examines the value relevance of corporate tax expenses in an international setting and determines whether partisanship plays a role in its informativeness. Our empirical results indicate the greater value relevance of corporate taxes during the administration of right-leaning governments. Moreover, our cross-sectional analysis suggests that corporate tax expense is value-relevant during the administration of right-leaning governments; however, corporate tax expense does not convey information regarding returns when left-leaning parties are in office. These findings highlight the importance of the political orientation of tax policymakers in determining value-related information on corporate tax expenses.     

Analysts’ pre-tax income forecasts and the tax expense anomaly

This paper examines whether analysts’ pre-tax income forecasts mitigate the tax expense anomaly documented by Thomas and Zhang (J Account Res 49:791–821, 2011). They find that seasonal changes in quarterly income tax expense are positively related to future returns after controlling for the earnings surprise and conclude that investors underreact to value-relevant information in tax expense. When analysts issue both earnings and pre-tax income forecasts, they implicitly provide a forecast of income tax expense. We posit that this implicit forecast helps investors recognize the persistence of current tax expense surprise for future earnings. Accordingly, we expect that mispricing of tax expense will be less severe for firms with earnings and pre-tax income forecasts. As expected, we find that the presence of pre-tax income forecasts significantly weakens the positive relation between tax expense surprise and future returns, consistent with analysts’ implicit forecasts of tax expense mitigating the tax expense anomaly.     

论我国税收强制执行制度之完善

税收强制执行是税收征管程序中最为严厉的程序,是税收强制性特征最突出的表现,是保证税收得以实现的最后的但是又行之有效的措施,在各国的税收征收法律制度中均有明确的规定。然而税收强制执行直接关系到纳税人的利益,因此在对进行的税收强制执行规定中应当充分考虑国家利益与纳税人利益。我国《税收征管法》中虽然也建立了税收强制执行制度,但是在实践中该制度存在许多困惑,本文试图通过比较研究,探讨税收强制执行制度的进一步完善。     

税收执法说理制度的实证考察与理论阐释——基于88份税务行政裁判文书的分析

国家税务总局在《关于全面推进依法治税的指导意见》中提出建立税收执法说理制度,这一制度是约束税收行政裁量权、切实保护纳税人权利的有力举措.本文以88份税收执法说理争议裁判文书为分析对象,从案由、争议类型、争议内容及裁判结果等方面对我国税收执法说理制度运行状况展开考察.实践表明,目前税收执法说理制度的实施效果欠佳,存在没有...