Abstract

http://ssrn.com/abstract=1325895
 
 

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Beyond Tax Avoidance: Offshore Firms’ Institutional Environment and Financial Reporting Quality


Art Durnev


University of Iowa - Henry B. Tippie College of Business

TieMei Li


University of Ottawa - School of Management

Michel Magnan


Concordia University - Department of Accountancy

February 1, 2015

CAAA Annual Conference 2009 Paper
AFA 2011 Denver Meetings Paper

Abstract:     
We explore how firms’ operations in Offshore Financial Centers (OFCs) through subsidiaries or affiliates affect the quality of financial reporting. Using a unique and large sample of firms that have subsidiaries or affiliates in OFCs but registered their headquarters in 15 countries with the strictest legal regimes, we find that firms with offshore operations have lower reporting quality. We also find that as the OFC characteristics become more prevalent, firms are more likely to manage earnings through both accruals and real activities. More importantly after disentangling OFC characteristics into low taxation, flexible regulations, and secrecy policy, we find that OFCs have an effect on earnings quality that extends beyond tax avoidance. We conclude that the assessment of a firm’s institutional environment must encompass the registration status of its subsidiaries or affiliates as well as its own.

Number of Pages in PDF File: 58

Keywords: Offshore Financial Centers, Financial Reporting Quality, Earnings Management

JEL Classification: F36, G15, G34, H26, K22, M41


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Date posted: January 5, 2010 ; Last revised: February 27, 2015

Suggested Citation

Durnev, Art and Li, TieMei and Magnan, Michel, Beyond Tax Avoidance: Offshore Firms’ Institutional Environment and Financial Reporting Quality (February 1, 2015). CAAA Annual Conference 2009 Paper; AFA 2011 Denver Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1325895 or http://dx.doi.org/10.2139/ssrn.1325895

Contact Information

Artyom Durnev
University of Iowa - Henry B. Tippie College of Business ( email )
108 Pappajohn Business Building
Iowa City, IA 52242-1000
United States
(514) 398-5394 (Phone)
(514) 398-3876 (Fax)
HOME PAGE: http://www.artdurnev.com
TieMei Li (Contact Author)
University of Ottawa - School of Management ( email )
136 Jean-Jacques Lussier Street
Ottawa, Ontario K1N 6N5
Canada
Michel Magnan
Concordia University - Department of Accountancy ( email )
Montreal, Quebec H3G 1M8
Canada
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