Corporate Transparency, Sustainable Tax Strategies, and Uncertain Tax Activities
Stevanie S. Neuman
Texas A&M University - Department of Accounting
Thomas C. Omer
University of Nebraska-Lincoln
Marjorie K. Shelley
University of Nebraska at Lincoln
March 20, 2013
We investigate whether the sustainability of firms’ tax strategies is associated with corporate transparency. We expect and find that firms with sustainable tax strategies are associated with more transparent information environments. Prior research shows that transparency is associated with better governance; we expect better governed firms to engage in more sustainable tax strategies and we find that firms with more sustainable tax strategies exhibit significantly higher return on assets, free cash flows and cash flows from operations, and higher Altman’s Z-Scores. We also find that the likelihood of engaging in uncertain tax activities is negatively related to both transparency and tax strategy sustainability. Finally, we find that firms with lower transparency record higher unrecognized tax benefits. These relationships are important because a firm’s degree of transparency significantly affects capital costs and value, and relying on the assumption that tax planning investments lead to more obscure information environments can be costly.
Number of Pages in PDF File: 60
Keywords: corporate transparency, sustainable tax strategies, uncertain tax activities
JEL Classification: M40, M41, M49working papers series
Date posted: December 4, 2012 ; Last revised: March 23, 2013
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
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