Abstract

http://ssrn.com/abstract=2419573
 


 



Tax Havens and Disclosure Aggregation


Herita T. Akamah


University of Oklahoma - Michael F. Price College of Business

Ole-Kristian Hope


University of Toronto - Rotman School of Management

Wayne B. Thomas


University of Oklahoma - Michael F. Price College of Business

July 22, 2014

Rotman School of Management Working Paper No. 2419573

Abstract:     
Multinational firms’ ability to avoid taxes by shifting profits to low-tax geographic areas is often severely criticized by politicians and regulators (both domestic and foreign) and citizen groups. In this study, we are interested in whether managers attempt to make tax avoidance activities less transparent by using discretion in the disclosure of geographic operations. We develop novel measures of geographic disclosure quality by manually matching the countries of firms’ foreign subsidiaries listed in Exhibit 21 of the Form 10-K to the aggregation level of geographic disclosures in the segment note (e.g., country versus continent versus total foreign). Using these hand-coded measures of 2,774 unique geographic titles disclosed by our sample firms and employing both association and changes analyses, we find that firms with tax havens are more likely to aggregate their geographic disclosures (i.e., provide lower-quality disclosures). The evidence is consistent with managers attempting to conceal their tax-avoidance activities. We further find that the association between tax havens and disclosure aggregation is more severe for larger firms (i.e., firms with higher political costs) and for firms in natural-resources industries, in retail industries, or with low competition. This study offers evidence relevant to policy makers and others who are concerned with the potential role of financial reporting in helping to understand the tax-avoidance activities of multinational firms.

Number of Pages in PDF File: 50

Keywords: Tax havens, aggregation, disclosure quality, tax avoidance, segment disclosure, Exhibit 21

JEL Classification: H25, H26, F23, F30, M41, G30

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Date posted: April 4, 2014 ; Last revised: July 23, 2014

Suggested Citation

Akamah, Herita T. and Hope, Ole-Kristian and Thomas, Wayne B., Tax Havens and Disclosure Aggregation (July 22, 2014). Rotman School of Management Working Paper No. 2419573. Available at SSRN: http://ssrn.com/abstract=2419573 or http://dx.doi.org/10.2139/ssrn.2419573

Contact Information

Herita T. Akamah (Contact Author)
University of Oklahoma - Michael F. Price College of Business ( email )
307 West Brooks
Norman, OK 73019-4004
United States
Ole-Kristian Hope
University of Toronto - Rotman School of Management ( email )
105 St. George Street
Toronto, Ontario M5S 3E6
Canada
HOME PAGE: http://www.rotman.utoronto.ca/FacultyAndResearch/Faculty/FacultyBios/Hope.aspx
Wayne B. Thomas
University of Oklahoma - Michael F. Price College of Business ( email )
Michael F. Price College of Business,
307 W Brooks, Rm 212B
Norman, OK 73019
United States
405-325-5789 (Phone)
405-325-7348 (Fax)
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