Tax Havens and Disclosure Aggregation

Abstract

Multinational firms have been accused by politicians, regulators, and citizen groups of shifting profits to low-tax geographic areas. We present evidence that multinational firms with tax-haven operations tend to aggregate their geographic disclosures to a greater extent. The results are consistent with managers attempting to avoid criticism by reducing the transparency of their tax-avoidance activities. We find these results to be stronger for larger firms with higher political costs and for firms in natural-resources industries, in retail industries, or with low competition. The evidence is relevant to policy makers and others interested in multinational firms’ financial reporting and tax activities.

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

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