Managing Annual Accounting Reports to Avoid State Taxes: An Analysis of Property-Casualty Insurers

Posted: 7 Jun 1999

See all articles by Kathy R. Petroni

Kathy R. Petroni

Michigan State University - Eli Broad College of Business and Eli Broad Graduate School of Management

Douglas A. Shackelford

University of North Carolina Kenan-Flagler Business School; National Bureau of Economic Research (NBER)

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Abstract

We hypothesize that, in their annual accounting reports, property-casualty insurers allocate premiums from multistate policies to reduce total state taxes. To test this production, we exploit the industry?s unique state tax disclosures. We examine firm-level data, collected from the publicly-available, statutory reports filed with each state government. Reported premiums at the insurer-state level, scaled by incurred losses, are regressed on state tax measures. Consistent with tax-motivated income shifting, we find the premium-loss ratio is decreasing in state tax rates. The negative relation is greatest for insurers specializing in multistate lines of business.

JEL Classification: M41, H25, G22

Suggested Citation

Petroni, Kathy Ruby and Shackelford, Douglas A., Managing Annual Accounting Reports to Avoid State Taxes: An Analysis of Property-Casualty Insurers. The Accounting Review, July 1999. Available at SSRN: https://ssrn.com/abstract=160448

Kathy Ruby Petroni

Michigan State University - Eli Broad College of Business and Eli Broad Graduate School of Management ( email )

East Lansing, MI 48824-1121
United States
517-432-2924 (Phone)
517-432-1101 (Fax)

Douglas A. Shackelford (Contact Author)

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States
919-962-3197 (Phone)
919-962-4727 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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