Are State Tax Amnesty Programs Associated with Financial Reporting Irregularities?

Buckwalter, Neal; Sharp, Nathan Y.; Wilde, Jaron H.; Wood, David A.

doi:10.2139/ssrn.1748904

Are State Tax Amnesty Programs Associated with Financial Reporting Irregularities?

Public Finance Review, 42 (6): 774-799.

37 Pages Posted: 27 Jan 2011 Last revised: 5 Feb 2015

See all articles by Neal Buckwalter

Nathan Y. Sharp

Texas A&M University - Department of Accounting

Jaron H. Wilde

University of Iowa - Henry B. Tippie College of Business

David A. Wood

Brigham Young University - School of Accountancy

Date Written: 2014

Abstract

This paper investigates the relation between state tax amnesties and financial reporting irregularities. State tax amnesty programs, which potentially signal a lax regulatory enforcement environment, provide a unique setting in which to examine the effects of state tax authorities on non-tax financial reporting behavior. The results suggest that firms headquartered in states offering a tax amnesty program are more likely to begin engaging in a financial reporting irregularity during the amnesty period. Furthermore, the results show that the observed increase in financial reporting irregularities occurs only during periods of repeat, not initial, amnesty programs. These findings suggest state tax amnesties have previously unexplored adverse effects on managers’ behavior.

Keywords: Tax Amnesty, Financial Reporting Irregularities, Tax Authorities, Enforcement

JEL Classification: M41, M48, G38, H20, K34

Suggested Citation: Suggested Citation

Buckwalter, Neal and Sharp, Nathan Y. and Wilde, Jaron H. and Wood, David A., Are State Tax Amnesty Programs Associated with Financial Reporting Irregularities? (2014). Public Finance Review, 42 (6): 774-799., Available at SSRN: https://ssrn.com/abstract=1748904 or http://dx.doi.org/10.2139/ssrn.1748904