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Tax Aggressiveness and Corporate Transparency

67 Pages Posted: 27 Mar 2011 Last revised: 15 Jul 2017

Karthik Balakrishnan

London Business School

Jennifer L. Blouin

University of Pennsylvania - Accounting Department

Wayne R. Guay

University of Pennsylvania - Accounting Department

Date Written: September 7, 2012

Abstract

We investigate whether aggressive tax planning firms have a less transparent information environment. Although tax planning provides expected tax savings, it can simultaneously increase the financial complexity of the organization. And, to the extent that this greater financial complexity cannot be adequately clarified through communications with outside parties, such as investors and analysts, transparency problems can arise. Our investigation of the association between tax aggressiveness and information asymmetry, analysts’ forecast errors, and earnings quality, suggests that aggressive tax planning is associated with lower corporate transparency. We also find evidence that managers at tax aggressive firms attempt to mitigate these transparency problems by increasing various tax-related disclosures. Overall, our results suggest that firms face a trade-off between tax benefits and financial transparency when choosing the aggressiveness of their tax planning.

Keywords: Tax aggressiveness, tax planning, information content, earnings quality

JEL Classification: H20, M41

Suggested Citation

Balakrishnan, Karthik and Blouin, Jennifer L. and Guay, Wayne R., Tax Aggressiveness and Corporate Transparency (September 7, 2012). Available at SSRN: https://ssrn.com/abstract=1792783 or http://dx.doi.org/10.2139/ssrn.1792783

Karthik Balakrishnan

London Business School ( email )

Sussex Place
Regent's Park
London, NW1 4SA
United Kingdom

Jennifer L. Blouin (Contact Author)

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-1266 (Phone)

Wayne R. Guay

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
1329 Steinberg-Dietrich Hall
Philadelphia, PA 19104-6365
United States
215-898-7775 (Phone)
215-573-2054 (Fax)

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