Corporate Transparency, Sustainable Tax Strategies, and Uncertain Tax Activities

60 Pages Posted: 4 Dec 2012 Last revised: 23 Mar 2013

See all articles by Stevanie S. Neuman

Stevanie S. Neuman

University of Missouri at Columbia - School of Accountancy

Thomas C. Omer

University of Nebraska at Lincoln - School of Accountancy

Marjorie K. Shelley

University of Nebraska at Lincoln - School of Accountancy

Date Written: March 20, 2013

Abstract

We investigate whether the sustainability of firms’ tax strategies is associated with corporate transparency. We expect and find that firms with sustainable tax strategies are associated with more transparent information environments. Prior research shows that transparency is associated with better governance; we expect better governed firms to engage in more sustainable tax strategies and we find that firms with more sustainable tax strategies exhibit significantly higher return on assets, free cash flows and cash flows from operations, and higher Altman’s Z-Scores. We also find that the likelihood of engaging in uncertain tax activities is negatively related to both transparency and tax strategy sustainability. Finally, we find that firms with lower transparency record higher unrecognized tax benefits. These relationships are important because a firm’s degree of transparency significantly affects capital costs and value, and relying on the assumption that tax planning investments lead to more obscure information environments can be costly.

Keywords: corporate transparency, sustainable tax strategies, uncertain tax activities

JEL Classification: M40, M41, M49

Suggested Citation

Neuman, Stevanie S. and Omer, Thomas C. and Shelley, Marjorie, Corporate Transparency, Sustainable Tax Strategies, and Uncertain Tax Activities (March 20, 2013). Available at SSRN: https://ssrn.com/abstract=2184892 or http://dx.doi.org/10.2139/ssrn.2184892

Stevanie S. Neuman (Contact Author)

University of Missouri at Columbia - School of Accountancy ( email )

College of Business
Columbia, MO 65211
United States

Thomas C. Omer

University of Nebraska at Lincoln - School of Accountancy ( email )

307 College of Business Administration
Lincoln, NE 68588-0488
United States

Marjorie Shelley

University of Nebraska at Lincoln - School of Accountancy ( email )

307 College of Business Administration
Lincoln, NE 68588-0488
United States

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