Supporting Tax Policy Change Through Accounting Discretion: Evidence from the 2012 Elections

57 Pages Posted: 19 Nov 2013 Last revised: 4 Feb 2016

See all articles by Vishal P. Baloria

Vishal P. Baloria

Boston College

Kenneth J. Klassen

University of Waterloo - School of Accounting and Finance

Date Written: February 4, 2016

Abstract

Some corporations attempt to lessen their tax burden through active involvement in the legislative process. We identify firms that contributed to congressional candidates who favor reductions in the U.S. corporate statutory tax rate. This support created a temporary incentive to manage effective tax rates up immediately prior to the 2012 general election. We document that these firms increased their reported effective tax rate in the two calendar quarters preceding the election relative to adjacent periods and to other firms supporting candidates in the same election. We also find that the variation in upward ETR management is correlated with proxies for potential reputational and capital markets costs as well as the strength of the relationship between candidates and firms. Our findings provide new evidence on financial reporting choices in support of corporate political activity and on the political cost hypothesis in the tax setting.

Keywords: tax policy; corporate political activity; political cost hypothesis

JEL Classification: G18; M51

Suggested Citation

Baloria, Vishal P. and Klassen, Kenneth, Supporting Tax Policy Change Through Accounting Discretion: Evidence from the 2012 Elections (February 4, 2016). 2014 Canadian Academic Accounting Association (CAAA) Annual Conference, Available at SSRN: https://ssrn.com/abstract=2356638 or http://dx.doi.org/10.2139/ssrn.2356638

Vishal P. Baloria (Contact Author)

Boston College ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Kenneth Klassen

University of Waterloo - School of Accounting and Finance ( email )

Waterloo, Ontario N2L 3G1
Canada
519-888-4567 x38550 (Phone)
519-888-7562 (Fax)

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