The Effects of Regulatory Scrutiny on Tax Avoidance: An Examination of SEC Comment Letters

Posted: 21 Dec 2014 Last revised: 2 Mar 2016

See all articles by Thomas R. Kubick

Thomas R. Kubick

University of Nebraska-Lincoln

Dan Lynch

University of Wisconsin - Madison - Department of Accounting and Information Systems

Michael Mayberry

University of Florida - Fisher School of Accounting

Thomas C. Omer

University of Nebraska at Lincoln - School of Accountancy

Date Written: March 1, 2016

Abstract

This study examines the tax avoidance behavior of firms prior to the issuance, and following the resolution, of SEC tax comment letters. We find that firms that appear to engage in greater tax avoidance are more likely to receive a tax-related SEC comment letter. We also find that firms receiving a tax-related SEC comment letter, relative to firms receiving a non-tax comment letter, subsequently decrease their tax avoidance behavior consistent with an increase in expected tax costs. Additionally, we document evidence consistent with other firms that do not receive a comment letter reacting to multiple publicly disclosed tax-related comment letters within their industry by lowering their reported GAAP ETR, consistent with an indirect effect of regulatory scrutiny on certain types of tax avoidance.

Keywords: tax avoidance, SEC comment letters, regulatory scrutiny

JEL Classification: H25, G18, M41

Suggested Citation

Kubick, Thomas R. and Lynch, Dan and Mayberry, Michael and Omer, Thomas C., The Effects of Regulatory Scrutiny on Tax Avoidance: An Examination of SEC Comment Letters (March 1, 2016). Accounting Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2541035 or http://dx.doi.org/10.2139/ssrn.2541035

Thomas R. Kubick

University of Nebraska-Lincoln ( email )

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

Dan Lynch (Contact Author)

University of Wisconsin - Madison - Department of Accounting and Information Systems ( email )

School of Business
975 University Avenue
Madison, WI 53706
United States

Michael Mayberry

University of Florida - Fisher School of Accounting ( email )

Warrington College of Business
PO Box 117166
Gainesville, FL 32611-7166
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

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