Public Pressure and Corporate Tax Behavior

Posted: 22 Jun 2016

See all articles by Scott Dyreng

Scott Dyreng

Duke University - Accounting

Jeffrey L. Hoopes

University of North Carolina (UNC) at Chapel Hill - Accounting Area

Jaron H. Wilde

University of Iowa - Henry B. Tippie College of Business

Multiple version iconThere are 2 versions of this paper

Date Written: March 1, 2016

Abstract

We use a shock to the public scrutiny of firm subsidiary locations to investigate whether that scrutiny leads to changes in firms’ disclosure and corporate tax avoidance behavior. ActionAid International, a nonprofit activist group, levied public pressure on noncompliant U.K. firms in the FTSE 100 to comply with a rule requiring U.K. firms to disclose the location of all of their subsidiaries. We use this setting to examine whether the public pressure led scrutinized firms to increase their subsidiary disclosure, decrease tax avoidance, and reduce the use of subsidiaries in tax haven countries compared to other firms in the FTSE 100 not affected by the public pressure. The evidence suggests that the public scrutiny sufficiently changed the costs and benefits of tax avoidance such that tax expense increased for scrutinized firms. The results suggest that public pressure from outside activist groups can exert a significant influence on the behavior of large, publicly traded firms. Our findings extend prior research that has had little success documenting an empirical relation between public scrutiny of tax avoidance and firm behavior.

Keywords: Real Effects of Disclosure; Corporate Taxation; Corporate Reputation

JEL Classification: H25; H26; H20; G39

Suggested Citation

Dyreng, Scott and Hoopes, Jeffrey L. and Wilde, Jaron H., Public Pressure and Corporate Tax Behavior (March 1, 2016). Journal of Accounting Research, Volume 54, Issue 1, Pages 147–186, March 2016. Available at SSRN: https://ssrn.com/abstract=2798730

Scott Dyreng (Contact Author)

Duke University - Accounting ( email )

Box 90120, Fuqua School of Business
Durham, NC 27708-0120
United States

Jeffrey L. Hoopes

University of North Carolina (UNC) at Chapel Hill - Accounting Area ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States

Jaron H. Wilde

University of Iowa - Henry B. Tippie College of Business ( email )

Acquisitions
5020 Main Library
Iowa City, IA 52242-1000
United States

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