The Determinants of Segment-Level Tax Expense Disclosure

44 Pages Posted: 29 Oct 2016 Last revised: 29 Jul 2017

See all articles by Fabio B. Gaertner

Fabio B. Gaertner

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

Dan Lynch

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

Logan B. Steele

Oregon State University

Date Written: July 28, 2017

Abstract

In this study, we examine managers’ decision to report segment-level profit on a before-tax or after-tax basis. A consequence of defining segment-level profit on an after-tax basis internally is that segment-level tax expense must be disclosed in the financial statements. Consistent with the management approach underpinning segment reporting rules, we find that firms which appear to be using an after-tax profit measure internally are more likely to report segment-level profit on an after-tax basis. However, this association is only present for operating segments that are defined on a non-geographic basis. In the sample of firms that define operating segments on a geographic basis, proprietary costs considerations, rather than internal reporting, appear to drive managers’ reporting decision. Overall, our results suggest managers use discretion to reduce disclosure quality of segment-level tax information for firms with geographic-based operating segments.

Keywords: Segment disclosure, taxes, after-tax incentives

JEL Classification: H20, H25, M41

Suggested Citation

Gaertner, Fabio B. and Lynch, Dan and Steele, Logan B., The Determinants of Segment-Level Tax Expense Disclosure (July 28, 2017). Available at SSRN: https://ssrn.com/abstract=2860841 or http://dx.doi.org/10.2139/ssrn.2860841

Fabio B. Gaertner

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

School of Business
975 University Avenue
Madison, WI 53706
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

Logan B. Steele

Oregon State University ( email )

Corvallis, OR 97330
United States

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