Strategic Subsidiary Disclosure

49 Pages Posted: 10 Mar 2018 Last revised: 14 Mar 2018

Scott Dyreng

Duke University

Jeffrey L. Hoopes

University of North Carolina (UNC) at Chapel Hill

Patrick Langetieg

Government of the United States of America - Internal Revenue Service (IRS)

Jaron H. Wilde

University of Iowa - Henry B. Tippie College of Business

Date Written: March 1, 2018

Abstract

We use data multinational firms provide to the Internal Revenue Service regarding their foreign subsidiary locations to explore whether some firms fail to publicly disclose subsidiaries in some countries, even when the subsidiaries are significant and should be disclosed per Security and Exchange Commission rules. The propensity to omit significant subsidiaries is especially strong when subsidiaries are in tax havens and when the firm is more highly scrutinized by the media, suggesting firms believe there are reputational costs associated with operations in tax havens. Additionally, we find evidence that firms omitting significant subsidiaries are more likely to misstate their financial results and are more likely to receive an SEC comment letter as compared to firms that do not omit significant subsidiaries. These results suggest that subsidiary omission may be indicative of firms’ broader disclosure and accounting choices.

Keywords: financial disclosure, corporate tax, reputational costs of tax planning

JEL Classification: M41, M48, H25, H26

Suggested Citation

Dyreng, Scott and Hoopes, Jeffrey L. and Langetieg, Patrick and Wilde, Jaron H., Strategic Subsidiary Disclosure (March 1, 2018). Available at SSRN: https://ssrn.com/abstract=3137138 or http://dx.doi.org/10.2139/ssrn.3137138

Scott Dyreng

Duke University ( email )

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

Jeffrey L. Hoopes (Contact Author)

University of North Carolina (UNC) at Chapel Hill ( email )

102 Ridge Road
Chapel Hill, NC NC 27514
United States

Patrick Langetieg

Government of the United States of America - Internal Revenue Service (IRS) ( email )

1111 Constitution Avenue, NW
Washington, DC 20224
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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