Determinants and Consequences of Nonproprietary Voluntary Disclosure

56 Pages Posted: 6 Jun 2019

See all articles by Todd D. Kravet

Todd D. Kravet

University of Connecticut - Department of Accounting

Frank Murphy

University of Connecticut - Department of Accounting

Sarah Parsons

University of Connecticut - Department of Accounting

Date Written: May 17, 2019

Abstract

We examine a voluntary disclosure that is nonproprietary in nature and simply reflects management’s intention to explain how a widely-known nonrecurring economic event is reported in financial statements. The American Taxpayer Relief Act of 2012 (ATRA) retroactively reinstated previously expired tax provisions, including a tax credit for research and development expenditures. Nuances in GAAP reporting requirements related to retroactive tax legislation create a unique setting to examine voluntary disclosure choices by credibly separating the message of the disclosure from the underlying economics. We use tax disclosures in the 10-K filing to examine the determinants and consequences of nonproprietary disclosure. We find support that analyst following, engaging a Big 4 auditor, and competition increase the likelihood of voluntary disclosure. We also find evidence that suggests that some of the non-disclosing firms failed to adhere to GAAP and improperly recorded the benefits of the ATRA in their 2012 financial statements. Finally, we find that ATRA disclosures are useful to investors as firms disclosing the impact of the ATRA, compared to non-disclosing control firms, have greater first quarter 2013 analyst ETR forecast improvement. We also find that ATRA disclosure is positively associated with firm liquidity at the time of the disclosure event.

Keywords: Corporate Taxation, Financial Reporting Quality, Nonproprietary Voluntary Disclosure

JEL Classification: H25, M41, D82

Suggested Citation

Kravet, Todd D. and Murphy, Frank and Parsons, Sarah, Determinants and Consequences of Nonproprietary Voluntary Disclosure (May 17, 2019). Available at SSRN: https://ssrn.com/abstract=3389970 or http://dx.doi.org/10.2139/ssrn.3389970

Todd D. Kravet (Contact Author)

University of Connecticut - Department of Accounting ( email )

School of Business
Storrs, CT 06269-2041
United States

Frank Murphy

University of Connecticut - Department of Accounting ( email )

School of Business
Storrs, CT 06269-2041
United States

Sarah Parsons

University of Connecticut - Department of Accounting ( email )

School of Business
Storrs, CT 06269-2041
United States

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