Real Effects of Private Country-by-Country Disclosure
55 Pages Posted: 14 Jun 2019 Last revised: 5 Jun 2021
Date Written: May 27, 2021
We investigate the effects of mandatory private Country-by-Country Reporting (CbCR) to European tax authorities on multinational firms’ capital and labor investments as well as their organizational structures. We exploit the threshold-based application of this 2016 disclosure rule to conduct difference-in-differences and regression discontinuity tests. We document increases in capital and labor expenditures in Europe, but these effects are more pronounced in countries with preferential tax regimes. We also find evidence consistent with firms responding to CbCR by reducing organizational complexity. Collectively, our results support the conclusion that mandatory private CbCR causes firms to change real investment activities to substantiate their tax avoidance activities in Europe while reducing the appearance of aggressive tax practices.
Keywords: Real Effects, Disclosure Regulation, Private Disclosure, Mandatory Disclosure, Country-by-Country Reporting, Tax Transparency, Tax Avoidance, Tax Havens, Organizational Complexity
JEL Classification: H20, H25, H26, H32, K22, L51, M41, M48, O47
Suggested Citation: Suggested Citation