Qualitative Information Disclosure: Is Mandating Additional Tax Information Disclosure Always Useful?

64 Pages Posted: 29 Sep 2020 Last revised: 24 May 2021

See all articles by Katarzyna Anna Bilicka

Katarzyna Anna Bilicka

affiliation not provided to SSRN

Elisa Casi-Eberhard

Norwegian School of Economics (NHH) - Department of Business and Management Science

Carol Seregni

University of Mannheim

Barbara Stage

University of Mannheim; ZEW – Leibniz Centre for European Economic Research

Date Written: April 14, 2021

Abstract

Firms are facing progressively more stringent tax disclosure requirements. In this paper, we examine whether increased qualitative tax transparency leads to intended outcomes using, as an exogenous shock, the 2016 UK reform that mandated the disclosure of a tax strategy for firms above a certain size threshold. We find that firms that have to publish a separate tax strategy report significantly increase their voluntary tax disclosure in the annual reports, but we show no widespread effect on tax avoidance, measured by changes in effective tax rates. We document two mechanisms through which mandating a tax strategy report affects overall tax disclosure. First, we find large changes in disclosure for firms facing high public scrutiny. Second, firms with higher quality of tax strategy reports increase the qualitative discussion of their tax affairs in their annual reports by larger amounts, while firms with lower quality reports show increases in tax avoidance. Our results demonstrate the difficulty of generating a standard that effectively incentivizes desirable behavior when the disclosure mandate is asking for purely qualitative information.

Keywords: Tax Transparency, Tax Aggressiveness, Profit Shifting, Regulatory Requirements

JEL Classification: M41, M48, H26, H20

Suggested Citation

Bilicka, Katarzyna Anna and Casi-Eberhard, Elisa and Seregni, Carol and Stage, Barbara, Qualitative Information Disclosure: Is Mandating Additional Tax Information Disclosure Always Useful? (April 14, 2021). TRR 266 Accounting for Transparency Working Paper Series No. 40, Available at SSRN: https://ssrn.com/abstract=3672420 or http://dx.doi.org/10.2139/ssrn.3672420

Katarzyna Anna Bilicka

affiliation not provided to SSRN

Elisa Casi-Eberhard (Contact Author)

Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )

Bergen, 5045
Norway

Carol Seregni

University of Mannheim ( email )

Universitaetsbibliothek Mannheim
Zeitschriftenabteilung
Mannheim, 68131
Germany

Barbara Stage

University of Mannheim ( email )

Schloss
D-68131 Mannheim
Germany

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

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