Does Private Country-by-Country Reporting Improve the Tax Information Environment for Capital Market Participants?

57 Pages Posted: 7 Oct 2020 Last revised: 12 Jul 2021

See all articles by Jing Huang

Jing Huang

Virginia Polytechnic Institute & State University - Pamplin College of Business

John (Xuefeng) Jiang

Michigan State University

Anh Persson

University of Illinois at Urbana-Champaign - Department of Accountancy

Date Written: July 1, 2021

Abstract

To combat tax avoidance, 58 countries have fully mandated multinational enterprises to disclose their income and economic activities to tax authorities on a country-by-country reporting (CbCR) basis from 2016 onwards. We examine whether this policy shock results in more informative tax expenses for capital market participants. Drawing on analyst tax forecasting, we develop a novel approach to capture the extent of misalignment perceived by capital markets and find that this misalignment declines after CbCR adoptions. Further, we demonstrate that CbCR improves tax information quality by increasing the value-relevance of tax surprise for investors and the accuracy of analysts’ effective tax rate forecasts. To better inform investors of firms’ tax positions, financial regulators are considering proposals requiring firms to publicly disclose country-level tax information. Contributing to the policy discussion, we suggest that the private CbCR disclosure already has materialized some of the information benefits for investors sought by these regulators.

Keywords: taxation; country-by-country reporting; tax misalignment; analysts’ forecasts accuracy; value relevance.

JEL Classification: H26, M41

Suggested Citation

Huang, Jing and Jiang, John (Xuefeng) and Persson, Anh, Does Private Country-by-Country Reporting Improve the Tax Information Environment for Capital Market Participants? (July 1, 2021). Available at SSRN: https://ssrn.com/abstract=3694598 or http://dx.doi.org/10.2139/ssrn.3694598

Jing Huang

Virginia Polytechnic Institute & State University - Pamplin College of Business ( email )

250 Drillfield Drive
Blacksburg, VA 24061
United States

John (Xuefeng) Jiang

Michigan State University ( email )

632 Bogue St Ste N505
Eli Broad College of Business
East Lansing, MI 48824
United States
517-432-3031 (Phone)
517-432-1101 (Fax)

HOME PAGE: http://sites.google.com/view/johnjiang

Anh Persson (Contact Author)

University of Illinois at Urbana-Champaign - Department of Accountancy ( email )

283 Wohlers Hall
1206 South Sixth Street
Champaign, IL 61820
United States
217.330.8543 (Phone)

HOME PAGE: http://https://giesbusiness.illinois.edu/profile/anh-vuong-persson

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