Public Tax Disclosures and Investor Perceptions

Abstract

To reveal whether firms pay their fair share of taxes, regulators are increasingly mandating public tax disclosures. Such disclosures are often assumed to raise public attention and help non-professional stakeholders, such as retail investors, identify aggressive tax avoiders. We conduct two experiments to test this assumption. Our first experiment indicates that retail investors become worse at identifying aggressive tax avoiders when disclosures focus on bottom-line tax numbers because such disclosures invite them to use these exclusively as heuristics. The results of the second experiment demonstrate that policies to counteract the adverse effects of public tax disclosures, such as requiring the provision of a disclaimer, are helpful but that none are fully effective.

Keywords: public tax disclosure, corporate taxation, retail investors

JEL Classification: C91, H26, M48