Does Increased Visibility to the IRS Cause Public Firms to Go Private? Evidence from FIN 48

58 Pages Posted: 13 Apr 2021

See all articles by Benjamin Yost

Benjamin Yost

Boston College - Carroll School of Management

Date Written: April 12, 2021

Abstract

This study investigates whether the introduction of a mandatory disclosure requirement (FIN 48), which had the effect of increasing public firms’ visibility to the tax authority, incentivized going-private transactions. Building on analytical work suggesting that disclosures required under FIN 48 act as a signal to the government regarding the uncertainty of the taxpayer’s position (Mills, Robinson, and Sansing 2010), I hypothesize and find evidence of an increased propensity to go private among aggressive tax planning firms following the enactment of the new disclosure rule but prior to its adoption. The effect is concentrated in firms with high CEO ownership, consistent with CEOs of tax aggressive firms viewing the mandated disclosures as damaging to the firm’s prospects and seeking to escape the anticipated effects to their personal wealth. Furthermore, I find that the spike in going-private transactions among tax aggressive firms is driven primarily by private equity-led buyouts. Overall, my findings suggest that mandatory disclosures giving rise to increased visibility to the tax authority may have the unintended consequence of discouraging some firms from operating as public entities.

Keywords: IRS, corporate disclosure, public ownership structure, tax enforcement, FIN 48, mergers and acquisitions

JEL Classification: D83, G32, G34, G38, H26, M40

Suggested Citation

Yost, Benjamin, Does Increased Visibility to the IRS Cause Public Firms to Go Private? Evidence from FIN 48 (April 12, 2021). Available at SSRN: https://ssrn.com/abstract=3825144 or http://dx.doi.org/10.2139/ssrn.3825144

Benjamin Yost (Contact Author)

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
90
Abstract Views
397
rank
356,349
PlumX Metrics