How Do Investors Value the Publication of Tax Information? Evidence From the European Public Country-By-Country Reporting

49 Pages Posted: 27 Oct 2021 Last revised: 25 May 2023

See all articles by Raphael Müller

Raphael Müller

University of Mannheim - Accounting and Taxation

Christoph Spengel

University of Mannheim - Accounting and Taxation; Centre for European Economic Research (ZEW)

Stefan Weck

Centre for European Economic Research (ZEW)

Date Written: 2021

Abstract

We examine the capital market reaction to the announcement of the European Union (EU) to introduce a public tax country-by-country reporting (CbCR) regime. By employing an event study methodology, we find a significant cumulative average abnormal return (CAAR) of -0.699%, which translates into a monetary value drop of approximately EUR 65 billion. We conclude that investors evaluate reputational risks arising from public scrutiny and competitive disadvantages to outweigh potential benefits of an extended information environment or more sustainable corporate tax strategies. In cross-sectional tests, we find that the average investor reaction is more pronounced for firms with low effective book tax rates, indicating that reputational concerns play a significant role in the marginal investor's investment behavior. Furthermore, our cross-sectional results indicate that the market reaction is stronger for firms operating in industries with high growth in market participants, providing an initial indication for the role of the competitive environment as an additional channel. Our inferences are of particular importance in light of the current ongoing debates on similar disclosure rules (particularly in the United States; cf. "Disclosure of Tax Havens and Offshoring Act") as well as for sustainability standard setters.

Keywords: Tax transparency, Tax disclosure, Tax avoidance, Event study, Country-by-country reporting

JEL Classification: F23, G14, G38, H25, H26, M41

Suggested Citation

Müller, Raphael and Spengel, Christoph and Weck, Stefan, How Do Investors Value the Publication of Tax Information? Evidence From the European Public Country-By-Country Reporting (2021). ZEW - Centre for European Economic Research Discussion Paper No. 21-077, TRR 266 Accounting for Transparency Working Paper Series No. 79, Available at SSRN: https://ssrn.com/abstract=3949860 or http://dx.doi.org/10.2139/ssrn.3949860

Raphael Müller (Contact Author)

University of Mannheim - Accounting and Taxation ( email )

Mannheim, 68131
Germany

Christoph Spengel

University of Mannheim - Accounting and Taxation ( email )

Mannheim, 68131
Germany

Centre for European Economic Research (ZEW) ( email )

D-68161 Mannheim
Germany

Stefan Weck

Centre for European Economic Research (ZEW) ( email )

United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
646
Abstract Views
2,535
Rank
76,025
PlumX Metrics