The Materiality of Non-financial Tax Disclosure: Experimental Evidence

Abstract

This study examines whether corporate tax information from non-financial disclosure is material for investors. This is important because, recently, the Global Reporting Initiative (GRI) enacted, and the European Union (EU) passed, new non-financial tax disclosure requirements. By conducting a factorial survey experiment, we are the first to show that non-professional investors are more likely to invest in companies providing detailed public country-by-country-reporting (CbCR) than in those that do not. We conclude that a public CbCR – as required by the GRI and the EU – is material for (non-professional) investors. Additional analyses show that the effect of the public CbCR is stronger (i) for socially responsible investors and (ii) for investors with high tax morale. In contrast to providing public CbCR, we find no evidence that reporting the corporate tax strategy (CTS) – as solely required by the GRI – affects investment decisions. Our findings provide novel insights into whether and how different types of investors integrate different kinds of non-financial tax disclosure in their decision-making processes. For this reason, our study at the intersection of corporate taxation, reporting, and sustainability provides implications for scholars, corporate decision-makers, policy-makers, and standard setters.

Keywords: Tax disclosure; Non-financial reporting; Corporate social responsibility; Factorial survey experiment