Public Tax Disclosures and Fair Share Perceptions

Abstract

Regulators increasingly consider and mandate public tax disclosures. Public tax disclosures are often assumed to raise awareness and scrutiny of firms' tax positions and would thus help retail investors determine whether a firm is paying its fair share of taxes. We conduct three experiments to test this assumption. The first experiment shows that retail investors become worse at developing informed perceptions about firms' tax strategies, leading to less differentiated fair share perceptions in the presence of public tax disclosures. The reason is that retail investors adopt a heuristic approach focusing on the easy-to-process publicly disclosed tax information. We find that this also has implications for retail investors' willingness to invest. The second and third experiments use theory-driven interventions to attenuate the adverse effects of public tax disclosures. Our results show that these theory-driven interventions can indeed reduce the adverse effects of public tax disclosures.

Keywords: Public tax disclosure, corporate taxation, tax transparency

JEL Classification: C91, H26, M48