Tax avoidance and firm value: does qualitative disclosure in the tax footnote matter?

Le Luo, Mark Shuai Ma, Thomas C. Omer, Hong Xie

Research output: Contribution to journalArticlepeer-review

5 Scopus citations

Abstract

This study examines whether qualitative disclosure in tax footnotes affects the market valuation of tax avoidance activities. We predict that more disclosures in tax footnotes mitigate investors’ concerns over the agency risk of managers engaging in potentially illegal tax avoidance and improve the transparency of firm performance, thus increasing firm valuation. Consistent with the prediction, we find that the market valuation of tax avoidance increases when firms’ tax footnotes disclose more qualitative information related to their tax avoidance activities. We provide several tests to show mechanisms underlying our main findings and mitigate concerns about alternative explanations. Overall, our study suggests that the tax-related disclosures in tax footnotes are useful for investors assessing the value of tax avoidance.

Original languageEnglish
Pages (from-to)2927-2970
Number of pages44
JournalReview of Accounting Studies
Volume29
Issue number3
DOIs
StatePublished - Sep 2024

Bibliographical note

Publisher Copyright:
© The Author(s), under exclusive licence to Springer Science+Business Media, LLC, part of Springer Nature 2023.

Keywords

  • Agency costs
  • Firm value
  • Information asymmetry
  • M41
  • M48
  • Tax avoidance
  • Tax footnotes

ASJC Scopus subject areas

  • Accounting
  • General Business, Management and Accounting

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