Product Market Power and Tax Avoidance: Market Leaders, Mimicking Strategies, and Stock Returns

Kubick, Thomas R.; Lynch, Dan; Mayberry, Michael; Omer, Thomas C.

doi:10.2139/ssrn.2215924

Cited by 26 publications

(35 citation statements)

References 0 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Brown and Drake (2014) similarly find that firms related via social network ties exhibit similar levels of tax avoidance. Kubick, Lynch, Mayberry, and Omer (2015) find a positive association between firms' tax avoidance outcomes and the prior-period tax avoidance of product market leaders, suggesting that firms observe and mimic the tax avoidance outcomes of product market leaders. In a non-tax context, Brown et al (2013) find that firms alter their risk factor disclosures when peer firms in the industry alter their disclosures in response to SEC comment letters on risk factors.…”

Section: The Effect Of Regulatory Scrutiny On Peer Firms (H3)mentioning

confidence: 75%

The Effects of Regulatory Scrutiny on Tax Avoidance: An Examination of SEC Comment Letters

Kubick

Lynch

Mayberry

et al. 2016

The Accounting Review

Self Cite

243

View full text Add to dashboard Cite

This study examines the tax avoidance behavior of firms prior to the issuance, and following the resolution, of SEC tax comment letters. We find that firms that appear to engage in greater tax avoidance are more likely to receive a tax-related SEC comment letter. We also find that firms receiving a tax-related SEC comment letter, relative to firms receiving a non-tax comment letter, subsequently decrease their tax avoidance behavior consistent with an increase in expected tax costs. Additionally, we document evidence consistent with other firms that do not receive a comment letter reacting to multiple publicly disclosed tax-related comment letters within their industry by increasing their reported GAAP ETR, consistent with an indirect effect of regulatory scrutiny on certain types of tax avoidance.

show abstract

Section: The Effect Of Regulatory Scrutiny On Peer Firms (H3)mentioning

confidence: 75%

The Effects of Regulatory Scrutiny on Tax Avoidance: An Examination of SEC Comment Letters

Kubick

Lynch

Mayberry

et al. 2016

The Accounting Review

Self Cite

243

View full text Add to dashboard Cite

show abstract

“…Hasan et al (2014) also suggest that a firm's involvement in tax avoidance depends on the tax avoidance practices of its industry peers. Support for industry-median tax avoidance is provided in Kubick et al (2015), who find that firms mimic the industry average level of tax avoidance by implementing similar tax-planning strategies. Applying the framework from Larcker and Rusticus (2010)…”

Section: Of Equity Capitalmentioning

confidence: 99%

Tax avoidance and ex ante cost of capital

Cook

Moser

Omer

2017

Business Fin & Account

Self Cite

View full text Add to dashboard Cite

This study examines the association between tax avoidance and ex ante cost of equity capital. Based on prior research, we develop two proxies for investors’ expectations of tax avoidance and explore whether deviations from those expectations result in higher ex ante cost of equity capital. We find that the ex ante cost of equity capital increases with tax avoidance that is either below or above investor expectations and that the increase is larger for tax avoidance that exceeds investors’ expectations. We then examine whether firms that alter their future tax avoidance exhibit a lowering of their ex ante cost of equity capital and find that tax avoidance decreases (increases) from the prior year for firms that were above (below) investors’ expectations in the prior year. These results are consistent with the trade‐off suggested by the Scholes and Wolfson framework and reinforce the notion that balancing tax benefits and non‐tax costs is an important feature of firms’ tax planning.

show abstract

“…This study examines whether and how policy changes, which aim to improve market efficiency, influence the relation between product market competition and stock price informativeness. Research in finance and accounting (Peress 2010;Kubick et al 2015) finds a negative relationship between product market competition and stock price informativeness in the United States (U.S.), as evidenced by larger (smaller) stock price changes surrounding earnings announcements for firms facing more (less) product market competition. There are at least two reasons for this negative association.…”

Section: Introductionmentioning

confidence: 99%

“…[Insert Figure 1 about here] While prior research has found a negative association between product market competition and stock price informativeness in the U.S. (Peress 2010;Kubick et al 2015), it is an empirical question whether this finding can be generalized to Europe. On the one hand, there are significant differences in the regulatory and legal environments between Europe and the U.S. with respect to product and capital markets alike (Lantto and Sahlstrom 2009;Haw et al 2015).…”

Section: Introductionmentioning

confidence: 99%

“…In the main empirical analysis, we follow Peress (2010) and Kubick et al (2015) to measure stock price informativeness by the stock price reaction to a firm's earnings announcement (i.e., the higher the stock price reaction to a firm's earnings announcement, the lower informativeness of the firm's stock price). We also follow these two studies to measure product market competition as the firm's industry-adjusted price-cost margin (i.e., the higher the firm's ability to price its products above marginal costs, the lower its market competition).…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Product market competition, stock price informativeness, and IFRS adoption: evidence from Europe

Wang

Forst

2020

Rev Quant Finan Acc

View full text Add to dashboard Cite

This study examines whether and how policy changes that aim to improve market efficiency, specifically the mandatory adoption of International Financial Reporting Standards (IFRS), influence the relation between product market competition and stock price informativeness. Using a sample of European firms, we find a negative association between product market competition and stock price informativeness as evidenced by larger (smaller) stock price changes surrounding earnings announcements for firms facing more (less) product market competition. These findings are consistent with prior studies examining the U.S. capital market. We further find that IFRS adoption alleviates the negative association. This positive effect is more pronounced among firms domiciled in countries with stronger legal enforcement and among smaller firms. Our results provide insights into the interrelation between product and capital markets in the European setting. More importantly, our results highlight the importance of policy changes, which aim to improve market efficiency, in influencing the relation between the two markets and document the benefit of IFRS adoption in mitigating the negative competition-informativeness relation.

show abstract

Product Market Power and Tax Avoidance: Market Leaders, Mimicking Strategies, and Stock Returns

Cited by 26 publications

References 0 publications

The Effects of Regulatory Scrutiny on Tax Avoidance: An Examination of SEC Comment Letters

The Effects of Regulatory Scrutiny on Tax Avoidance: An Examination of SEC Comment Letters

Tax avoidance and ex ante cost of capital

Product market competition, stock price informativeness, and IFRS adoption: evidence from Europe

Contact Info

Product

Resources

About