Real Effects of Accounting Rules: Evidence from Multinational Firms’ Investment Location and Profit Repatriation Decisions

Graham, John R.; Hanlon, Michelle; Shevlin, Terry

doi:10.2139/ssrn.1389731

Cited by 63 publications

(73 citation statements)

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“…9 Examples include Robinson et al (2010), Shackelford et al (2011), Graham et al (2011), Hanlon (2012), and Desai and Dharmapala (2009a data. We provide evidence that reputational concerns are an important factor that limits the extent to which companies engage in tax planning.…”

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confidence: 99%

“…Another section gathers general demographic and descriptive questions about the companies, which we use for conditional analyses. A third section of the survey explores location and reinvestment/repatriation decisions, which is the focus of Graham, Hanlon, and Shevlin (2011). A fourth section focuses on the 2004 American Jobs Creation Act and repatriation decisions in response to that Act including, sources and uses of cash repatriated.…”

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confidence: 99%

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Incentives for Tax Planning and Avoidance: Evidence from the Field

et al. 2012

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ABSTRACT:We analyze survey responses from nearly 600 corporate tax executives to investigate firms' incentives and disincentives for tax planning. While many researchers hypothesize that reputational concerns affect the degree to which managers engage in tax planning, this hypothesis is difficult to test with archival data. Our survey allows us to investigate reputational influences and indeed we find that reputational concerns are important -69% of executives rate reputation as important and the factor ranks second in order of importance among all factors explaining why firms do not adopt a potential tax planning strategy. We also find that financial accounting incentives play a role. For example, 84% of publicly traded firms respond that top management at their company cares at least as much about the GAAP ETR as they do about cash taxes paid and 57% of public firms say that increasing earnings per share is an important outcome from a tax planning strategy.

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Incentives for Tax Planning and Avoidance: Evidence from the Field

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“…Based upon a survey of tax executives, Graham et al (2011) report that U.S. cash and financial accounting expense deferral are both important factors in the decision to reinvest foreign earnings.…”

Section: Firms' Repatriation Decisionsmentioning

confidence: 99%

“…By designating foreign earnings as permanently reinvested, 3 firms are able to report higher after-tax net income in their financial statements. Existing research provides evidence the U.S. tax and financial reporting treatment of foreign earnings impacts some U.S. MNCs' repatriation decisions (Hines and Hubbard [1990]; Altshuler and Newlon [1993]; Desai, Foley, and Hines [2001]; Desai, Foley, and Hines [2007]; Graham, Hanlon, and Shevlin [2011]; Blouin, Krull, and Robinson [2012]). …”

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The U.S. Tax and Financial Reporting Treatment of Foreign Earnings and U.S. Multinational Companies' Payout Policies

Nessa

2015

SSRN Journal

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This paper examines the impact of the U.S. tax and financial reporting treatment of foreign earnings on the payouts to shareholders of U.S. multinational companies (MNCs). I find the U.S. tax and financial reporting treatment of foreign earnings weakens the otherwise strong, positive association between foreign earnings and the probability and level of dividend payments, but I do not observe an effect on the probability or level of share repurchases or on the level of total payout. I also find U.S. MNCs with tax and/or financial reporting incentives to keep their foreign profits reinvested abroad make more extensive use of repurchases than dividends when making distributions to shareholders. This study contributes to our understanding of the impact of the current U.S. worldwide tax system on U.S. MNCs' real decisions. TABLE OF CONTENTSLIST LIST OF TABLES LIST OF ABBREVIATIONS Dependent Variables:Dividendsit = dividends paid to common shareholders (dvc) by firm i in year t. DivIndit = 1 if Dividendsit > 0, and 0 otherwise. DivLevit = Dividendsit, scaled by total assets (at) at the end of year t-1. Repurchasesit = purchases of common and preferred stock by firm i in year t (prstkc) less any decrease in the redemption value of preferred stock from year t-1 to year t (pstkrv), or less any decrease in preferred stock (pstk) from year t-1 to year t if the redemption value of preferred stock is missing. RepIndit = 1 if Repurchasesit > 0, and 0 otherwise. RepLevit = Repurchasesit, scaled by total assets (at) at the end of year t-1.PayInd it = 1 if Dividendsit or Repurchasesit > 0, and 0 otherwise. PayLevit = sum of Dividendsit and Repurchasesit, scaled total assets (at) at the end of year t-1. RepMixit = Repurchasesit minus Dividendsit, scaled by total assets (at) at the end of year t-1 if PayIndit = 1, and missing otherwise. RepRatioit = Repurchasesit divided by total payout (Dividendsit plus Repurchasesit) if PayIndit = 1, and missing otherwise. Primary Independent Variables of Interest:LowFETR5it = 1 if FETRit is five or more percentage points below the U.S. statutory tax rate in year t, and 0 otherwise. FETRit equals current foreign tax expense of firm i (txfo) summed over years t-2 to t divided by foreign pre-tax income (pifo) summed over years t-2 to t for firms with positive three-year cumulative foreign pre-tax income and is winsorized to lie between zero and one. If firm i's threeyear cumulative foreign pre-tax income is zero or negative, LowFETR5it equals zero. LowFETR10it = 1 if FETRit is ten or more percentage points below the U.S. statutory tax rate in year t, and 0 otherwise. If firm i's three-year cumulative foreign pretax income is zero or negative, LowFETR10it equals zero. eFORit = foreign pre-tax income (pifo) of firm i in year t, scaled by total assets (at) at the end of year t-1. eUSit = domestic pre-tax income (pidom) of firm i in year t, scaled by total assets (at) at the end of year t-1. If domestic pre-tax income is missing, it is set equal to the difference between total pre-tax incom...

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“…However, do we have arguments that actors use commercial profit as a success indicator? Empirical studies point out the relevance of financial accounting for decisions in groups (Graham, Hanlon, & Shevlin, 2011). Moreover, empirical studies show that the information needs depend on the type of capital provider (Cascino et al, 2013).…”

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Is a One-book-system Adequate? A Framework for Tax Law Analysis Under Genuine Uncertainty

Schmiel

Weitz

2017

Accounting, Economics, and Law: A Convivium

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Abstract:This paper examines whether a one-book-system that takes the commercial law profit definition as tax base (the so-called authoritative principle) is adequate from an evolutionary point of view. We consider firstly the case that European International Financial Reporting Standards (EU-IFRS) are relevant for all statements with the authoritative principle based on EU-IFRS. Secondly, we examine the fact that EU-IFRS focus on the consolidated annual accounts and that the national accounting principles are relevant for individual statements. Tax law analysis under genuine uncertainty requires a framework and we present such a framework. It entails an interpretation of equality of taxation, a hypothesis on the functioning of markets, an interpretation of realizable and desirable market goals, tax effects hypotheses, and action hypotheses for personal and corporate companies under genuine uncertainty. Contrary to the mainstream of accounting literature, from our evolutionary point of view, the authoritative principle is adequate. The reason is that commercial profit is an adequate instrument to achieving the tax goal equality of taxation in the sense of reducing expectable tax avoidance decisions. This is the case because according to evolutionary action hypotheses as well as tax effects hypotheses, commercial profit can be a subjectively rational decision criterion for personal and corporate companies alike. Equality of taxation is for its part in line with the evolutionarily interpreted social values freedom of choice and equality before the law. Since we focus on the question if the existing commercial profit concept can be an adequate tax base, we do not discuss whether we would have more reasons to take a conservative profit concept as tax base rather than EU-IFRS. Just as little, we analyze whether it is better to take EU-IFRS profit as tax base although national accounting principles are relevant for individual statements.Keywords: ability to pay-principle, authoritative principle, equality of taxation, evolutionary tax effects hypotheses, evolutionary analysis of tax law, horizontal equity, vertical equity JEL classification: B53, K34, M48

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Real Effects of Accounting Rules: Evidence from Multinational Firms’ Investment Location and Profit Repatriation Decisions

Cited by 63 publications

References 59 publications

Incentives for Tax Planning and Avoidance: Evidence from the Field

Incentives for Tax Planning and Avoidance: Evidence from the Field

The U.S. Tax and Financial Reporting Treatment of Foreign Earnings and U.S. Multinational Companies' Payout Policies

Is a One-book-system Adequate? A Framework for Tax Law Analysis Under Genuine Uncertainty

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