The Association between Internal Information Quality and State Tax Planning

Laplante, Stacie Kelley; Lynch, Dan; Vernon, Mary E.

doi:10.2139/ssrn.3067519

Cited by 4 publications

(8 citation statements)

References 9 publications

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“…Internal information quality also allows firms to implement tax planning strategies. IIQ facilitates tax planning by providing better estimates of taxable income needed to engage in tax planning (Gallemore and Labro 2015;Laplante et al 2019). For example, firms with higher IIQ can better coordinate among various business units and set up transfer pricing schemes that lower their effective tax rates without disclosing other proprietary information (Mills, Erickson, and Maydew 1998;Robinson, Sikes, and Weaver 2010).…”

Section: The Effect Of Tax Risk On the Association Between Iiq And Eiqmentioning

confidence: 99%

“…I use four publicly observable proxies for IIQ that capture different aspects of IIQ (Gallemore and Labro 2015;Laplante et al 2019;McGuire et al 2018;Heitzman and Huang 2019). First, earnings announcement speed (IIQ_EAS) equals the average number of days between the end of the quarter and the earnings announcement date, divided by 365 and multiplied by negative one.…”

Section: Internal Information Qualitymentioning

confidence: 99%

“…Taxes are a substantial part of firms' expenditures and higher internal information quality allows firms to implement tax planning strategies that lower effective tax rates (Gallemore and Labro 2015;McGuire et al 2018;Laplante et al 2019). However, recent literature suggests that complex tax planning strategies induce opacity in external financial statement disclosures that reduces EIQ (Frank, Lynch, and Rego 2009;Chen, Hepfer, Quinn, and Wilson 2018;Balakrishnan et al 2019;Ehinger, Lee, Stomberg, and Towery 2020).…”

Section: Introductionmentioning

confidence: 99%

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Does Tax Risk Attenuate the Positive Association between Internal and External Information Quality?

Oßwald¹

2020

Preprint

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This study examines whether tax risk attenuates the positive association between firms' internal information quality (IIQ) and external information quality (EIQ). Theoretically, higher IIQ allows managers to increase the quality of disclosures to external market participants, which improves EIQ. However, engaging in risky tax planning strategies discourages managers from disclosing information due to the risk of drawing attention from tax authorities (i.e., proprietary costs). I hypothesize and find that the association between IIQ and EIQ is fully attenuated for firms in the highest quintile of tax risk. A structural equation model and supplemental tests that account for business-related proprietary costs and uncertainty corroborate my findings. Overall, my results imply that firms with higher IIQ improve EIQ, on average. However, higher tax risk breaks down this link due to the proprietary costs of disclosing tax strategies to tax authorities.

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Section: The Effect Of Tax Risk On the Association Between Iiq And Eiqmentioning

confidence: 99%

Section: Internal Information Qualitymentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Does Tax Risk Attenuate the Positive Association between Internal and External Information Quality?

Oßwald¹

2020

Preprint

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“…Prior literature documents a positive association of IIQ and tax planning, resulting in lower effective tax rates. Firms with high IIQ are more likely to accurately estimate taxable income, set up complex tax structures and provide information about transfer prices that allow it to shift income into low-tax jurisdictions (Robinson, Sikes, and Weaver 2010;Gallemore and Labro 2015;Chen et al 2018a;Laplante et al 2017). The positive effect of IIQ increases in the dispersion of geographical operations and uncertainty of its business environment (McGuire, Rane, and Weaver 2017).…”

Section: The Effect Of Tax Planning On the Association Between Iiq And Eiqmentioning

confidence: 99%

“…However, prior literature does not directly test this association. In addition, prior literature documents that IIQ is an antecedent for tax planning, resulting in lower effective tax rates (Gallemore and Labro 2015;Laplante, Lynch, and Vernon 2017;McGuire, Rane, and Weaver 2017). Therefore, IIQ not only helps managers to increase EIQ, but it also allows managers to set up complex tax planning structures that recent literature shows increases organizational complexity and results in lower EIQ (Balakrishnan et al 2018;Chen et al 2018a).…”

Section: Introductionmentioning

confidence: 99%

Corporate Tax Planning and Firms’ Information Environment

Oßwald

2018

SSRN Journal

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This study examines whether internal information quality (IIQ) is associated with firms' external information quality (EIQ) and whether tax planning moderates this association. Based on the argument that higher internal information quality allows managers to convey higher quality information to market participants, I hypothesize and find a positive association between IIQ and EIQ. I then examine if tax planning, which prior literature shows affects external information quality due to proprietary costs of disclosure, attenuates this association. I find that the association between IIQ and EIQ is fully attenuated for firms with a high level of tax planning. A structural equation model that allows different elements of IIQ to covary and robustness tests corroborate my findings. Overall, my results imply that increased IIQ spills over to EIQ because managers convey higher quality internal information to market participants. However, proprietary costs resulting from a high level of tax planning appear to moderate this effect.

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Tax accounting research on corporate investment: A discussion of the impact of IP box regimes on the M&A market by Bradley, Ruf, and Robinson (2021)

Lester¹

2021

Journal of Accounting and Economics

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The Association between Internal Information Quality and State Tax Planning

Cited by 4 publications

References 9 publications

Does Tax Risk Attenuate the Positive Association between Internal and External Information Quality?

Does Tax Risk Attenuate the Positive Association between Internal and External Information Quality?

Corporate Tax Planning and Firms’ Information Environment

Tax accounting research on corporate investment: A discussion of the impact of IP box regimes on the M&A market by Bradley, Ruf, and Robinson (2021)

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