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

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

doi:10.2139/ssrn.2541035

Cited by 40 publications

(46 citation statements)

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“…The calculation and inclusion of standard tax avoidance variables is taken from prior research (see e.g. Dyreng et al (2010), Kubick et al (2016), and Bird et al (2018)). To cope with the fact that banks are larger than non-banks, we calculate SIZE it as the natural logarithm of total assets.…”

Section: Variables and Methodologymentioning

confidence: 99%

Tax Avoidance - Are Banks Any Different?

Gawehn

Müller

2019

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. AbstractWhile the public has noticed the need for the detection of potential tax loopholes and demand further improvement in the taxation of banks, there is scarce empirical evidence of whether banks' degree of tax avoidance actually differs from that of non-banks. We try to close this gap by investigating U.S. banks' tax avoidance behavior for a sample period from 2004 to 2016. To anchor banks' tax avoidance, we use annual Cash ETRs and GAAP ETRs and compare them to the tax avoidance behavior of non-banks. As there are various channels of tax avoidance, we account for differences in several areas such as corporate fundamentals, the degree of multinationality and regulatory scrutiny. We provide cautious evidence that banks have significantly larger Cash ETRs than non-banks. Via the use of quantile regression we find evidence that the assocation between banks and ETRs is not constant over the whole tax avoidance distribution, but shows a positive association for lower parts of the tax avoidance distribution and a negative association for higher parts. In line with recent research, we provide some evidence that the difference in Cash ETRs between banks and non-banks is more pronounced for worse-capitalized, than for better-capitalized banks.

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Section: Variables and Methodologymentioning

confidence: 99%

Tax Avoidance - Are Banks Any Different?

Gawehn

Müller

2019

SSRN Journal

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“…The IRS downloads many types of filings beyond these four, including, for example, SEC comment letters, which may be useful in the tax enforcement process (Kubick et al. []).…”

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confidence: 99%

IRS Attention

Bozanic

Hoopes

Thornock

et al. 2016

Journal of Accounting Research

250

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We study how public and private disclosure requirements interact to influence both tax regulator enforcement and firm disclosure. To capture IRS enforcement activities, we introduce a novel data set of IRS acquisition of firms' public financial disclosures, which we label IRS attention. We examine the implementation of two new disclosure requirements that potentially alter IRS attention: FIN 48, which increased public tax disclosure requirements, * The Ohio State University; † University of North Carolina at Chapel Hill; ‡ Brigham Young University; § University of Texas at Austin.Accepted by Douglas Skinner. We are grateful for the insightful suggestions received from an anonymous reviewer. We also appreciate comments from Sam Anderson, Darren Bernard, Terrence Blackburne, Amoray Cragun, Mike Drake, Scott Dyreng, Alex Edwards (ATA discussant), Merle Erickson, Paul Fischer, Pete Frischmann, Kevin Holland (Oxford discussant), Mike Iselin, Colin Koutney, Ed Maydew, Rick Mergenthaler, Lillian Mills, Michelle Nessa (Midwest Conference Discussant), Phil Quinn, Darren Roulstone, Jeri Seidman, Terry Shevlin, Lorien Stice-Lawrence, Erin Towery (FARS discussant), and Jaron Wilde; workshop participants at the University of Chicago, the University of North Carolina, the University of Minnesota, and the University of Texas at Austin; and participants at the 2014 BYU Accounting Symposium, the 2015 AAA FARS Midyear Meeting, the 2015 ATA Midyear Meeting, the 2015 Midwest Summer Research Conference, and the 2016 Oxford Academic Symposium. We are grateful for data assistance from SECLive.com and, in particular, from Slavi Marinov. Thornock is affiliated with SECLive.com as an academic advisor. We gratefully acknowledge financial support from the Fisher College of Business, the Foster School of Business, the Kenan-Flagler Business School, the Marriott School of Management, and the McCombs School of Business. Neither the IRS nor the SEC have provided any of the authors with privileged data for this paper or have reviewed the paper. This work is solely the responsibility of the authors. An online appendix to this paper can be downloaded at http://research.chicagobooth.edu/ arc/journal-of-accounting-research/online-supplements. The IRS attention data are available at http://www.jeffreyhoopes.com/data/irsattentiondata.html. and Schedule UTP, which increased private tax disclosure. We find that IRS attention increased following FIN 48 but subsequently decreased following Schedule UTP, consistent with public and private disclosure interacting to influence tax enforcement. We next examine how private tax disclosure requirements under Schedule UTP affected firms' public disclosure responses. We find that, following Schedule UTP, firms significantly increased the quantity and altered the content of their tax-related disclosures, consistent with lower tax-related proprietary costs of disclosure. Our results suggest that changes in SEC disclosure requirements altered the IRS's behavior with regard to public information acquisition, a...

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“…Other studies report that the effects of the comment letter process extend beyond corporate disclosure. For example, using a sample of tax‐related comment letters, Kubick et al () find that firms engage in less tax avoidance after the resolution of a tax‐related comment letter. Cunningham et al () document that in the two‐year period following the receipt of a comment letter, firms significantly decrease their use of accruals earnings management but increase real earnings management.…”

Section: Background and Related Literaturementioning

confidence: 99%

Unexpected SEC Resource Constraints and Comment Letter Quality

Ege

Glenn

Robinson

2019

Contemporary Accting Res

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We investigate whether reviews of transactional filings by the SEC unexpectedly constrain SEC resources, leading to lower quality comment letters for periodic reports. The Sarbanes‐Oxley Act requires the SEC to review periodic reports (e.g., 10‐Ks) at least once every three years. However, the SEC also reviews transactional filings (e.g., initial public offerings and acquisitions), which are unpredictable and often occur in waves. We find comment letters for periodic reports are of lower quality (in terms of outputs, inputs, and firm responses) during periods of abnormally high transactional filings. We also find that comment letters issued during periods of abnormally high versus low transactional filings are associated with increased information asymmetry and lower earnings response coefficients in the quarter after the resolution of the comment letter. Overall, our results suggest that unexpected resource constraints affect the quality of SEC oversight of periodic reports.

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

Cited by 40 publications

References 0 publications

Tax Avoidance - Are Banks Any Different?

Tax Avoidance - Are Banks Any Different?

IRS Attention

Unexpected SEC Resource Constraints and Comment Letter Quality

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