This study helps provide clarity to the prior mixed findings on the association between financial reporting transparency and tax avoidance by studying the effect that transparency has on tax avoidance in a cross‐country sample through aggregate‐ and firm‐level tests. Results using firm‐ and country‐level (aggregate) measures of transparency and tax avoidance show that countries and firms with greater levels of transparency exhibit lower levels of tax avoidance and that the effect of country‐level transparency is incremental to firm‐level transparency. Furthermore, results of difference‐in‐difference tests using the adoption of IFRS and the initial enforcement of insider trading laws around the world as exogenous shocks that increase transparency find that transparency has a statistically and economically significant effect on tax avoidance and address empirical concerns regarding endogeneity and reverse causality not fully addressed in the prior research. The results of these tests as well as tests that address potential correlated but omitted variables suggest that financial transparency is an important tool which regulators can use in battling tax avoidance.

The general anti‐avoidance rule, or GAAR, is an enforcement mechanism that gives a country's taxing authority broad power to deny a taxpayer tax benefits associated with any transaction. Although GAARs are becoming increasingly common, the presence of a GAAR is generally overlooked by researchers and thus has been left unstudied. In this paper, we provide an initial investigation by studying the effect of GAARs on firm‐level corporate tax avoidance behaviors. Using an indicator for the enactment or strengthening of a GAAR within a country in a stacked difference‐in‐differences design, we find GAAR enactment is associated with a statistically and economically significant decrease in firm‐level tax avoidance. Additional cross‐sectional analyses show that the decline in tax avoidance occurs for conventional GAARs and economic substance‐type rules, original and strengthened GAARs, and domestic and multinational firms. Results also show that the effect is strongest for firms with higher levels of pre‐GAAR‐enactment tax avoidance and for firms incorporated in countries where the burden of proof lies with the taxpayer.