We investigate the consequences of public disclosure of information from company income tax returns filed in Australia. Supporters of more disclosure argue that increased transparency will improve tax compliance, while opponents argue that it will divulge sensitive information that is, in many cases, misunderstood. Our results show that in Australia large private companies experienced some consumer backlash and, perhaps partly in anticipation, some acted to avoid disclosure. We detect a small increase (decrease) in tax payments for private (public) firms subject to disclosure suggesting differential costs of disclosure across firms. Finally, we find that investors react negatively to anticipated and actual disclosure of tax information, most likely due to anticipated policy backlash rather than consumer backlash or the revelation of negative information about cash flows. These findings are important for both managers and policy makers, as the trend towards increased tax disclosure continues to rise globally.

We use textual analysis of mandatory accounting filings to develop firm-level, time-varying measures of exposure to individual government agencies including the Securities Exchange Commission (SEC) and Internal Revenue Service (IRS). The measures vary predictably across industries and with agency-specific events such as the Sarbanes Oxley Act at the SEC and budget cuts at the IRS. The measures positively relate to undisclosed agency investigations and financial statement downloads. Firms' total exposure across government agencies negatively relates to their profitability, consistent with exposure to government agencies imposing net costs. Consistent with a causal interpretation of these results, the positive stock market reaction to the surprise election of Donald Trump, who promised to reduce the power of government agencies, positively varies with firms' exposure to government agencies. As initial applications of our measures, we demonstrate that expanded SEC oversight increases firms' stock liquidity and reduced IRS oversight decreases firms’ effective tax rates.

Internal and external parties meaningfully shape corporate tax outcomes. However, we lack a holistic understanding of the major parties involved and their comparative effects. Using proprietary IRS data for public and private firms, we identify the top executives, corporate accountants, external accounting firms, and individual tax preparers and examine the comparative importance of these parties on corporate tax outcomes. We find that external individual tax preparers matter much more than the accounting firms that employ them. Internal actors (top accountants and executives) explain more of the variation in corporate tax outcomes than external actors (individual tax preparers and accounting firms). We also find some evidence that individuals’ characteristics are associated with the tax behavior of the corporations they serve. Overall, we conclude that some of the actors who are unobservable in public data play a greater role in corporate tax outcomes than parties that are a focus of prior research.

ABSTRACT We use a shock to the public scrutiny of firm subsidiary locations to investigate whether that scrutiny leads to changes in firms’ disclosure and corporate tax avoidance behavior. ActionAid International, a nonprofit activist group, levied public pressure on noncompliant U.K. firms in the FTSE 100 to comply with a rule requiring U.K. firms to disclose the location of all of their subsidiaries. We use this setting to examine whether the public pressure led scrutinized firms to increase their subsidiary disclosure, decrease tax avoidance, and reduce the use of subsidiaries in tax haven countries compared to other firms in the FTSE 100 not affected by the public pressure. The evidence suggests that the public scrutiny sufficiently changed the costs and benefits of tax avoidance such that tax expense increased for scrutinized firms. The results suggest that public pressure from outside activist groups can exert a significant influence on the behavior of large, publicly traded firms. Our findings extend prior research that has had little success documenting an empirical relation between public scrutiny of tax avoidance and firm behavior.

ABSTRACT Although subsidiary disclosures in firms’ filings with the Securities and Exchanges Commission (SEC; Exhibit 21) represent the most granular required public disclosure of a firm's geographic footprint, little is understood about the quality of the disclosure, and anecdotal evidence suggests firms may not fully comply with the disclosure requirements. We use data provided by multinational firms to the Internal Revenue Service regarding their foreign subsidiary locations to explore the accuracy of public subsidiary disclosures on Exhibit 21 of Form 10‐K per SEC rules. The overall incidence of nondisclosure is low, suggesting that most firms comply with Exhibit 21 disclosure rules, and that for most applications, Exhibit 21 disclosures provide a reasonable proxy for locations of significant subsidiaries. Nevertheless, there is some evidence of nondisclosure, particularly when subsidiaries are in tax havens, when the firm is more highly scrutinized in the media, or when the firm has other characteristics consistent with low‐quality disclosures such as SEC comment letters.

ABSTRACT We extend research on the determinants of corporate tax avoidance to include the role of Internal Revenue Service (IRS) monitoring. Our evidence from large samples implies that U.S. public firms undertake less aggressive tax positions when tax enforcement is stricter. Reflecting its first-order economic impact on firms, our coefficient estimates imply that raising the probability of an IRS audit from 19 percent (the 25th percentile in our data) to 37 percent (the 75th percentile) increases their cash effective tax rates, on average, by nearly two percentage points, which amounts to a 7 percent increase in cash effective tax rates. These results are robust to controlling for firm size and time, which determine our primary proxy for IRS enforcement, in different ways; specifying several alternative dependent and test variables; and confronting potential endogeneity with instrumental variables and panel data estimations, among other techniques. JEL Classifications: M40; G34; G32; H25.

ABSTRACT We undertake the first empirical analysis of profit shifting by U.S. firms during foreign tax holidays. We show that foreign tax holidays have become a prevalent and powerful tax planning strategy among U.S. firms. We find that U.S. firms significantly increase their outbound profit shifting while participating in foreign tax holidays. However, we also find that profit shifting associated with tax holidays comes at the cost of increased tax uncertainty. Our results have important implications for policy making and for understanding firm behavior.

ABSTRACT To what extent do U.S. consumers change their purchase behavior or, in the extreme, boycott companies based on negative information about corporate tax activities? Practitioner publications and academic research identify consumers as a key corporate tax stakeholder. But we have limited empirical evidence whether information about corporate tax activities influences consumer actions. We undertake a comprehensive study of this question, triangulating across several settings. First, a representative sample of consumers suggests they rarely boycott in response to corporate tax activities. Next, an analysis of granular retail scanner data fails to provide compelling evidence of consumer purchase responses to negative tax news. An analysis of individual foot traffic at retail establishments around negative tax news again fails to suggest U.S. consumers change their shopping activities in response to negative tax news. The combined evidence suggests consumers do not meaningfully alter their purchase behavior in response to negative tax news. JEL Classifications: M41; M48; H25; H26.