Increasing the conformity between accounting earnings and taxable income has been proposed to improve financial reporting and curtail aggressive tax planning. We find, however, that increasing conformity results in earnings that are less informative. Our inquiry exploits a unique sample of firms forced to change from the cash method to the accrual method for tax purposes, thereby increasing their book-tax conformity. We find that these firms experienced a decrease in earnings informativeness compared to control firms unaffected by the change. To our knowledge, this is the first evidence of tax law changes affecting the informativeness of accounting earnings.

We compare executive equity incentives of firms accused of accounting fraud by the Securities and Exchange Commission (SEC) during the period 1996–2003 with two samples of firms not accused of fraud. We measure equity incentives in a variety of ways and employ a battery of empirical tests. We find no consistent evidence that executive equity incentives are associated with fraud. These results stand in contrast to assertions by policy makers that incentives from stock-based compensation and the resulting equity holdings increase the likelihood of accounting fraud.

Tax audits are a necessary component of the tax system, but policymakers and others have expressed concerns about their potentially adverse real effects. Understanding the causal effects of tax audits has been hampered by lack of data and because typically tax audits are not randomly assigned. We use administrative data from random tax audits of small businesses to examine the real effects of being subject to a tax audit. We find that audited firms are more likely to go out of business following the audit. The effect is concentrated in firms that underreport their taxes, although we find some evidence that the administrative costs of an audit also negatively affect firm survival. Among firms that continue as going concerns, we find evidence that audits have adverse effects on future revenues but no effect on future wages, employment, or investment. Finally, we find that tax audits have side benefits, causing firms to make changes to improve their tax efficiency.

Table S9. Alternate control groups. Table S10. Different time horizons. Table S11. Subsample analyses. Please note: The publisher is not responsible for the content or functionality of any supporting information supplied by the authors. Any queries (other than missing content) should be directed to the corresponding author for the article.

This study examines whether the information content of earnings announcements – abnormal return volatility and abnormal trading volume – increases in countries following mandatory IFRS adoption, and conditions and mechanisms through which increases occur. Findings suggest information content increased in 16 countries that mandated adoption of IFRS relative to 11 that maintained domestic accounting standards, although the effect of mandatory IFRS adoption depends on the strength of legal enforcement in the adopting country. Utilizing a path analysis methodology, we find evidence of three mechanisms through which IFRS adoption increases information content: reducing reporting lag, increasing analyst following, and increasing foreign investment.

We examine whether mandatory tax information exchange agreements between governments have real effects on firms’ physical trade in tangible goods. We posit that some of the physical trade in tangible goods flowing through low-tax jurisdictions is intended to facilitate income shifting. As such, shocks to enforcement via mandatory information exchange agreements could cause firms to change the physical flow of goods. Using firm-level shipping container data, we find that adoption of bilateral tax information exchange agreements (TIEAs) between the U.S. and foreign jurisdictions is associated with significant decreases in the volume of imports by U.S. firms from those jurisdictions. We also find reallocation effects: U.S. firms increase imports from jurisdictions in the same subregion as the treated jurisdiction, resulting in minimal overall change in total imports. To our knowledge, ours is the first study to document a connection among enforcement-related tax disclosure, income shifting, and physical trade flows. Data Availability: The data used in this study are available from the sources cited in the paper.

We analyze a sample of firms accused of fraudulently overstating their earnings and examine the extent, if any, to which they paid additional income taxes on the allegedly fraudulent earnings. Based on restatements of current tax expense adjusted for the tax benefits of stock options, the evidence indicates that many firms included the overstated financial accounting income on their tax returns, thus overpaying their taxes in the process of inflating their accounting earnings. We estimate that the median firm sacrificed eight cents in additional income taxes per dollar of inflated pretax earnings. In aggregate, we estimate that the firms in our sample paid $320 million in taxes on overstated earnings of about $3.36 billion. These results indicate how far managers of firms are willing to go when allegedly inflating earnings.

We investigate the relation between tax avoidance and tax uncertainty, where tax uncertainty is the amount of unrecognized tax benefits recorded over the same time period as the tax avoidance. On average, we find that tax avoiders, i.e., firms with relatively low cash effective tax rates, bear significantly greater tax uncertainty than firms that have higher cash effective tax rates. We find that the relation between tax avoidance and tax uncertainty is stronger for firms with frequent patent filings and tax haven subsidiaries, proxies for intangible-related transfer pricing strategies. The findings have implications for several puzzling results in the literature.

This study investigates whether individual top executives have incremental effects on their firms’ tax avoidance that cannot be explained by characteristics of the firm. To identify executive effects on firms’ effective tax rates, we construct a data set that tracks the movement of 908 executives across firms over time. Results indicate that individual executives play a significant role in determining the level of tax avoidance that firms undertake. The economic magnitude of the executive effects on tax avoidance is large. Moving between the top and bottom quartiles of executives results in approximately an 11 percent swing in GAAP effective tax rates; thus, executive effects appear to be an important determinant in firms’ tax avoidance.