When do firms highlight their effective tax rate?

Jahr: 2021
Typ: Journal Publication
Fachzeitschrift: Accounting and Business Research


This study examines GAAP effective tax rate (ETR) visibility as a distinct disclosure choice in firms’ financial statements. By applying a game-theory disclosure model for the voluntary disclosure strategies of firms, in a tax setting, we argue that firms face a trade-off in their ETR disclosure decisions. On the one hand, firms have an incentive to enhance their ETR disclosure when the ratio offers shareholders ‘favourable conditions’, for example, higher expected after-tax cash flows. On the other hand, the disclosure of a favourable low ETR could attract the attention of tax auditors and the public and ultimately result in disclosure costs. We empirically test disclosure behaviour by examining the relation between disclosure visibility and different ETR conditions that reflect different stakeholder-specific costs and benefits. While we find that unfavourable ETR conditions are not highlighted, we observe higher disclosure visibility for favourable ETRs (smooth, close to the industry average, and decreasing ETRs). Additional analyses reveal that this high visibility is characteristic of firm years with only moderately decreasing ETRs at usual ETR levels, while extreme ETRs are not highlighted. Interestingly and in contrast to our main results, a subsample of family firms does not seem to highlight favourable ETRs.

Beteiligte Institutionen

Die Hauptstandorte vom TRR 266 sind die Universität Paderborn (Sprecherhochschule), die HU Berlin und die Universität Mannheim. Alle drei Standorte sind seit vielen Jahren Zentren für Rechnungswesen- und Steuerforschung. Hinzu kommen Wissenschaftler der LMU München, der Frankfurt School of Finance and Management, der WHU – Otto Beisheim School of Management, der ESMT Berlin und der Goethe-Universität Frankfurt, die die gleiche Forschungsagenda verfolgen.