Erik L. Beardsley, Mehmet C. Kara, Connie D. Weaver
ABSTRACT This study examines the association between stock price incentives (portfolio delta) and earnings management using tax expense, as well as whether this association varies with opportunities to manage earnings. Prior research suggests stock price incentives provide a positive “reward effect” and a negative “risk effect,” causing managers to trade off these countervailing effects when managing earnings. We posit that greater opportunities to manage earnings alter the risk-reward tradeoff related to portfolio delta, potentially changing the association between stock price incentives and earnings management. We do not find a significant association between stock price incentives and earnings management using tax expense on average. However, the association is positive and significant when tax-related earnings management opportunities are sufficiently high, consistent with opportunities mitigating the risk effect of delta. Collectively, our results suggest that managers respond to stock price incentives differently depending on their opportunity sets. Data Availability: Data are available from the public sources cited in the text.
{"title":"Managers’ Stock Price Incentives and Earnings Management Using Tax Expense","authors":"Erik L. Beardsley, Mehmet C. Kara, Connie D. Weaver","doi":"10.2308/jata-2021-006","DOIUrl":"https://doi.org/10.2308/jata-2021-006","url":null,"abstract":"ABSTRACT This study examines the association between stock price incentives (portfolio delta) and earnings management using tax expense, as well as whether this association varies with opportunities to manage earnings. Prior research suggests stock price incentives provide a positive “reward effect” and a negative “risk effect,” causing managers to trade off these countervailing effects when managing earnings. We posit that greater opportunities to manage earnings alter the risk-reward tradeoff related to portfolio delta, potentially changing the association between stock price incentives and earnings management. We do not find a significant association between stock price incentives and earnings management using tax expense on average. However, the association is positive and significant when tax-related earnings management opportunities are sufficiently high, consistent with opportunities mitigating the risk effect of delta. Collectively, our results suggest that managers respond to stock price incentives differently depending on their opportunity sets. Data Availability: Data are available from the public sources cited in the text.","PeriodicalId":45477,"journal":{"name":"Journal of the American Taxation Association","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2023-09-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"136023806","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
ABSTRACT To shed light on the influence of interpersonal fairness on tax compliance, the California Franchise Tax Board conducted a field experiment to examine how efficiency of Interactive Voice Response (hereafter, IVR) systems affects tax collection. We find that taxpayers calling the temporary phone line with greater IVR system efficiency (treatment group) pay a significantly larger percentage of their tax deficiencies than the control group during the study period, and this difference is driven by IVR system efficiency. We also find that improving IVR system efficiency increases the likelihood of making payments within the treatment group. Our results support embracing interpersonal fairness principles to encourage tax payments. Our research extends the literature on the service paradigm of tax compliance by providing U.S.-based evidence and has implications for the tax authorities seeking to improve tax compliance efficiency, as tax collection generally becomes more difficult and costly with time. JEL Classifications: H21; H24.
{"title":"The Efficiency of Interactive Voice Response Systems and Tax Compliance: A Field Experiment by the California Franchise Tax Board","authors":"Helen Hurwitz, John R. McGowan","doi":"10.2308/jata-19-030","DOIUrl":"https://doi.org/10.2308/jata-19-030","url":null,"abstract":"ABSTRACT To shed light on the influence of interpersonal fairness on tax compliance, the California Franchise Tax Board conducted a field experiment to examine how efficiency of Interactive Voice Response (hereafter, IVR) systems affects tax collection. We find that taxpayers calling the temporary phone line with greater IVR system efficiency (treatment group) pay a significantly larger percentage of their tax deficiencies than the control group during the study period, and this difference is driven by IVR system efficiency. We also find that improving IVR system efficiency increases the likelihood of making payments within the treatment group. Our results support embracing interpersonal fairness principles to encourage tax payments. Our research extends the literature on the service paradigm of tax compliance by providing U.S.-based evidence and has implications for the tax authorities seeking to improve tax compliance efficiency, as tax collection generally becomes more difficult and costly with time. JEL Classifications: H21; H24.","PeriodicalId":45477,"journal":{"name":"Journal of the American Taxation Association","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2023-09-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"136023807","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
ABSTRACT Using a setting with tax-deductible goodwill impairments, we examine how tax deductibility affects impairment decisions. Goodwill impairments are costly to firms, and managers generally attempt to avoid recording impairments. However, we propose that tax deductibility reduces the net cost of impairment, increasing the likelihood of impairment. Results indicate that tax deductibility increases impairment likelihood, especially when capital market pressure is high, consistent with tax deductibility reducing the net cost of impairments (i.e., partially offsetting high costs of impairment). We rule out known plausible nontax explanations for these effects. Overall, results suggest that taxation is an important, previously overlooked determinant of economically important goodwill impairments. Data Availability: Data used in this study are available from public sources identified in the paper. JEL Classifications: F23; G32; H20; M41.
{"title":"Does Tax Deductibility Affect Goodwill Impairment Decisions?","authors":"Sarah Khalil, Miles Romney, Steven Utke","doi":"10.2308/jata-2021-004","DOIUrl":"https://doi.org/10.2308/jata-2021-004","url":null,"abstract":"ABSTRACT Using a setting with tax-deductible goodwill impairments, we examine how tax deductibility affects impairment decisions. Goodwill impairments are costly to firms, and managers generally attempt to avoid recording impairments. However, we propose that tax deductibility reduces the net cost of impairment, increasing the likelihood of impairment. Results indicate that tax deductibility increases impairment likelihood, especially when capital market pressure is high, consistent with tax deductibility reducing the net cost of impairments (i.e., partially offsetting high costs of impairment). We rule out known plausible nontax explanations for these effects. Overall, results suggest that taxation is an important, previously overlooked determinant of economically important goodwill impairments. Data Availability: Data used in this study are available from public sources identified in the paper. JEL Classifications: F23; G32; H20; M41.","PeriodicalId":45477,"journal":{"name":"Journal of the American Taxation Association","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2023-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135895875","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
ABSTRACT Although deferred tax liabilities (DTLs) represent a significant financial statement liability for most firms, research reaches conflicting conclusions regarding investors’ valuation of these items. Using an expanded dataset of hand-collected tax footnotes, I examine the nuanced association between depreciation-related DTLs and firm value, extracted from a period when these relations may have been more easily analyzed by investors. I show that investors price depreciation-related DTLs as economic burdens, on average. Despite arguments that growing DTL balances might signal a lack of reversals (and a lower likelihood of being priced), I show that investors price growing depreciation-related DTL balances. Finally, I find evidence that DTL pricing is sensitive to expectations of firms’ future tax status and that investors value the tax deferral associated with DTLs. As depreciation-related DTLs are by far the largest DTL component, my study provides important insights into the valuation of deferred tax balances.
{"title":"New Evidence on Investors’ Valuation of Deferred Tax Liabilities","authors":"Russ Hamilton","doi":"10.2308/jata-2021-037","DOIUrl":"https://doi.org/10.2308/jata-2021-037","url":null,"abstract":"ABSTRACT Although deferred tax liabilities (DTLs) represent a significant financial statement liability for most firms, research reaches conflicting conclusions regarding investors’ valuation of these items. Using an expanded dataset of hand-collected tax footnotes, I examine the nuanced association between depreciation-related DTLs and firm value, extracted from a period when these relations may have been more easily analyzed by investors. I show that investors price depreciation-related DTLs as economic burdens, on average. Despite arguments that growing DTL balances might signal a lack of reversals (and a lower likelihood of being priced), I show that investors price growing depreciation-related DTL balances. Finally, I find evidence that DTL pricing is sensitive to expectations of firms’ future tax status and that investors value the tax deferral associated with DTLs. As depreciation-related DTLs are by far the largest DTL component, my study provides important insights into the valuation of deferred tax balances.","PeriodicalId":45477,"journal":{"name":"Journal of the American Taxation Association","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2023-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135895880","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2023-09-01DOI: 10.2308/0198-9073-45.2.e
{"title":"Editorial Policy","authors":"","doi":"10.2308/0198-9073-45.2.e","DOIUrl":"https://doi.org/10.2308/0198-9073-45.2.e","url":null,"abstract":"","PeriodicalId":45477,"journal":{"name":"Journal of the American Taxation Association","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2023-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135299409","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Cinthia Valle Ruiz, Domenico Campa, María-del-Mar Camacho-Miñano
ABSTRACT This paper examines the intertemporal income-shifting behavior of private firms, as well as the level and efficiency of aggressive intertemporal income shifters’ investments in the wake of corporate tax cuts. Earlier research has focused mainly on public firms. However, research into private firms is especially relevant since these companies tend to finance future growth through internal financing. Using a sample of 2,650 firm-year observations of private Spanish firms, our results thus show that private companies engaged in intertemporal income shifting to gain additional tax savings in the presence of corporate tax cuts. This was particularly observed in the presence of significant investment opportunities and timing pressures to shift income. Additionally, we provide evidence that aggressive intertemporal income shifters invested more in labor capital after tax reforms than other firms and that such investments were efficient. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: M41; M48; H21; H32.
{"title":"Intertemporal Income Shifting for Investment Reasons: Evidence from Private Firms","authors":"Cinthia Valle Ruiz, Domenico Campa, María-del-Mar Camacho-Miñano","doi":"10.2308/jata-2020-002","DOIUrl":"https://doi.org/10.2308/jata-2020-002","url":null,"abstract":"ABSTRACT This paper examines the intertemporal income-shifting behavior of private firms, as well as the level and efficiency of aggressive intertemporal income shifters’ investments in the wake of corporate tax cuts. Earlier research has focused mainly on public firms. However, research into private firms is especially relevant since these companies tend to finance future growth through internal financing. Using a sample of 2,650 firm-year observations of private Spanish firms, our results thus show that private companies engaged in intertemporal income shifting to gain additional tax savings in the presence of corporate tax cuts. This was particularly observed in the presence of significant investment opportunities and timing pressures to shift income. Additionally, we provide evidence that aggressive intertemporal income shifters invested more in labor capital after tax reforms than other firms and that such investments were efficient. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: M41; M48; H21; H32.","PeriodicalId":45477,"journal":{"name":"Journal of the American Taxation Association","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2023-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"136310109","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Summaries of Papers In This Issue","authors":"","doi":"10.2308/jata-2023-035","DOIUrl":"https://doi.org/10.2308/jata-2023-035","url":null,"abstract":"","PeriodicalId":45477,"journal":{"name":"Journal of the American Taxation Association","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2023-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135299411","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2023-09-01DOI: 10.2308/0198-9073-45.2.i
{"title":"Covers and Front Matter","authors":"","doi":"10.2308/0198-9073-45.2.i","DOIUrl":"https://doi.org/10.2308/0198-9073-45.2.i","url":null,"abstract":"","PeriodicalId":45477,"journal":{"name":"Journal of the American Taxation Association","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2023-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135299412","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Richard Carrizosa, Fabio Gaertner, Daniel P. Lynch
ABSTRACT The Tax Cuts & Jobs Act of 2017 (TCJA) limited interest deductibility. Using a difference-in-differences design, we show that following the enactment of the new limitations, affected firms significantly decrease their leverage. Specifically, we find that relative to unaffected U.S. firms, affected firms decrease leverage by 7.6 percent of assets, corresponding to $330 million per firm and $84.8 billion for the treatment sample. These results are driven by decreases in long-term domestic debt and by declines in new issuances rather than debt repayment. Additional tests indicate other tax reform elements do not explain the results. We also find that firms not currently subject to limitations on interest but subject to future limitations decrease leverage by about half as much as firms currently subject to the limits. Overall, our findings document an economically significant effect of recent tax reform on firm behavior and advance understanding of how taxes affect capital structure. JEL Classifications: H26; H71; H72.
{"title":"Debt and Taxes? The Effect of Tax Cuts & Jobs Act of 2017 Interest Limitations on Capital Structure","authors":"Richard Carrizosa, Fabio Gaertner, Daniel P. Lynch","doi":"10.2308/jata-2021-010","DOIUrl":"https://doi.org/10.2308/jata-2021-010","url":null,"abstract":"ABSTRACT The Tax Cuts & Jobs Act of 2017 (TCJA) limited interest deductibility. Using a difference-in-differences design, we show that following the enactment of the new limitations, affected firms significantly decrease their leverage. Specifically, we find that relative to unaffected U.S. firms, affected firms decrease leverage by 7.6 percent of assets, corresponding to $330 million per firm and $84.8 billion for the treatment sample. These results are driven by decreases in long-term domestic debt and by declines in new issuances rather than debt repayment. Additional tests indicate other tax reform elements do not explain the results. We also find that firms not currently subject to limitations on interest but subject to future limitations decrease leverage by about half as much as firms currently subject to the limits. Overall, our findings document an economically significant effect of recent tax reform on firm behavior and advance understanding of how taxes affect capital structure. JEL Classifications: H26; H71; H72.","PeriodicalId":45477,"journal":{"name":"Journal of the American Taxation Association","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2023-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135636429","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Views Icon Views Article contents Figures & tables Video Audio Supplementary Data Peer Review Share Icon Share Facebook Twitter LinkedIn Email Tools Icon Tools Get Permissions Search Site Cite View This Citation Add to Citation Manager Citation Bradley S. Blaylock; DISCUSSION OF Companies’ Initial Estimates of the One-Time Transition Tax Imposed by the Tax Cuts and Jobs Act. Journal of the American Taxation Association 1 September 2023; 45 (2): 83–86. https://doi.org/10.2308/JATA-2023-033 Download citation file: Ris (Zotero) Reference Manager EasyBib Bookends Mendeley Papers EndNote RefWorks BibTex toolbar search Search Dropdown Menu toolbar search search input Search input auto suggest filter your search All ContentThe Journal of the American Taxation Association Search Advanced Search
{"title":"DISCUSSION OF Companies’ Initial Estimates of the One-Time Transition Tax Imposed by the Tax Cuts and Jobs Act","authors":"Bradley S. Blaylock","doi":"10.2308/jata-2023-033","DOIUrl":"https://doi.org/10.2308/jata-2023-033","url":null,"abstract":"Views Icon Views Article contents Figures & tables Video Audio Supplementary Data Peer Review Share Icon Share Facebook Twitter LinkedIn Email Tools Icon Tools Get Permissions Search Site Cite View This Citation Add to Citation Manager Citation Bradley S. Blaylock; DISCUSSION OF Companies’ Initial Estimates of the One-Time Transition Tax Imposed by the Tax Cuts and Jobs Act. Journal of the American Taxation Association 1 September 2023; 45 (2): 83–86. https://doi.org/10.2308/JATA-2023-033 Download citation file: Ris (Zotero) Reference Manager EasyBib Bookends Mendeley Papers EndNote RefWorks BibTex toolbar search Search Dropdown Menu toolbar search search input Search input auto suggest filter your search All ContentThe Journal of the American Taxation Association Search Advanced Search","PeriodicalId":45477,"journal":{"name":"Journal of the American Taxation Association","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2023-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135299410","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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