An empirical investigation of corporate tax avoidance: The firm life-cycle, investor perception and the timeliness of earnings announcements

This dissertation is comprised of three empirical investigations of corporate tax avoidance. In the first study, a life-cycle theory of corporate tax avoidance that has not been explored in extant literature and may be helpful in addressing future research questions is presented. Evidence suggests the firm life-cycle is a consistent determinant of corporate tax avoidance. The second study evaluates investor perception of tax avoidance activity. Specifically, direct evidence is presented suggesting that tax avoidance is not a priced risk factor in the post SFAS No. 109 period. Cash flow and discount rate news properties are investigated suggesting tax avoidance is associated with both cash flow and discount rate news, stock returns are driven primarily by cash flow news (consistent with Vuolteenaho [2002]) and investors on average do not appear to react differently to cash flow shocks in the presence of greater tax avoidance. In the third study, consistent with an agency theory of tax avoidance, evidence is presented suggesting tax avoidance results in a less timely annual earnings announcement. Evidence is also presented suggesting that tax avoidance impacts the value-relevance of earnings to investors at the announcement date, evaluated by the earnings response coefficient ( ERC )

Financial Statement Footnote Readability and Corporate Audit Outcomes

We examine whether the readability of financial statement footnotes in the annual report is informative about audit engagement risk. Using various readability measures, we predict and find that firms with less readable footnotes have longer audit report lag, incur higher audit fees, and are more likely to receive a first time modified going concern opinion. We also show that readability of footnotes is associated with a higher likelihood of financial misstatements and future accounting-related litigation. Our results are robust to several measures of readability used in prior literature, as well as different specifications and design choices, revealing that financial statement footnote readability provides incremental information about audit engagement risk that affects auditor-client contracting

General Counsel Prominence and Corporate Tax Policy

Prior research provides evidence that individual executives have a significant effect on firm-level tax policy. Further research has shown that having a corporate general counsel (GC) in a firm\u27s top management team (top five highest paid executives) significantly affects a firm\u27s accounting and disclosure practices. In this paper, we examine the role of the GC in corporate tax policy. Specifically, we use the ascension of the corporate GC to top management as the identifying event in which the role and influence of the corporate GC becomes more salient. We find strong evidence that GC ascension to top management is associated with an increase in tax aggressiveness, as evidenced by greater book-tax differences and a higher likelihood of engaging in tax shelter activities