The effect of tax-motivated income shifting on information asymmetry

abstract

• 2018, Springer Science+Business Media, LLC, part of Springer Nature. We examine whether tax-motivated income shifting by U.S. multinational corporations affects information asymmetry. Using a new firm-year measure of income shifting and a two-stage least squares approach, we find income shifting is positively associated with four measures of information asymmetry. Cross-sectional tests reveal that this effect is more pronounced for firms with large differences between foreign and domestic earnings growth. Using SFAS 131 to improve identification and establish evidence consistent with a causal relation between income shifting and information asymmetry, we demonstrate that the adverse impact of income shifting on information asymmetry is concentrated in firms that discontinue geographic earnings disclosures. Overall, our study provides evidence that significant consequences of information asymmetry are associated with tax-motivated income shifting.

authors

• Hepfer, Bradford

published proceedings

• REVIEW OF ACCOUNTING STUDIES

author list (cited authors)

• Chen, C., Hepfer, B. F., Quinn, P. J., & Wilson, R. J.

citation count

• 47

complete list of authors

• Chen, Ciao-Wei||Hepfer, Bradford F||Quinn, Phillip J||Wilson, Ryan J

publication date

• September 2018

publisher

• Springer Nature  Publisher

published in

• Review of Accounting Studies  Journal

keywords

• Bid-ask Spreads
• Information Asymmetry
• Segment Reporting
• Tax Havens
• Tax-motivated Income Shifting

Digital Object Identifier (DOI)

• 10.1007/s11142-018-9439-1

start page

• 958

end page

• 1004

volume

• 23

issue

• 3

URL

• http://dx.doi.org/10.1007/s11142-018-9439-1