The effect of tax-motivated income shifting on information asymmetry

Ciao Wei Chen, Bradford F. Hepfer, Phillip J. Quinn, Ryan J. Wilson

Research output: Contribution to journalArticle

Abstract

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.

Original languageEnglish (US)
Pages (from-to)958-1004
Number of pages47
JournalReview of Accounting Studies
Volume23
Issue number3
DOIs
StatePublished - Sep 1 2018

Keywords

  • Bid-ask spreads
  • Information asymmetry
  • Segment reporting
  • Tax havens
  • Tax-motivated income shifting

ASJC Scopus subject areas

  • Accounting
  • Business, Management and Accounting(all)

Fingerprint Dive into the research topics of 'The effect of tax-motivated income shifting on information asymmetry'. Together they form a unique fingerprint.

  • Cite this