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

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Information asymmetry
Tax
Income shifting
Asymmetry of information
New firms
Two-stage least squares
Disclosure
Earnings growth
Multinational corporations

Keywords

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

ASJC Scopus subject areas

  • Accounting
  • Business, Management and Accounting(all)

Cite this

The effect of tax-motivated income shifting on information asymmetry. / Chen, Ciao-Wei; Hepfer, Bradford F.; Quinn, Phillip J.; Wilson, Ryan J.

In: Review of Accounting Studies, Vol. 23, No. 3, 01.09.2018, p. 958-1004.

Research output: Contribution to journalArticle

Chen, Ciao-Wei ; Hepfer, Bradford F. ; Quinn, Phillip J. ; Wilson, Ryan J. / The effect of tax-motivated income shifting on information asymmetry. In: Review of Accounting Studies. 2018 ; Vol. 23, No. 3. pp. 958-1004.
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