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Does mandatory tax disclosure mitigate tax expense anomaly? Evidence from FIN 48

Author

Listed:
  • Song, Huimin
  • Tao, Xuedan
  • Wang, Huabing (Barbara)
  • Zhang, Jinkang
  • Zhang, Linlin

Abstract

Financial Interpretation No. 48 (FIN 48) mandates the disclosure of uncertain tax positions for U.S. public firms. Exploring its impact on market efficiency, we find a reduction in the tax expense anomaly as documented by Thomas and Zhang (2011) for affected firms. The effect is stronger for affected firms with higher disclosure quality, accuracy, and transient institutional shareholding, and it cannot be explained by increased analyst tax forecasts or decreased predictability of tax expenses for future profitability. Our findings suggest that the mandatory tax disclosure under FIN 48 encourages investors to assess the implications of tax information for stock prices.

Suggested Citation

  • Song, Huimin & Tao, Xuedan & Wang, Huabing (Barbara) & Zhang, Jinkang & Zhang, Linlin, 2024. "Does mandatory tax disclosure mitigate tax expense anomaly? Evidence from FIN 48," Finance Research Letters, Elsevier, vol. 59(C).
    • Handle: RePEc:eee:finlet:v:59:y:2024:i:c:s1544612323010589
    DOI: 10.1016/j.frl.2023.104686
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    More about this item

    Keywords

    Tax uncertainty; Tax expense anomaly; FIN 48; Uncertain tax benefits; Uncertain tax positions; Tax disclosure;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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