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Increasing tax transparency: investor reactions to the country-by-country reporting requirement for EU financial institutions


  • Verena K. Dutt

    () (University of Mannheim
    ZEW Mannheim)

  • Christopher A. Ludwig

    () (University of Mannheim
    ZEW Mannheim)

  • Katharina Nicolay

    () (University of Mannheim
    ZEW Mannheim)

  • Heiko Vay

    () (University of Mannheim)

  • Johannes Voget

    () (University of Mannheim
    ZEW Mannheim)


We employ an event study methodology to investigate the capital market reaction to the surprising political decision to adopt a public country-by-country reporting (CbCR) obligation for EU financial institutions. Our results are suggestive of a zero response in our full sample of financial institutions headquartered in the EU. We conduct several sample splits and find that the investor reaction is slightly more negative for banks engaging in selected tax havens and banks with an above-average B2C orientation and slightly more positive for banks with a below-average share of institutional investors. We conclude that investors anticipated a simultaneous reduction in banks’ tax avoidance opportunities and in information asymmetries between managers and shareholders, implying both negative and positive stock price reactions which offset each other on average. We relate our findings to previous studies on the introduction of similar tax transparency measures and contend that capital market reactions to increases in tax transparency depend crucially on the exact design and objective of the initiative. Our inferences are of special importance in light of the ongoing debate whether to enact a general public CbCR obligation for large multinational firms in the EU.

Suggested Citation

  • Verena K. Dutt & Christopher A. Ludwig & Katharina Nicolay & Heiko Vay & Johannes Voget, 2019. "Increasing tax transparency: investor reactions to the country-by-country reporting requirement for EU financial institutions," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(6), pages 1259-1290, December.
  • Handle: RePEc:kap:itaxpf:v:26:y:2019:i:6:d:10.1007_s10797-019-09575-4
    DOI: 10.1007/s10797-019-09575-4

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    References listed on IDEAS

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    Cited by:

    1. repec:ces:ifowps:_2020 is not listed on IDEAS
    2. Müller, Raphael & Spengel, Christoph & Vay, Heiko, 2020. "On the determinants and effects of corporate tax transparency: Review of an emerging literature," ZEW Discussion Papers 20-063, ZEW - Leibniz Centre for European Economic Research.
    3. Dutt, Verena K. & Nicolay, Katharina & Vay, Heiko & Voget, Johannes, 2019. "Can European banks' country-by-country reports reveal profit shifting? An analysis of the information content of EU banks' disclosures," ZEW Discussion Papers 19-042, ZEW - Leibniz Centre for European Economic Research.
    4. Petr Jansky, 2018. "European Banks and Tax Havens: Evidence from Country-by-Country Reporting," Working Papers IES 2018/38, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Dec 2018.
    5. Daniel Klein & Christopher A. Ludwig & Christoph Spengel, 2019. "Ring-fencing Digital Corporations: Investor Reaction to the European Commission’s Digital Tax Proposals," EconPol Working Paper 36, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    6. Gawehn, Vanessa, 2019. "Banks and corporate income taxation: A review," arqus Discussion Papers in Quantitative Tax Research 247, arqus - Arbeitskreis Quantitative Steuerlehre.

    More about this item


    Tax avoidance; Profit shifting; Country-by-country reporting; Financial institutions; Market reaction; Event study;

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation


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