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The role of information asymmetry in closely-held firms’ tax and financial reporting choices

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  • Hong Fan
  • Amin Mawani
  • Liqiang Chen

Abstract

This study examines whether and how closely-held ownership is associated with the relationship between tax and financial reporting aggressiveness. More specifically, we find that although both closely-held and widely-held firms pursue tax savings and higher reported earnings, closely-held firms are less aggressive compared to widely-held firms in pursuing both simultaneously. We argue and find evidence that this is associated with non-controlling shareholders and controlling shareholders concerned about agency costs imposed by each on the other. Furthermore, this finding is driven mainly by firms with high information asymmetry (as proxied by firm size, analyst following and board size), suggesting that information asymmetry is a channel through which closely-held ownership is associated with firms’ tax and financial reporting choices.

Suggested Citation

  • Hong Fan & Amin Mawani & Liqiang Chen, 2023. "The role of information asymmetry in closely-held firms’ tax and financial reporting choices," Accounting and Business Research, Taylor & Francis Journals, vol. 53(2), pages 185-209, February.
    • Handle: RePEc:taf:acctbr:v:53:y:2023:i:2:p:185-209
    DOI: 10.1080/00014788.2021.1986366
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    Cited by:

    1. Lan Thi Mai Nguyen & Trang Khanh Tran & Cameron Truong, 2024. "Family ownership and speed of adjustment towards targeted capital structures: A study of ASEAN firms," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 64(1), pages 445-474, March.

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