American Taxation Association

JATA abstracts - Fall 2008

JATA - Fall 2008

Volume 30, No. 2

Influence of Accountability and Penalty Awareness on Tax Compliance
Debra L. Sanders, Philip M.J. Reckers and Govind Iyer

Investor Response to a Reduction in the Dividend Tax Rate: Evidence from the Jobs & Growth Tax Relief Reconciliation Act of 2003
Teresa Lightner, Michaele Morrow, Robert Ricketts and Mark Riley

The Usefulness of Disclosures of Untaxed Foreign Earnings in Firm Valuation
Mark P. Bauman and Kenneth W. Shaw

The Impact of Auditor-related Tax Services on Corporate Debt Pricing
Steve Fortin and Jeffrey Pittman

Incremental Value Relevance of Unrecognized Deferred Taxes: Evidence from the United Kingdom
Stephen G. Lynn, Chandra Seethamraju and Ananth Seetharaman


Influence of Accountability and Penalty Awareness on Tax Compliance

Debra L. Sanders, Philip M.J. Reckers and Govind Iyer

Abstract

The Washington State Department of Revenue conducted a behavioral field experiment to increase use tax compliance within the construction industry. The study examined the effects of accountability and heightened sanction awareness on tax compliance. The results indicate that mandating firms to file an affidavit signed by the party responsible for reviewing use tax obligations increases compliance. Providing information regarding the penalty structure for noncompliance through an educational letter also increases use tax compliance, especially for firms with declining revenues. This latter finding is consistent with the findings of Jackson and Hatfield (2005). These results add to taxation literature by finding that inexpensive affidavits and mail-based education regarding tax sanctions can be effective. ©2008 American Accounting Association   Top


Investor Response to a Reduction in the Dividend Tax Rate: Evidence from the Jobs & Growth Tax Relief Reconciliation Act of 2003

Teresa Lightner, Michaele Morrow, Robert Ricketts and Mark Riley

Abstract

This study examines investor reaction to the reduction in federal income tax rates on dividends resulting from passage of the Jobs & Growth Tax Relief Reconciliation Act of 2003. We investigate the existence of a clientele shift associated with the JGTRRA by examining trading volume in dividend-paying stocks surrounding passage of the Tax Act. Also, we examine changes in shareholder composition of firms over the period between announcement in the press and final passage of the plan. We find dividend yield to be a significant predictor of abnormal trading volume around key dates, including the date the plan to reduce dividend taxes was first covered in the press. Furthermore, we find a large and statistically significant negative relationship between dividend yield and the change in institutional ownership. Taken as a whole, our results are consistent with expectations that investor clienteles form around tax characteristics associated with particular firms and the ways that those firms structure investor returns. In particular, our results suggest that passage of the JGTRRA resulted in observable shifts in shareholder clienteles for dividend-paying firms. ©2008 American Accounting Association    Top


The Usefulness of Disclosures of Untaxed Foreign Earnings in Firm Valuation

Mark P. Bauman and Kenneth W. Shaw

Abstract

Under current accounting rules, U.S. multinationals are not required to record liabilities for future taxes on earnings of foreign subsidiaries, as long as those earnings are deemed to be indefinitely reinvested in those subsidiaries. These rules allow considerable flexibility in the designation of earnings deemed permanently reinvested and the reporting of expected repatriation taxes thereon. Some firms disclose amounts for unrecorded taxes on permanently reinvested earnings, but most do not. We show that while estimated repatriation taxes are relevant in explaining share prices of non-disclosing firms, they are less relevant than firm-disclosed amounts are in explaining share prices of disclosing firms. This result is due to estimated repatriation tax amounts exhibiting downward bias, and less accuracy for actual repatriation tax effects, relative to firm-disclosed repatriation tax amounts. We propose new disclosures designed to improve the relevance of estimated repatriation tax amounts. ©2008 American Accounting Association   Top


The Impact of Auditor-related Tax Services on Corporate Debt Pricing

Steve Fortin and Jeffrey Pittman

Abstract

We examine the link between auditor-related tax services and corporate debt pricing. After controlling for security-level and other firm-level determinants, we provide strong, robust evidence that bondholders reward public firms that pay proportionately more tax fees to their auditor with lower yield spreads. Our results include that the influence of auditor-related tax services on lowering borrowing costs is stronger for issues made by firms suffering worse information asymmetry. This research, which helps to resolve whether audit quality hinges on the relative amount of tax services, may have important policy implications given that regulators continue to debate whether to impose further restrictions on the tax services that auditors can provide to their clients. Altogether, our evidence implies that the benefit of tax services in improving auditor knowledge?stemming from public accounting firms learning more about their clients over successive engagements?outweighs any concurrent sacrifice in auditor independence in shaping debt market perceptions. ©2008 American Accounting Association  Top


Incremental Value Relevance of Unrecognized Deferred Taxes: Evidence from the United Kingdom

Stephen G. Lynn, Chandra Seethamraju and Ananth Seetharaman

Abstract

We examine empirically whether the use of the partial method for deferred taxes provides incremental information of use to investors. Specifically, we test whether U.K. capital markets valued unrecognized deferred tax amounts reported in the footnotes to U.K. annual reports, pursuant to U.K. Statement of Standard Accounting Practice (SSAP) 15. Our empirical model is based on Feltham and Ohlson (1995). We run iterative weighted least squares (IWLS) regression of year-end share prices on a decomposition of book value per share for a pooled sample of U.K. firm-years drawn from the years 1993 through 1998, and find positive associations with price for net deferred tax assetsóboth recognized and unrecognized. Moreover, we are unable to reject the null hypothesis that both parts of deferred taxes have similar multiples in our price regressions. These findings support some theoretical predictions in Sansing (1998), Guenther and Sansing (2000, 2004), and Amir et al. (2001). ©2008 American Accounting Association   Top

| Contact the Webmaster | ©2013 ATA