Speaker: Dr Ga-Young Choi (Bayes Business School) - Young Accounting Scholars Network (YASN) programme
Hosted by: University of Liverpool Management School's Accounting and Finance
Open to: all University of Liverpool staff and students, with no sign up needed
Date: Wednesday 18 October 2023
Time: 15:00 - 16:30
Place: Management School - Seminar Room 1
Abstract
Tax audits are considered as one of the most important factors that influence corporate tax planning. However, we do not yet fully understand whether and how firms respond to such audits primarily because tax authorities never publicly disclose which firms received tax audits.
By analyzing tax-audit-related narrative disclosures with generative AI, we construct a firm-level measure with a substantial within-firm time-series variation that captures tax audit periods.
Using our measure, we present several stylized facts:
- Firm-level tax avoidance decreases during the audits and this effect tends to linger even after the audits.
- During and post tax audits, firms experience an increase in stock price volatility, a decrease in debt market access, and a decrease in investments, consistent with the market participants perceiving tax audit as a source of corporate risk.
- Investors require a risk premium for holding stocks that are currently under tax audits. We further show that the market reacts negatively to disclosures that contain uncertain negative future tax settlements.
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