Does mandatory disclosure of firm’s tax avoidance position affect corporate investment efficiency?
利用FIN 48强制披露不确定税收头寸的外生冲击，研究发现受影响公司投资效率显著下降，主要源于资本成本上升和外部融资减少，揭示了避税的一项潜在成本。
This paper examines the effect of a firm’s tax avoidance position disclosure on corporate investment efficiency by utilising an exogenous shock to corporate tax reporting that mandates firms to disclose uncertain tax positions in their financial statements under Financial Interpretation No. 48 (FIN 48). We find that, after FIN 48, firms claiming uncertain tax benefits (i.e. affected firms) experience a significant decrease in investment efficiency relative to firms that do not have uncertain tax positions (i.e. non-affected firms). Our finding suggests that, despite promoting transparency, FIN 48 imposes an unfavourable information revelation effect that reduces investment efficiency for affected firms. In terms of the mechanism, we provide evidence that affected firms experience a larger increase (drop) in cost of capital (external financing) following FIN 48 and rule out an alternative explanation that the decreased investment efficiency may arise from internal liquidity constraints. In cross-sectional analyses, we find the adverse effect to be more pronounced for firms with higher disclosure quality, higher tax uncertainty, and more severe financial constraints. These findings provide insight into the debate on why firms sometimes forgo tax avoidance opportunities by pointing out a potential cost of tax avoidance.