Do investors value corporate tax return information? Evidence from Australia
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Many countries have recently adopted policies to increase corporate tax transparency, including policies requiring public disclosure of tax information. However, little is known about the consequences of these disclosures. I exploit a June 2013 law change requiring the Australian Taxation Office (ATO) to publicly report line items from Australian corporate tax returns to examine (1) the market’s expectations of the costs and benefits of public disclosure of tax return information, and (2) the information content of the tax return line items disclosed in the ATO’s report. I test market reactions around key legislative event dates and find evidence that the market anticipated an overall net benefit of disclosure. Specifically, cross-sectional analysis provides evidence that the market anticipated benefits from reduced information asymmetry. However, for firms likely to face increased public or regulatory scrutiny as a result of disclosure, the market reaction to legislative events is negative, indicating anticipated net costs. Finally, I find a significant market reaction to the ATO report itself, suggesting the disclosure conveyed incremental information to market participants at the time of its release. This study is a first step toward understanding of the consequences of mandatory tax return information disclosure.