Financial Reporting Neutrality, Corporate Tax Planning, and the Role of Corporate Transparency

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This Ph.D. thesis investigates the complex interplay between accounting neutrality, corporate governance, corporate tax planning, and corporate transparency. The thesis is composed of three empirical studies that examine various aspects of this relationship. In the first study, I propose an empirical measure of neutrality and examine a long-term trend in corporate reporting neutrality around the FASB's emphasis on neutrality in 2010. The results demonstrate a significant increase in neutrality and a decrease in biases after 2010, indicating the effectiveness of regulatory efforts to promote accounting neutrality. In the second study, I examine the relationship between tax aggressiveness and corporate transparency, using eXtensible Business Reporting Language (XBRL) avoidance. Furthermore, I explore the underlying managerial incentives for tax planning and corporate transparency decisions by examining moderating effects of governance quality on this relationship. I find that tax-aggressive companies avoid XBRL to mitigate the risk of detection by the Internal Revenue Service (IRS). Moreover, shareholders’ value creation, not managerial diversion, is the primary managerial incentive behind tax aggressiveness. In the third study, I investigate the impact of XBRL-induced information transparency on accounting conservatism and tax avoidance. I find that XBRL monitoring reduces the demand for conservatism, leading to lower levels of conditional conservatism in post-XBRL adoption periods for XBRL-adopting firms. Furthermore, XBRL reduces corporate tax avoidance through three channels: a decline in conditional conservatism leading to increased tax payments, non-IRS monitoring, and IRS monitoring. Conclusively, my thesis significantly contributes to the existing body of literature on corporate transparency, financial reporting, and corporate tax planning. My findings demonstrate that regulatory initiatives to mitigate financial reporting biases can influence achieving neutral financial reporting. Additionally, I find that corporate managers employ strategies to minimize taxes to enhance shareholder value. Consequently, they maintain transparency with shareholders while restricting information flow between their companies and the IRS. Finally, the XBRL mandate plays a crucial role in reducing information processing costs, thereby resulting in decreased corporate tax avoidance and enhanced corporate transparency.
Jafri, S. R. A. (2023). Financial reporting neutrality, corporate tax planning, and the role of corporate transparency (Doctoral thesis, University of Calgary, Calgary, Canada). Retrieved from