Saturday, November 2, 2013

Firm and Investor Responses to Uncertain Tax Benefit Disclosure Requirements


We examine whether proprietary costs affect disclosure quality and how investors react to disclosure quality in a new proprietary cost setting. We apply Verrecchia's (1983) proprietary cost theory to the FIN 48 adoption setting and argue that proprietary costs result from beliefs that the new disclosures could weaken a firm's competitive position when negotiating with tax authorities. We construct disclosure quality scores for S&P 1500 firms and offer two empirical findings. First, we find a ...more

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