The public identification of tax aggression: An exploratory and value relevance study

Lum, Pei-Jia (2014). The public identification of tax aggression: An exploratory and value relevance study Honours Thesis, UQ Business School, The University of Queensland.

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Author Lum, Pei-Jia
Thesis Title The public identification of tax aggression: An exploratory and value relevance study
School, Centre or Institute UQ Business School
Institution The University of Queensland
Publication date 2014
Thesis type Honours Thesis
Supervisor Kathy Herbohn
Peter Clarkson
Total pages 108
Language eng
Subjects 1501 Accounting, Auditing and Accountability
Abstract/Summary Aston and Wilkins (2014, p. 1) disclosed a list which illustrated that a third of Australia’s largest companies have an effective tax rate of less than 10%. These firms are subjected to scrutiny by the Australian Taxation Office (ATO) for disproportionately eroding the nation’s tax base over the past decade. Given the lack of formal research on this subset of tax aggressive firms that are subject to public scrutiny, this study aims to develop a profile of firms involved in a tax dispute with the ATO. As AASB 137 Provision, Contingent Assets and Contingent Liabilities requires firms to disclose any information concerning formal audits or reviews issued by the ATO regarding tax affairs in their annual reports, these dispute firms are regarded as firms that are publicly identified as being tax aggressive in this study. The first research question considers the specific firm features associated with firms that are publicly identified as tax aggressive. Univariate tests are employed to identify the industry sectors, types of ATO disputes and firm-specific features that are more likely to be characterized by an ATO dispute. The second research question considers the differential valuation implications of dispute and non-dispute firms. I use multivariate valuation models to determine whether information regarding tax dispute is value relevant to market participants. Complementing the value relevance study, I further investigate whether the value relevance of the public identification of tax aggression differs across alternative types of disputes with the ATO. Using a hand-collected sample of 252 dispute firm-year observations, this study found that relative to non-dispute firms, dispute firms are on average, larger in size, have higher leverage, higher sales revenue, are more profitable, hold larger balances of intangible assets and are more aggressive in their financial reporting. Multivariate testing indicates that the market values the public identification of tax aggression negatively. Additionally, there is additional evidence that different types of tax disputes are valued differentially by the market.

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Created: Wed, 25 Feb 2015, 15:55:46 EST by Karen Morgan on behalf of UQ Business School