Real Effects of Private Country-by-Country Disclosure

Olbert, M and De Simone, L (2021) Real Effects of Private Country-by-Country Disclosure. Accounting Review. ISSN 0001-4826 (In Press) OPEN ACCESS

Abstract

We investigate the effects of mandatory private Country-by-Country Reporting (CbCR) to European tax authorities on multinational firms’ capital and labor investments as well as their organizational structures. We exploit the threshold-based application of this 2016 disclosure rule to conduct difference-in-differences and regression discontinuity tests. We document increases in capital and labor expenditures in Europe, but these effects are more pronounced in countries with preferential tax regimes. Cross-sectional tests and analysis using consolidated financial data provide evidence consistent with multinational firms reallocating capital across Europe to mitigate increased tax enforcement risk, as well as with CbCR hindering capital investment efficiency. We also find evidence consistent with firms responding to CbCR by reducing organizational complexity. Collectively, our results support the conclusion that mandatory private CbCR causes firms to change real investment activities to substantiate their tax avoidance activities in Europe while reducing the appearance of aggressive tax practices.

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Item Type: Article
Subject Areas: Accounting
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© 2022 American Accounting Association

Date Deposited: 11 Jan 2022 08:21
Date of first compliant deposit: 11 Jan 2022
Subjects: Europe
Disclosure of financial information
Corporation taxes
Last Modified: 18 Jan 2022 05:56
URI: https://lbsresearch.london.edu/id/eprint/2195
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