Financial Reporting and Taxation

NBER Reporter, Winter 2006 | Go to article overview

Financial Reporting and Taxation


The NBER held a conference on "Financial Reporting and Taxation" in Cambridge on December 7. Douglas Shackelford, NBER and University of North Carolina, Chapel Hill, organized this program:

Michelle Hanlon, University of Michigan, and Edward Maydew, University of North Carolina, "Book-Tax Conformity: Implications for Multinational Firms"

Discussants: Mihir A. Desai, Harvard University and NBER, and Peter Merrill, PricewaterhouseCoopers

Douglas Shackelford; Joel B. Slemrod, University of Michigan and NBER; and James Sallee, University of Michigan, A Unifying Model of How Taxes Affect the Real and Accounting Decisions of Corporations"

Discussants: Man J. Auerbach, University of California, Berkeley and NBER, and Terry Shevlin, University of Washington

John R. Graham, Duke University and NBER, and Lillian F. Mills, University of Texas, "Using Tax Return Data to Simulate Corporate Marginal Tax Rates

Discussants: Oliver Li, University of Notre Dame, and Clemens Sialm, University of Michigan and NBER

George A. Plesko, University of Connecticut, "Estimates of the Magnitude of Financial and Tax Reporting Conflicts"

Discussants: Raj Chetty, University of California, Berkeley and NBER, and David Weisbach, University of Chicago

Michelle Hanlon, University of Michigan, and Joel B. Slemrod, "What Does Tax Aggressiveness Signal? Evidence from Stock Price Reactions to News About Tax Aggressiveness"

Discussants: Joseph Bankman, Stanford University, and Dhammika Dharmapala, University of Connecticut

James M. Poterba, MIT and NBER, and Nirupama Rao and Jeri Seidman, MIT, "New Evidence on the Importance of Deferred Tax Assets and Liabilities and on Managerial Manipulation of Tax Expense"

Discussants: James R. Hines, University of Michigan and NBER, and Andrew Schmidt, Columbia University

Leslie A. Robinson and Richard Sansing, Dartmouth College, "Tax Incentives versus Financial Reporting Costs: The Case of Internally Developed Intangible Assets"

Discussants: Christian Leuz, University of Chicago, and Emmanuel Saez, University of California, Berkeley and NBER

Jennifer L. Blouin and Irem Tuna, University of Pennsylvania, "Tax Contingencies: Cushioning the Blow to Earnings?"

Discussants: Mary Margaret Frank, University of Virginia, and Thomas Neubig, Ernst & Young

Hanlon and Maydew examine the implications for multinational firms of recent proposals to conform tax and financial reporting (that is, book-tax conformity). Proponents of book-tax conformity argue that the current dual system in the United States allows firms to simultaneously manage their taxable income down while managing their book income upward. By requiring book-tax conformity, they contend that firms will be forced to trade-off reporting high earnings numbers to shareholders and reporting low earnings to the taxing authority, resulting in improved financial reporting and less tax avoidance. Reduced compliance costs and easier auditing also have been cited as potential benefits of book-tax conformity. Aspects of book-tax conformity that have not been examined, however, include its international implications, particularly regarding the foreign operations of U.S. multinationals. The authors describe several possible approaches to implementing book-tax conformity for firms that have both domestic and foreign operations. They discuss issues likely to arise with each approach and conjecture at the behavioral responses to each. Using firm-level financial data from Compustat, they simulate the effects of book-tax conformity on publicly traded U.S. firms. Specifically, they simulate the effects of book-tax conformity on the level and variability of book earnings and tax payments/collections.

Shackelford, Slemrod, and Sallee model the impact of taxes on both the real decisions and the accounting choices of firms. …

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