Is Tax Return Information Useful to Equity Investors?

Review of Accounting Studies 28: 1413-1465. https://doi.org/10.1007/s11142-023-09792-7

63 Pages Posted: 2 Feb 2018 Last revised: 20 Sep 2023

See all articles by Paul Demere

Paul Demere

University of Georgia - J.M. Tull School of Accounting

Date Written: September 19, 2023

Abstract

I examine whether tax return information is useful to equity investors. I do so indirectly by exploiting unique features of the syndicated loan market, as evidence shows that lenders obtain tax returns from borrowers and that lenders’ private information is transmitted to equity markets when institutional investors are part of a loan syndicate. I find significant increases in tax expense valuation and decreases in tax-related market anomalies following the issuance of institutional syndicated loans, suggesting that equity investors find information about firm performance in tax returns that is useful for their trading decisions. I also find evidence that suggests institutional investors may determine their loan syndicate participation in part based on the value of tax return information. This study extends prior research and informs policy debates over public disclosure of corporate tax return information by providing evidence to support that tax returns can be useful to investor decision making.

Keywords: Tax Return Information, Syndicated Loans, Tax Expense Valuation, Tax Anomaly Returns

JEL Classification: G11, G14, M41, M48

Suggested Citation

Demere, Paul, Is Tax Return Information Useful to Equity Investors? (September 19, 2023). Review of Accounting Studies 28: 1413-1465. https://doi.org/10.1007/s11142-023-09792-7, Available at SSRN: https://ssrn.com/abstract=3110199 or http://dx.doi.org/10.2139/ssrn.3110199

Paul Demere (Contact Author)

University of Georgia - J.M. Tull School of Accounting ( email )

Athens, GA 30602
United States

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