IRS scrutiny and corporate innovation

Author:

Goldman Nathan1,Lampenius Niklas2,Radhakrishnan Suresh3,Stenzel Arthur4,de Almeida Jose Elias Feres5ORCID

Affiliation:

1. Poole College of Management North Carolina State University Raleigh North Carolina USA

2. Institute of Financial Management, Department of Business Administration: Accounting & Finance University of Hohenheim Stuttgart Germany

3. Naveen Jindal School of Management The University of Texas at Dallas Richardson Texas USA

4. NHH—Norwegian School of Economics Bergen Norway

5. Federal University of Espirito Santo Vitória Espírito Santo Brazil

Abstract

AbstractThe IRS administers tax laws enacted by Congress. As part of the IRS's duties, they often consider taxpayers' financial statements to help ensure accurate tax reporting and payments. We posit that enhanced financial statement disclosures of tax information under FASB Interpretation Number 48 (FIN 48) lead to more IRS scrutiny and alter the incentives for corporate innovation. Using patent applications as a measure of corporate innovation, we employ a difference‐in‐differences research design with publicly listed US firms as the treatment group and privately held US firms not subject to the disclosure requirements as the control group. We find robust evidence that, following the onset of FIN 48, the number of patent applications by publicly listed firms decreased between 15.4% and 24.3% relative to private firms. This decline in patent applications is attributable to incremental innovation, suggesting that firms lower innovation related to projects with tax benefits that are more likely to be scrutinized by the taxing authorities. These findings suggest that there are real effects of IRS scrutiny and, in particular, real effects of tax disclosures under FIN 48 on corporate innovation.

Publisher

Wiley

Subject

Economics and Econometrics,Finance,Accounting

Cited by 1 articles. 订阅此论文施引文献 订阅此论文施引文献,注册后可以免费订阅5篇论文的施引文献,订阅后可以查看论文全部施引文献

1. Did FASB Interpretation Number 48 (FIN 48) Affect Noninnovative Corporate Investment?;The Journal of the American Taxation Association;2023-09-01

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