Working Paper: NBER ID: w12873
Authors: Douglas A. Shackelford; Joel Slemrod; James M. Sallee
Abstract: This paper models the impact of the tax system and GAAP on the real and financial reporting decisions of corporations. It provides a first step toward joint evaluation of taxation and financial reporting in the standard economic analyses of corporate behavior. The key finding is that value arises from real decisions that provide firms with discretion in their tax and financial reporting. This desire for flexibility modifies the optimal decisions of firms, in theory, and we provide examples that illustrate this behavior in the real world.
Keywords: Tax system; GAAP; Corporate behavior; Financial reporting
JEL Codes: H21; H25; M41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| desire for flexibility in tax and financial reporting (H32) | firms make real decisions (D25) |
| firms make real decisions (D25) | managers have discretion over timing of taxable and book income (D25) |
| managers value flexibility (M54) | firms engage in behaviors that optimize reporting outcomes (L21) |
| firms engage in behaviors that optimize reporting outcomes (L21) | firms undertake riskier investments or engage in tax avoidance strategies (H32) |
| interaction of tax and accounting choices (H26) | significant deviations from optimal corporate strategies (L21) |