When Mandatory Private Disclosure Meets Voluntary Public Disclosure: The Effect of Private Country-by-Country Reporting on Management Effective Tax Rate Forecasts

Over 100 countries now require multinational corporations (MNCs) to annually disclose geographic breakdowns of their economic activities to tax authorities through country-by country reporting (CbCR) to combat tax avoidance. In this study, we examine whether and how CbCR affects firms’ voluntary effective tax rate (ETR) forecasts. Using difference-in-differences and regression discontinuity design, we find that MNCs are more likely to issue voluntary ETR forecasts after CbCR implementation. This effect is especially pronounced for MNCs engaging in more tax avoidance prior to the policy adoption and for those experiencing an improvement in the tax-related internal information environment following the policy adoption. Additionally, we find CbCR improves analysts’ ETR forecast accuracy in countries with more voluntary ETR forecasts. Our findings suggest that mandatory private tax disclosure leads to improved voluntary public disclosures, generating external benefits for capital market participants.
Contact Emails: