Dissertation
AN INVESTIGATION OF TAX RISK DISCLOSURES AND ESTIMATION UNCERTAINTY IN SECURITIES AND EXCHANGE COMMISSION ANNUAL REPORTS
Washington State University
Doctor of Philosophy (PhD), Washington State University
01/2021
DOI:
https://doi.org/10.7273/000005401
Handle:
https://hdl.handle.net/2376/119340
Abstract
This dissertation investigates the incremental effects of uncertain disclosure narratives in annual filings of public companies. In the first essay, I investigate the effects of Form 10-K qualitative tax risk disclosures on the prices of syndicated loans. I find that firms with more extensive tax risk disclosures enjoy lower loan spreads. This effect is more pronounced among firms with higher IRS audit risk and information risk. I also find that tax risk disclosures convey managements’ ability to manage tax risks, as evidenced by lower future tax volatility following the initiation of extensive tax risk disclosures. Consistent with tax risk disclosures enhancing management credibility and providing greater assurance to lenders, I document that these disclosures attenuate the association between tax risk and the cost of debt. My second essay focuses on auditor decisions related to estimation uncertainty in financial reporting. I construct a composite measure of estimation uncertainty that captures the length, the number of estimation-related words, and topical coverage in the critical accounting policies and estimates (CAPEs) portion of Form 10-K filings. I validate this measure by demonstrating its association with earnings attributes linked to measurement uncertainty and lower accrual reliability. Relying on this measure, I investigate the extent that auditors incorporate estimation uncertainty reflected in CAPEs in their risk assessments. I find that auditors charge higher audit fees, take longer to issue audit reports, and are more likely to issue modified audit opinions when CAPE estimation uncertainty is higher. These results are robust to entropy balancing, year-to-year change analysis, and controls for firm fixed effects. When I focus on tax and goodwill estimation uncertainty, I document that estimation uncertainty reflected in CAPEs has incremental effects beyond existing measures of estimates reported in financial statements. I demonstrate the positive association between CAPE estimation uncertainty and the textual properties of critical audit matter (CAM) disclosures, which supports the view that auditors incorporate estimation uncertainty reflected in CAPEs in their risk assessments.
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Details
- Title
- AN INVESTIGATION OF TAX RISK DISCLOSURES AND ESTIMATION UNCERTAINTY IN SECURITIES AND EXCHANGE COMMISSION ANNUAL REPORTS
- Creators
- zhuoli zhou axelton
- Contributors
- Jeffrey Gramlich (Advisor)Xinghua Gao (Committee Member)Kathleen Harris (Committee Member)
- Awarding Institution
- Washington State University
- Academic Unit
- Carson College of Business
- Theses and Dissertations
- Doctor of Philosophy (PhD), Washington State University
- Publisher
- Washington State University
- Number of pages
- 130
- Identifiers
- 99900592156001842
- Language
- English
- Resource Type
- Dissertation