Title: Tax authority attention and financial reporting

Authors: Iftekhar Hasan; Tahseen Hasan; Kose John

Addresses: Fordham University, 45 Columbus Avenue, Martino Hall, New York, NY 10023, USA; Bank of Finland, Helsinki, Finland; University of Sydney, Sydney, Australia ' Lally School of Management, Rensselaer Polytechnic Institute, 110 8th St., Troy, NY 1218, USA ' Stern School of Business, New York University, 44, West 4th St., New York, NY 10012, USA

Abstract: We study the effects of tax authority (IRS) attention on a firm's financial reporting. We explore whether firms institute a higher degree of accounting conservatism in response to IRS monitoring. Using data on IRS acquisition of public firms' 10-K financial disclosures to proxy for IRS attention, we find that when firms are under IRS attention, they tend to initiate higher levels of unconditional and, to some extent, conditional accounting conservatism. We alleviate some of the endogeneity concerns by using pre- and post-IRS attention environments between the treated group (firms with IRS attention) and a propensity score that matches the control group of firms (no IRS attention). These results withstand several robustness tests and subsample analyses.

Keywords: IRS attention; tax; tax monitoring; tax enforcement; accounting conservatism; financial disclosure; financial reporting.

DOI: 10.1504/IJBAAF.2025.146543

International Journal of Banking, Accounting and Finance, 2025 Vol.15 No.1/2, pp.84 - 119

Received: 12 Jul 2024
Accepted: 14 Nov 2024
Published online: 02 Jun 2025 *

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