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Title:Taxes and financial reporting: Evidence from discretionary investment write-offs in Italy PDF Logo
Authors:Arachi, Giampaolo
Bucci, Valeria
Issue Date:2010
Series/Report no.:CESifo working paper: Public Finance 3261
Abstract:This paper provides further empirical evidence on the relationship between taxes and financial reporting by focusing on accounting decisions to write-offs equity investments. The analysis is based on panel data for Italian companies. In the period 1998-2006 the Italian corporate income tax has been reformed several times. In particular the tax deductibility of write-offs of equity investment was repealed in 2004. The paper exploits the ensuing high cross-sectional and times series variation in the marginal tax rate to identify tax effects. The econometric analysis delivers strong evidence that taxes affect the probability of write-offs. In contrast there is no evidence that taxes affect the magnitude of the write-offs. The paper also tests for the existence of a trade-off between tax minimization and non tax costs such as financial reporting costs and agency costs. Surprisingly, the evidence of such trade-off is rather weak.
Subjects:corporate taxation
write-offs of equity investments
financial reporting
tax planning
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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