Formal Institutions and Corporate Tax Disclosures: A Cross-Country Analysis

Abstract

This study examines the impact of tax-related formal institutions on corporate tax disclosures. Our theorizing, based on voluntary disclosure theory and institutional theory, highlights the cost–benefit analysis firms engage in to decide on corporate tax disclosures, where transparency enhances legitimacy but also entails risks like revealing proprietary information and increased political scrutiny. We argue that tax complexity and the maturity of cooperative compliance programs affect this cost–benefit analysis. We use data on tax disclosure practices for the period 2018 to 2022 for listed firms from 21 countries to test our expectations. After controlling for country- and firm-level differences, we find that tax complexity is positively associated with corporate tax disclosures, suggesting firms want to show they are “good citizens”. The maturity of cooperative compliance programs, programs aiming to create mutual benefits for tax authorities and large firms by fostering collaboration and trust, is also positively associated with corporate tax disclosure levels.