How Reliably Do Financial Statement Proxies Identify Tax Avoidance

摘要: Can financial statement proxies reliably identify tax avoidance? This is an important question because our understanding of the determinants avoidance largely depends on results generated using such proxies. We seed Compustat data with three strategies and test how effective rates book-tax differences seeded avoidance. find permanent more easily detected than deferral strategies, that reporting choices can reduce statistical power. also conclude no single proxy most powerfully detects all types These findings are robust to changes in assumptions about magnitude pervasiveness sample validated a shelters. offer evidence research design choices, firm performance accounting for risk affect contribute literature by controlled environment examine effectiveness