THE RELATION BETWEEN INFORMATION ASYMMETRY, DISCLOSURE POLICY AND CORPORATE TAX PLANNING

Abstract

The call for greater transparency from companies it's seen as a way to help reduce tax avoidance. Although some studies have linked tax planning to various factors, few studies have examined the relation between information asymmetry, disclosure policy and tax planning. Managers visibly face conflicts between financial disclosure quality and tax planning. Academic research points financial analysts as a way to reduce the information asymmetry and reduce corporate tax avoidance. The main purpose of this paper is to discuss the relation between information asymmetry, disclosure policy and corporate tax planning, by revisiting the main empirical literature. Firstly, we discuss concept of information asymmetry and its measures. After, we analyse the concept of tax planning. Finally, we examine the relation between information asymmetry, disclosure policy and tax planning. Academic research point financial analysts as a way to reduce the information asymmetry between firms and investors, and as a consequence, they reduce corporate tax avoidance. Some authors argue that if shareholders want to monitor firms’ tax related decision, disclosure policies and tax regulatory bodies should consider requiring increased tax related disclosures by firms. However, other authors argue that with increased tax related disclosure, managers are discouraged from pursuing “legitimate” tax planning activities. The added value of this work relies on the analysis of empirical literature results about information asymmetry, disclosure policy and tax planning, providing a more extensive overview of this relation. This study provides insights that tax authorities and politicians can use to better focus their strategies and actions in order to increase compliance and reduce tax evasion.

Keywords

• Information Asymmetry
• Disclosure Policy
• Corporate Tax Planning

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