Essays in tax and financial reporting

This dissertation consists of three essays. The first two essays study the association between tax aggressiveness and financial reporting aggressiveness. There is an emerging debate about whether firms tradeoff between tax savings and reported earnings. Essay 1 examines this relationship in the Canadian context and finds that tax aggressiveness is negatively associated with financial reporting aggressiveness, suggesting the existence of a tradeoff. However, closely-held firms seem to be making no tradeoffs between tax savings and book income. This essay also finds that closely-held firms are more aggressive in pursuing tax savings compared to other firms.

Essay 2 examines the tradeoff question in the North American context. I find that tax reporting aggressiveness is positively associated with financial reporting aggressiveness for U.S. firms (i.e., U.S. firms in general do not seem to tradeoff between the tax savings and book income), while negatively associated for Canadian firms (i.e., Canadian firms do seem to tradeoff between pursuit of tax savings and book income). Within the U.S. sub-sample, there is no difference in tradeoff behavior between closely-held and widely-held firms. Closely-held firms in Canada do not seem to tradeoff between book income and tax savings, thereby pursuing both tax aggressiveness and financial reporting aggressiveness simultaneously.

Essay 3 focuses on financial reporting and examines the association between IFRS adoption and executive compensation. More specifically, I examine whether IFRS better reflects firms' and managers' performance. I find that accounting-based pay for performance sensitivity is stronger in the year of IFRS adoption. My results show that CFOs earned approximately $108,000 more in the year of IFRS adoption. In contrast, the chief executive officer's (CEO) compensation did not change significantly in the year of IFRS adoption. I also find CF Os' bonus relative to CEO bonus increased by more than 20% in the year of IFRS adoption.