| Abstract: |
This study examines whether and how the SEC incorporates tax information into its enforcement process, specifically in the issuance of comment letters. We find that the SEC is more likely to target firms with aggressive tax positions, with this effect being stronger under greater resource constraints and in firms with higher operational and informational complexity. Leveraging two regulatory changes to tax disclosures, our difference-in-differences analysis shows that the SEC increased its focus on tax aggressive firms following the enhanced tax disclosure under FIN 48, while its scrutiny decreased after the reduced transparency under Schedule UTP. Furthermore, tax information not only accelerates the SEC’s review process but also uncovers more restatements and broadens the scope of regulatory scrutiny. Lastly, analysis of the SEC’s 10-K downloads confirms that the SEC allocates more attention to tax aggressive firms. Our findings suggest that tax information is a critical factor in guiding the SEC’s enforcement decisions and enhancing resource allocation efficiency.
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Biography:
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Dr. Xin Zheng joined the University of British Columbia’s Sauder School of Business as an Assistant Professor of Accounting in 2017 after earning his Ph.D. from Emory University. His research focuses on regulation, regulatory oversight, climate finance, financial statement analysis, and related areas. Dr. Zheng’s work has been published in leading accounting and finance journals, including The Accounting Review, Review of Accounting Studies, and the Journal of Financial Economics.
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