This Review presents basic facts regarding the long-run evolution of income and wealth inequality in Europe and the United States. Income and wealth inequality was very high a century ago, particularly in Europe, but dropped dramatically in the first half of the 20th century. Income inequality has surged back in the United States since the 1970s so that the United States is much more unequal than Europe today. We discuss possible interpretations and lessons for the future.

Inequality in the long run

This paper not only attempts to survey the burgeoning literature on environmental, social and governance disclosures and performance and their effects on firm value, but its focus also lies on highlighting stylised observations coming from the most recent work that has not yet become part of the ‘conventional wisdom’ in the field. In addition, it outlines some of the crucial knowledge gaps and interesting questions that have not, as of yet, been addressed and thus outlines a potential agenda for future research on socially responsible investing. Lastly, it introduces the papers published in this special issue of the British Accounting Review.

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The effects of environmental, social and governance disclosures and performance on firm value: a review of the literature in accounting and finance

Many questions about institutional trading can only be answered if one tracks high-frequency changes in institutional ownership. In the United States, however, institutions are only required to report behavior from the "tape", the Transactions and Quotes database of the New York Stock Exchange, using a sophisticated method that best predicts quarterly 13-F data from trades of different sizes. We find that daily institutional trades are highly persistent and respond positively to recent daily returns but negatively to longer-term past daily returns. Institutional trades, particularly sells, appear to generate short-term losses--possibly reflecting institutional demand for liquidity--but longer-term profits. One source of these profits is that institutions anticipate both earnings surprises and post-earnings-announcement drift. These results are different from those obtained using a standard size cutoff rule for institutional trades.

Caught On Tape: Institutional Trading, Stock Returns, and Earnings Announcements

We review research on corporate social responsibility (CSR) published in 13 top accounting journals over the last decade. We begin with a brief discussion of the data that archival researchers have used to measure CSR. Next, we conduct our review in four parts: 1) determinants of CSR; 2) the relation between CSR and financial performance; 3) consequences of CSR; and 4) the roles of CSR disclosure and assurance. We summarize the accounting literature in these areas and comment on how accounting researchers can use their skill sets with regard to specific issues. Within each area, we present some suggestions for future CSR research in accounting.

Corporate Social Responsibility Research in Accounting

We investigate whether firms and their top executives bear reputational costs from engaging in aggressive tax avoidance activities. Prior literature has posited that reputational costs partially explain why so many firms apparently forgo the benefits of tax avoidance, the so-called “under-sheltering puzzle.” We employ a database of 118 firms that were subject to public scrutiny for having engaged in tax shelters, representing the largest sample of publicly identified corporate tax shelters analyzed to date. We examine the reputational costs that prior research has shown that firms and managers face in cases of alleged misconduct: increased CEO and CFO turnover, auditor turnover, lost sales, increased advertising costs, and decreased media reputation. Across a battery of tests, we find little evidence that firms or their top executives bear significant reputational costs as a result of being accused of engaging in tax shelter activities. Moreover, we find no decrease in firms’ tax avoidance activities after being accused of tax shelter activity. Finally, in tests of the capital market reaction to news of tax shelter involvement, we find that negative event-period returns fully reverse within a few weeks of the public scrutiny, consistent with a temporary market penalty to tax shelter news. In all, we conclude that there is little evidence of tax shelter usage leading to reputational costs at the firm level.

The Reputational Costs of Tax Avoidance

We investigate the relation between corporate tax payments and corporate social responsibility. Because existing theory and empirical studies find inconsistent evidence on the relation between these constructs, we investigate whether the two activities act as complements or substitutes. We estimate the relation between measures of corporate social responsibility and (1) the amount of corporate taxes paid, and (2) the amount invested in tax lobbying activities using both ordinary least squares and a system of simultaneous equations. We find consistent evidence that corporate social responsibility is negatively related to five-year cash effective tax rates and positively related to tax lobbying expenditures. Our evidence suggests that, on average, corporate social responsibility and tax payments act as substitutes. Data Availability: Data are available from sources identified in the paper.

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Do Socially Responsible Firms Pay More Taxes

We test whether tax avoidance strategies are associated with greater firm risk. We find that low tax rates tend to be more persistent than high tax rates and that measures of tax avoidance commonly used in the literature are generally not associated with either future tax rate volatility or future overall firm risk. Our evidence suggests that, on average, corporate tax avoidance is accomplished using strategies that are persistent and do not increase firm risk. We also find that the volatility of cash tax rates is associated with future stock volatility, suggesting that tax rate volatility and overall firm risk are related.

Is Tax Avoidance Related to Firm Risk

We test whether tax avoidance strategies are associated with greater firm risk. We find that low tax rates tend to be more persistent than high tax rates and that measures of tax avoidanc...

We provide evidence about allocations of cash flow freed-up by not paying taxes ("tax-related cash"). Uncertainty about future repayments suggests firms may use tax-related cash more cautiously tha...

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Allocation of Internal Cash Flow when Firms Pay Less Tax

We investigate whether low Cash ETRs are associated with two distinct effects — tax avoidance and low earnings quality — and if so, whether the two effects can be separated. Separating these effects is important: if upward earnings management is driving low Cash ETRs, inferences based on tax avoidance may not be valid. Our results demonstrate Cash ETRs are associated with both earnings quality and tax avoidance. We test an alternative measure, the ratio of cash taxes paid to pretax operating cash flows, and provide evidence that this measure mitigates the association with earnings quality while retaining the association with tax avoidance.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID2522422_code355015.pdf?abstractid=2409688&mirid=1

Brian M. Williams

Papers

Do Socially Responsible Firms Pay More Taxes

Is Tax Avoidance Related to Firm Risk

Is Tax Avoidance Related to Firm Risk

Allocation of Internal Cash Flow when Firms Pay Less Tax

Are 'Tax Aggressive' Firms Just Inflating Earnings?