Taxes aren’t all bad?
There’s an old saying that only two thingsin life are certain: death and taxes. No one looks forward to either. But whatif paying corporate tax is not really as bad as it seems? What if company shareholderscould reasonably assess the risks of paying additional taxes before they occur?Dr. Andrew Bauer, Canada Research Chair in Taxation, Governance and Risk, exploresthe answers to these and related questions through his research.
Despite the government’s perceived adversarialenforcement role in Canada’s financial system, it also has a monitoring rolethat can protect shareholders from managers seeking more than their fair shareof profits. Bauer uses data on tax audit rates and company-specific stock pricecrashes to validate whether stricter government tax enforcement improves thefinancial wellbeing of shareholders.
Bauer also examines whether co-operativeforms of tax audits— where companies volunteer to share information with thegovernment—benefit shareholders more than traditional tax audits. These co-operativeprocesses improve tax compliance, but they may also improve company performanceand reduce the risk of stock crashes.
In addition, Bauer is analyzing whetherfirm-specific information can predict future tax settlement payments. This datacan provide shareholders with a means to assess their risks and rewards aheadof time, leading to fewer negative surprises.
Bauer’sresearch has real implications for how shareholders should view the governancerole of tax compliance, and the potential benefits of information sharing. His findingscan also be used by shareholders to identify downside tax risk, evaluate howfirms manage it, and help in their assessments of firm risk