Phys.org  September 18, 2023
According to an international team of researchers (US – University of North Carolina, UT Dallas, Germany, Norway, Brazil) enhanced financial statement disclosures of tax information under Financial Accounting Standards Board (FASB) Interpretation Number 48 (FIN 48) led to more IRS scrutiny and altered the incentives for corporate innovation. Using patent applications as a measure of corporate innovation, they used a difference-in-differences research design with publicly listed US firms as the treatment group and privately held US firms not subject to the disclosure requirements as the control group. They found evidence that following the onset of FIN 48, the number of patent applications by publicly listed firms decreased between 15.4% and 24.3% relative to private firms. This decline in patent applications is attributable to incremental innovation, suggesting that firms lower innovation related to projects with tax benefits that are more likely to be scrutinized by the taxing authorities. According to the researchers there are real effects of IRS scrutiny and real effects of tax disclosures under FIN 48 on corporate innovation… read more.
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