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Kelley School of Business Graduate Accounting Program Outstanding Faculty, 2023
Kelley School of Business Outstanding Researcher, Associate Professor, 2020
Kelley School of Business Innovative Teaching Award, 2020
Indiana University Trustees Teaching Award, 2018
Outstanding Young Alumni, University of Florida, 2014
Selected Publications
De Simone, L. Stomberg, B., and Williams, B.. (2023). Does Tax Enforcement Disparately Affect Domestic versus Multinational Corporations around the World? Contemporary Accounting Research, 40(4), 2816–2845.
Abstract
Global tax enforcement policies have received increased attention since the financial crisis, with much stated focus on curbing perceived harmful tax practices of multinational corporations. Yet there is a dearth of evidence on possible differential effects of home-country tax enforcement on multinationals. We take a step toward filling this void in the tax policy discussion by examining whether there is a differential relation between changes in home-country enforcement and the tax avoidance of domestic versus multinational corporations. Using OECD data on 50 countries from 2005 to 2019, we find increases in home-country enforcement are associated with lower levels of tax avoidance for domestic firms than for multinational corporations. Using a subset of firms from the Bureau van Dijk database, we find that multinationals avoid more tax in foreign countries when home-country enforcement increases. Results are stronger for multinationals with a higher proportion of subsidiaries in low-tax countries and when enforcement spending is low. These findings have implications for policymakers and highlight the importance of coordinated enforcement efforts across jurisdictions—such as the recently proposed global minimum tax—to successfully curb multinationals’ worldwide tax avoidance.
Stomberg, B., De Simone, L. N., and McClure, C. (2022). Examining the immediate effects of recent tax law changes on the structure of executive compensation. Contemporary Accounting Research, 39(4), 2376-2408.
Abstract
As part of the “Tax Cuts and Jobs Act” (TCJA), Congress repealed a long-standing exception that allowed companies to deduct executives’ qualified performance-based compensation in excess of $1 million. The purpose of this study is to examine whether Congress achieved its stated objective of reversing a shift in executive compensation away from cash compensation and towards performance pay, which Congress believed led executives to focus on short-term results rather than the long-term success of the company. Across a battery of tests, including a difference-in-differences design that exploits the staggered time-series implementation of the deduction limit, we find evidence compatible with the new deduction limit having no effect on executives’ salary, performance pay or total compensation, inconsistent with Congressional intent.
Schwab, C., Stomberg, B., and Xia, J. (2022). What Determines Effective Tax Rates? The Relative Influence of Tax and Other Factors. Contemporary Accounting Research, 39(1), 459-497.
Abstract
Many studies use GAAP effective tax rates (ETRs) as a proxy for tax avoidance and assume that very low (high) ETRs represent the greatest (least) tax avoidance, yet ETRs can be affected by items unrelated to tax avoidance. Despite awareness of the potential limitations of ETRs versus other factors as a measure of tax avoidance, the literature lacks consistent evidence on the extent to which ETRs capture tax avoidance. We take a step toward filling this void using income tax footnote disclosures from 2008 through 2016 to investigate how well ETRs versus other factors capture cross-sectional differences in tax avoidance. We document that ETRs below 5% and above 40% are significantly influenced by items largely unrelated to tax avoidance, such as valuation allowances and goodwill impairments. Truncating ETRs at zero and one, controlling for standard determinants of tax avoidance, and using industry-size-adjusted ETRs or multiyear GAAP ETRs do not eliminate the clustering of factors largely unrelated to tax avoidance in the tails of the ETR distribution. Cash ETRs attenuate but do not eliminate this clustering. Researchers can use ETR rate reconciliation data to construct an adjusted ETR that removes the influence of factors largely unrelated to tax avoidance. Our findings inform researchers about factors largely unrelated to tax avoidance that drive significant deviations in ETRs from the statutory tax rate. This is of increasing importance as the number of studies examining the consequences of very high and very low ETRs grows.
Nessa, M., Schwab, C., Stomberg, B., and Towery, E. (2020). How do IRS resources affect the corporate audit process? The Accounting Review, 95(2), 311–338.
Abstract
This study investigates how Internal Revenue Service resources affect the IRS audit process for publicly traded corporations. Using confidential IRS audit data, we examine the effect of IRS resources on the incidence and magnitude of proposed deficiencies and settlement outcomes. We find that IRS resources are positively associated with both the likelihood and magnitude of proposed deficiencies, but negatively associated with the proportion of proposed deficiencies collected. These results are consistent with the IRS focusing on fewer positions, but targeting positions supported by weaker taxpayer facts when resources are more limited. Based on our findings, we estimate the loss in tax collections from audits of LB&I corporate tax returns alone exceeds the savings from reductions in the IRS enforcement budget. This study contributes to the literature examining the strategic game between tax authorities and corporate taxpayers and has important implications for policymakers, particularly in light of recent IRS budget cuts.
Chen, S., Schuchard, K., and Stomberg, B. (2019). Media coverage of corporate taxes. The Accounting Review, 94(5), 83-116.
Abstract
Managers express growing concern over media coverage of corporate taxes, yet no large-sample empirical study examines this phenomenon. As a first step to fill this void, we identify factors associated with the likelihood and negative tone of media tax coverage and examine firms’ tax avoidance behavior following media tax coverage. We find the likelihood of media tax coverage is greater for firms with GAAP effective tax rates below the top U.S. statutory rate of 35 percent and for firms with greater visibility. The degree of negative tone is increasing in cash tax avoidance and firm size. We also find evidence of more frequent and more negative tax coverage during economic recessions. We find no evidence that firms reduce their tax avoidance following media coverage. Although our analyses are subject to limitations, our results suggest the media may not have the same influence over corporate tax policy as other external stakeholders.
