Determinants and Consequences of Nonproprietary Voluntary Disclosure

We examine a voluntary disclosure that is nonproprietary in nature and simply reflects management’s intention to explain how a widely-known nonrecurring economic event is reported in financial statements. The American Taxpayer Relief Act of 2012 (ATRA) retroactively reinstated previously expired tax provisions, including a tax credit for research and development expenditures. Nuances in GAAP reporting requirements related to retroactive tax legislation create a unique setting to examine voluntary disclosure choices by credibly separating the message of the disclosure from the underlying economics. We use tax disclosures in the 10-K filing to examine the determinants and consequences of nonproprietary disclosure. We find support that analyst following, engaging a Big 4 auditor, and competition increase the likelihood of voluntary disclosure. We also find evidence that suggests that some of the non-disclosing firms failed to adhere to GAAP and improperly recorded the benefits of the ATRA in their 2012 financial statements. Finally, we find that ATRA disclosures are useful to investors as firms disclosing the impact of the ATRA, compared to non-disclosing control firms, have greater first quarter 2013 analyst ETR forecast improvement. We also find that ATRA disclosure is positively associated with firm liquidity at the time of the disclosure event.