Study reveals sharing tax numbers enhances transparency for investors, dated July 7, 2026

A study conducted by North Carolina State University on July 7, 2026, reveals that publicly traded companies that disclose tax numbers enhance transparency for investors. This finding stands in contrast to previous studies that suggested excessive numerical data could confuse investors.

Increased Transparency from Tax Disclosures

According to Carly Burd, the study's author and assistant professor of accounting, focusing on tax-related numbers can significantly improve clarity for investors. Burd states, "Previous work found that when a company includes more numbers in its annual report financial statement, the statement becomes so complex that investors find it difficult to process." By narrowing the focus to tax numbers, the study indicates that these disclosures actually aid in investor understanding.

The analysis utilized eXtensible Business Reporting Language (XBRL), a machine-readable format that tags numeric items in financial statements. Burd examined 7,944 annual reports from 2,099 companies spanning from 2012 to 2019. This allowed her to assess the tax-related numbers across various financial statements effectively.

Key Findings on Tax Numbers and Investor Confidence

One of the study's significant findings is that the inclusion of more tax numbers correlates with greater transparency. Burd explains, "One key finding was that the more tax numbers there were in a financial statement, the more transparent the firm was," which in turn enables analysts to forecast a company's effective tax rate more accurately.

Interestingly, most of these tax numbers were found in footnotes rather than the main body of financial statements. The analysis also explored the impact of narrative descriptions in financial disclosures, concluding that while these narratives do not reduce transparency, they do not enhance it either.

Trade-offs in Transparency and IRS Scrutiny

Despite the benefits of increased transparency, Burd notes potential trade-offs. She found that financial statements rich in tax numbers attracted more attention from the IRS. "I found that the more tax numbers included in a financial statement, the more attention the statement drew from the IRS," Burd stated. This suggests that while transparency may benefit investor understanding, it could lead to increased scrutiny from tax authorities.

The overall takeaway from Burd's research is that standardized, comparable tax numbers are valuable for enhancing investor transparency, countering previous notions that too many numerical disclosures lead to confusion.

The study, titled "Tax Numbers and ETR Forecasting," is published in the Review of Accounting Studies.