Are Private Firms Really More Tax Aggressive Than Public Firms ?

This paper tests the notion that private firms are more tax aggressive than public firms.
Tax avoidance measures, e.g. effective tax rates, cannot be used to compare private
and public firms when private and public firms have different levels of importance on
financial accounting earnings (Hanlon and Heitzman 2010). To disentangle financial
reporting incentives from tax aggressiveness, I use the fact that European groups must
prepare two sets of financial statements: first, group statements (consolidated), which
provide information to investors, and, second, individual statements (unconsolidated),
which are used for legal purposes, but not to inform investors. Since in individual
statements financial reporting incentives do not vary between public and private firms,
I use these effective tax rates to compare private and public firms. My findings show
that public, not private, firms are more tax aggressive, as the effective tax rates of
public firms are lower in individual and group statements. (author's abstract)