The Corrosive Effect of Offshore Financial Centers on Multinational Firms’ Disclosure Strategy

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

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Original languageEnglish
Pages (from-to)483-512
Journal / PublicationEuropean Accounting Review
Issue number3
Online published19 Jul 2018
Publication statusPublished - Jul 2019
Externally publishedYes


This study investigates whether U.S. multinational firms with subsidiaries located in offshore financial centers (OFCs) (i.e. offshore firms) are more likely to be opaque in their voluntary disclosure relative to U.S. multinationals without such subsidiaries (non-offshore firms). We use management earnings forecasts to capture corporate voluntary disclosure. Consistent with the opportunism view, but inconsistent with the efficiency argument, our results (including robustness checks) show that offshore firms are less likely to issue earnings forecasts, disclose forecasts less frequently, exhibit a stronger tendency to withhold bad news forecasts, and release less precise forecasts than non-offshore firms. Moreover, of the three distinct dimensions of OFCs’ institutional environment, namely, low taxation, lax regulation, and secrecy policy, each plays a role in negatively shaping firms’ disclosure strategy. Thus, OFCs’ institutional features exacerbate the opacity that plagues firms seeking to avoid taxes via their OFC subsidiaries. Our results are consistent with the notion that, beyond the scope of taxes, multinational firms’ use of OFCs has a corrosive effect on market information dynamics. Hence, OFCs have a much wider impact on the U.S. economy as well as other major economies than just tax avoidance or evasion.

Research Area(s)

  • Offshore financial centers, Management earnings forecasts, Voluntary disclosure, Tax avoidance, Secrecy policies, Regulation arbitrage