The geographic presence of a U.S. firm is surprisingly difficult to measure, relying primarily on publicly disclosed information in financial statements. We develop a text-based measure of multinationality that overcomes many limitations of prior research. We document that our text-based measure improves the measurement of multinational status beyond conventional methods by between 15 and 50%; as of the most recent year, our measure identifies more than 10,000 U.S. firm-years as having a foreign presence that prior methods would have identified as domestic-only. To demonstrate the power of the measure and to weigh in on mixed prior findings, we apply the text-based measure of multinationality to the tax avoidance setting. We find that, consistent with prior research, multinationals avoid less tax than U.S. domestics. However, the gap between them is much smaller than previously documented. We also use the richness of our measure to investigate how the extent and type of multinationality drives tax avoidance. We conclude by investigating how the TCJA affected multinationality and the relationship between multinationality and tax avoidance.
| Speaker: | Dr Jake Thornock Professor of Accounting and John and Nancy Hardy Chaired Professor, Brigham Young University |
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