DUFE • Accounting and Finance Forum (Issue 23, 2023): Novia Xi Chen

Topic: The Effects of Tax Clientele on Disclosure: Evidence from the Municipal Bond Market

Speaker: Novia Xi Chen

Date & Time: 08:00-09:30 Friday, November 3, 2023

Venue: Tencent Meeting (ID: 425 229 980)

Organizers: School of Accounting, Dongbei University of Finance and Economics, P.R. China & Liaoning Capital Market Finance and Accounting Graduate Innovation and Academic Exchange Center & Tax Accounting Research Center, School of Accounting, Dongbei University of Finance and Economics



In stark contrast to the disclosure environment for publicly traded equities, the disclosure environment for municipal bonds has been widely criticized for its lack of transparency. Prior research has largely attributed the deficiencies in continuing disclosures from municipal bond issuers to a lack of disclosure regulation and weak enforcement. This study proposes the tax clientele effect as another possible explanation and examines whether the taxability of municipal bond is associated with issuers’ disclosure practices. While individual investors form a primary tax clientele for tax-exempt municipal bonds, taxable municipal bonds are more likely to attract institutional investors, who generally have more incentives to demand and monitor disclosure. Our analyses suggest that issuers provide more continuing disclosures in years with taxable bonds outstanding relative to years without. We also find that issuers provide more continuing disclosures in years when they issue a new taxable bond, and especially following the issuance of their first taxable bond. Given that tax-exempt bonds constitute the majority of municipal bonds outstanding, our findings suggest that the lack of disclosure in the municipal bond market may be partially attributable to a tax clientele effect. Our analyses can inform regulators debating an increase in disclosure requirements for the municipal bond market and policy makers examining the externalities of the tax-exempt status afforded to municipal bonds.


Introduction of Speaker:

Novia Xi Chen, Associate Professor of Accounting at the C. T. Bauer College of Business at the University of Houston, holds a PhD from the University of California, Irvine, a Master Degree from Michigan State University, and a Bachelor Degree in Business Administration from Renmin University of China. She joined the Bauer College of Business in 2015 and teaches corporate tax courses in the MSACCY and CAP programs. Her research focuses on the multidisciplinary field of taxation and financial accounting, including (1) income transfer and foreign cash holdings of U.S. multinational corporations, (2) factors influencing corporate tax avoidance, and (3) financial reporting and disclosure on income tax. Her research results have been published in top international journals such as The Accounting Review, Review of Accounting Studies, Contemporary Accounting Research, and Management Science. Professor Chen has received numerous awards for her teaching, including the Distinguished Teaching Award of Lucile and Leroy Melcher and the Distinguished Teaching Award for Department of Accounting and Taxation.


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