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<p>Unrecognized tax benefits (UTBs) reflect management’s estimate of the future income tax cash outflows from audits of the entity’s tax positions. Extant studies document that this contingent liability is surprisingly priced positively. The factors that drive the market effects are not well-known. Recently, the SEC required financial statements to be filed in eXtensible Business Reporting Language (XBRL) as well as in ordinary language to facilitate access to, and analysis of firms’ financial statements. Views are, however, mixed on whether and how investors utilize the XBRL-rendered financial reports. In one respect, XBRL tags are viewed as conveying the complexity of a firm’s financial statements; in another respect, they are viewed as improving a firm’s information environment. Based on these alternative views, we test whether and in what direction the XBRL tax tags affect the valuation of UTBs. We find that the market value of UTBs is positively associated with the tax tags. Notably, the positive market effect is driven by the standard tax tags, whereas the custom tax tags attenuate the market effect. Additionally, the effects of the tax tags are more pronounced for large firms.</p>

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XBRL tax reporting and the valuation of unrecognized tax benefits

  • 期刊论文

  • 出版模式：

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  • 发表日期：

    2026年2月26日

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  • Junnan Cui,
  • Rachana Kalelkar,
  • Shiyou Li,
  • Emeka Nwaeze

摘要

Unrecognized tax benefits (UTBs) reflect management’s estimate of the future income tax cash outflows from audits of the entity’s tax positions. Extant studies document that this contingent liability is surprisingly priced positively. The factors that drive the market effects are not well-known. Recently, the SEC required financial statements to be filed in eXtensible Business Reporting Language (XBRL) as well as in ordinary language to facilitate access to, and analysis of firms’ financial statements. Views are, however, mixed on whether and how investors utilize the XBRL-rendered financial reports. In one respect, XBRL tags are viewed as conveying the complexity of a firm’s financial statements; in another respect, they are viewed as improving a firm’s information environment. Based on these alternative views, we test whether and in what direction the XBRL tax tags affect the valuation of UTBs. We find that the market value of UTBs is positively associated with the tax tags. Notably, the positive market effect is driven by the standard tax tags, whereas the custom tax tags attenuate the market effect. Additionally, the effects of the tax tags are more pronounced for large firms.