Date of Award


Degree Type


Degree Name

Master of Philosophy (MPHIL)





First Advisor

Prof. SHAFER William Eugene


This study examines investor reactions to disclosures of corporate tax evasion by company management and the media. We were particularly interested in the issue of whether investors value corporate tax compliance from a moral perspective. We conducted an experiment in which we manipulate management disclosure strategies (no disclosure, symbolic disclosure, substantive disclosure) and the presence/absence of media disclosures in a 3 x 2 between-subjects design. Participants provided judgments of a hypothetical company’s short-term and long-term financial prospects and their willingness to maintain their investment in the company.

Media disclosure of tax evasion had a significant effect on all judgments. In addition, for all judgments there was a significant interactive effect of management disclosure strategy and media disclosure. This interaction was driven by the particularly strong negative effects of media disclosure when management made no disclosure of the evasion (the “caught off guard” effect). In contrast, analysis of simple effects indicated that if management proactively discloses instances of tax evasion, subsequent disclosure by the media has no significant effect on investor judgments. We also document that, relative to a control group, management disclosure of facts regarding a tax evasion event (in the absence of media disclosure) significantly reduces investor assessments of the short-term prospects of the company and their willingness to hold the company’s stock. However, management disclosure of facts regarding tax evasion had no significant impact on investor assessments of the company’s long-term prospects. Although recent research on environmental, social and governance disclosures has documented that the specific form of management legitimation strategies (symbolic vs. substantive) has significant impacts on investor judgments, we found no evidence of such effects in our study. Supplemental analysis revealed that the perceived morality of management mediated the effects of media disclosures on investor judgments.

Based on the findings we draw several conclusions. Though corporate management may be tempted to omit disclosure of tax evasion events from the financial statements, they are likely to pay a high price if the evasion is later reported by independent third parties. This appears to reflect investor reactions to management breaches of their expectations regarding moral behavior. In contrast, proactive management disclosure of the facts surrounding tax evasion events attenuates the negative effects of future media disclosures. Management disclosure of facts regarding tax evasion appears to be viewed primarily as a short-term rather than a long-term threat to a company’s prospects. Given knowledge that tax evasion has occurred, investors place little credence in management attempts to legitimize the evasion, even when such legitimation efforts describe detailed and concrete remediation strategies. Finally, investor perceptions of the morality of company management (including management commitment to ethics/integrity and corporate social responsibility) play a key role in their reactions to corporate tax evasion.


tax evasion, media disclosure, management disclosure, legitimation strategies, investor judgments



Recommended Citation

Chua, M. W. G. (2021). Effects of management and media disclosures of corporate tax evasion on investor judgments (Master's thesis, Lingnan University, Hong Kong). Retrieved from

Included in

Taxation Commons