Investor Reactions to a Voluntary Tax-related Sustainability Reporting Standard: Evidence from GRI 207: Tax

Abstract

We investigate the capital market reaction to events leading up to the introduction of the first standard for tax-related sustainability reporting, Global Reporting Initiative (GRI) 207. GRI is the dominant standard for sustainability reporting, which is voluntarily adopted by GRI reporting firms. Utilizing event study methodology, we document significant negative average cumulative abnormal returns (CAR) surrounding GRI 207 introduction events for a sample of GRI-reporting firms. We interpret this result as evidence that investors perceive the costs of tax transparency under the new standard to be greater than the benefits. Cross-sectional results suggest investors perceive that GRI 207 provides new information beyond existing country-by-country reporting requirements and that costs will be higher when tax is a material topic. Qualitative interviews supplement our empirical analyses and provide context for our results.