Behavioral Research in Tax

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Behavioral Research in Tax

• Anne M. Magro
• Visiting Associate Professor
• University of Texas - Austin

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Why behavioral research?

• All accounting research is about behavior
• Archival research
• Reaction of markets to accounting information
• Accounting choice
• Corporate governance
• Audit quality
• Analytical research
• Models of behavior
• Behavioral research
• Taxpayer behavior
• Tax professional behavior
• Behavior of users of tax information

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Types of tax professional decisions

• Client portfolio decisions
• Tax research
• Issue identification
• Information search
• Authority evaluation
• Documentation
• Risk assessments
• Tax planning/compliance
• Develop transaction structures
• Form recommendations
• Communicate with clients and firm members
• Client negotiations
• Fin 48 evaluations
• Reviewing subordinate work products
• Staff development
• Performance review
• Group/hierarchical team decision making

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What are behavioral methods?

• Naturalistic observation
• Field studies
• Case studies
• Laboratory observation
• Experimental markets
• Laboratory experiments

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Why experiments?

• Strengths of experiments
• Ability to test theory
• Ability to infer causation
• Ability to explain rather than describe relations
• Ability to conduct timely tests
• Ability to consider institutions that do not
  exist
• We test theory because theory can be generalized!

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Conducting/evaluating experimental research

• Before you collect data
• Motivation and Theory
• Research Question
• Motivation/Contribution
• Theory
• Hypotheses
• Experimental design

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Conducting/evaluating experimental research

• Before you collect data
• Experimental design
• Control
• internal validity
• external validity
• Independent and dependent variables
• Participants
• When should we review experimental work?

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Conducting/evaluating experimental research

• Before you collect data
• Administration
• Institutional Review Board
• Subject recruitment
• Informed consent
• Offering inducements
• Deception in research
• Debriefing subjects

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Conducting/evaluating experimental research

• Collecting data
• Paper and pencil tasks
• Computer-based tasks
• After you collect data
• Analyses
• Inferences/conclusions

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Magro 2005 (an example)

• General area of interest Expertise in tax
• WAY TOO BIG!!!

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Magro 2005 (an example)

• General topic Expertise in tax
• Broad RQ What is expertise in tax research?
• STILL WAY TOO BIG!!

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Magro 2005 (an example)

• General topic Expertise in tax
• Broad RQ What is expertise in tax research?
• Less broad RQ What is relation of information
  search process to performance in tax research?
• GETTING CLOSER!!

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Magro 2005 (an example)

• Specific RQs
• How do features of the decision setting affect
  appropriate information search strategies?
• What is the relation between institutional
  knowledge and adaptivity in information search?
• What is the relation between institutional
  knowledge, information search adaptivity, and
  performance in tax research?
• FINALLY THERE!

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Magro 2005 (an example)

• Theory Combination of
• Borrowing
• Adaptive Decision Maker framework (Payne,
  Bettman and Johnson 1988)
• Bottom-up theory development
• Contextual features of tax decision making
  (Magro 1999).

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Magro 2005 (an example)

• H1 Tax professionals who know (do not know)
  that the planning context is characterized by
  greater ambiguity and complexity than is the
  compliance context will (will not) conduct
  broader information search in planning than in
  compliance.
• H2 Tax professionals who know (do not know)
  that the planning context is characterized by
  greater justifiability demands than is the
  compliance context will (will not) conduct
  broader and more extensive information search in
  planning than in compliance.
• H3 Tax research performance increases with
  information search adaptivity.
• H4 The effects of institutional knowledge of
  ambiguity, complexity, and justifiability demands
  differences across planning and compliance
  contexts on tax research performance is mediated
  by information search adaptivity.

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Magro 2005 (an example)

• Design
• Some issues to consider
• How do you measure institutional knowledge?
• What kind of design allows you to test for
  adaptivity? Within vs. between-subject?
• How do you manipulate contextual differences in a
  within subject design?
• How do you measure extent and breadth of search?
• How do you measure performance?
• Who are appropriate participants?
• What database?

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Magro 2005 (an example)

• Design choices I made
• Independent variables
• Knowledge
• Context
• Adaptivity
• Dependent measures
• Extent
• Breadth
• Performance
• Task

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Magro 2005 (an example)

• Analysis
• Combination of methods
• Repeated measures MANOVA
• Repeated measures ANOVA
• Regression
• Mediation analysis

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Magro 2005 (an example)

• Inferences/conclusions
• Tax professionals respond to features of the
  setting when they possess requisite institutional
  knowledge.
• Institutional knowledge is related to performance
  in the tax research task.
• Information search adaptivity fully mediates the
  relation between knowledge and performance.

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Magro 2005 (an example)

• Contributions
• Show that task, context and individual features
  combine to drive info search strategies
• A detailed analysis is necessary to predict when
  and how DMs will adapt.
• Identify importance of institutional knowledge to
  decision making process and performance.
• Identify info search adaptivity as a component of
  performance that explains 30 of its variation.

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Why experiments?

• A properly conducted experiment is a beautiful
  thing. It is an adventure, an expedition, a
  conquest. It commences with an act of faith -
  faith that the world is real, that our senses
  generally can be trusted, that effects have
  causes, and that we can discover meaning by
  reason.
• Vincent Dethier
• To Know a Fly (1962)