The Usefulness of Selective Tax Return Disclosure: Evidence from Form 5500

We examine whether and why tax returns can provide decision-relevant information to equity investors. Specifically, we examine whether information regarding defined-benefit pension plans contained in a publicly disclosed tax form, Form 5500, is useful to equity investors. Using intra-day returns and disclosure times obtained through a Freedom of Information Act request, we find that markets quickly react to Form 5500 information regarding pension funding and expenses. We also provide evidence that Form 5500 information is more strongly associated with market value and future cash contributions than comparable financial statement information. Further, although GAAP does not require firms to disaggregate the pension liability, we find evidence that the market values the components of the Form 5500 liability attributable to retired and terminated employees differently than the liability attributable to current employees. This paper documents that tax returns contain unique information content that investors can and do use, and contributes to the policy debate over whether corporate tax returns should be publicly disclosed