Abstract

http://ssrn.com/abstract=2310175
 
 

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Investment Opportunity Sets, Operating Uncertainty, and Capital Market Pressure: Determinants of Investments in Tax Shelter Activities?


Sean T. McGuire


Texas A&M University - Department of Accounting

Thomas C. Omer


University of Nebraska at Lincoln - School of Accountancy

Jaron H. Wilde


University of Iowa - Henry B. Tippie College of Business

August 2013

Journal of American Taxation Association, Forthcoming

Abstract:     
Prior research documents substantial variation in firms’ tax avoidance activities and questions why some firms choose not to take advantage of the apparent benefits of tax planning (i.e., the "undersheltering puzzle"). We provide additional insight into the undersheltering puzzle by investigating the decision to invest in a tax shelter from the perspective of a firm’s overall investment strategy. We examine whether three factors associated with traditional investment behavior (firms’ investment opportunity sets, operating uncertainty, and capital market pressure) are also associated with investments in tax shelter activities. Our results suggest that firms with large investment opportunity sets and higher operating uncertainty are less likely to invest in tax shelters. We also find that firms with greater capital market pressure are more likely to invest in tax shelter activities. Overall, we find that factors that influence firms’ investment behavior help to explain why more firms do not invest in tax shelters.

Keywords: tax shelter, investment opportunity set, operating uncertainty, capital market pressure

JEL Classification: H25, H26, M41

Accepted Paper Series


Not Available For Download

Date posted: August 15, 2013  

Suggested Citation

McGuire, Sean T. and Omer, Thomas C. and Wilde, Jaron H., Investment Opportunity Sets, Operating Uncertainty, and Capital Market Pressure: Determinants of Investments in Tax Shelter Activities? (August 2013). Journal of American Taxation Association, Forthcoming. Available at SSRN: http://ssrn.com/abstract=2310175

Contact Information

Sean T. McGuire (Contact Author)
Texas A&M University - Department of Accounting ( email )
430 Wehner
College Station, TX 77843-4353
United States
Thomas C. Omer
University of Nebraska at Lincoln - School of Accountancy ( email )
307 College of Business Administration
Lincoln, NE 68588-0488
United States
Jaron H. Wilde
University of Iowa - Henry B. Tippie College of Business ( email )
108 Pappajohn Business Building
Iowa City, IA 52242-1000
United States
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