Abstract

http://ssrn.com/abstract=2330024
 


 



Risky High Effective Tax Rate Firms


Daniel Saavedra


Massachusetts Institute of Technology (MIT) - Sloan School of Management

May 31, 2014


Abstract:     
This study investigates whether high effective tax rate firms can be (1) exposed to significant tax-related risks and (2) faced with a tax-related risk premium when raising funds from external capital providers. First, I provide evidence that firms with high effective tax rates can have very risky tax-related cash flows. Moreover, disclosures suggest that these firms have risky tax-related cash flows in part due to aggressive tax deferral strategies, settlements with tax authorities, and, to a lesser extent, large repatriations of foreign earnings. Second, I find that lenders penalize these “risky high effective tax rate” firms with higher loan spreads, restrictions to pay out dividends, and collateral requirements (relative to firms that do not fall into this classification). Overall, this study contributes to the literature by providing initial evidence about the tax behavior of high effective tax rate firms.

Number of Pages in PDF File: 48

Keywords: Risky High ETR Firms, Tax Risk, Tax Avoidance, Disclosures, Debt Contracting

JEL Classification: G21, G28, G32, H25, H32

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Date posted: September 25, 2013 ; Last revised: June 1, 2014

Suggested Citation

Saavedra, Daniel, Risky High Effective Tax Rate Firms (May 31, 2014). Available at SSRN: http://ssrn.com/abstract=2330024 or http://dx.doi.org/10.2139/ssrn.2330024

Contact Information

Daniel Saavedra (Contact Author)
Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )
77 Massachusetts Ave.
E62-416
Cambridge, MA 02142
United States
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