Abstract

http://ssrn.com/abstract=2374016
 


 



Investor Valuation of Tax Avoidance and the Uncertainty of Tax Outcomes: Evidence from the Pre- and Post-FIN 48 Periods


Katharine D. Drake


University of Arizona - Department of Accounting

Stephen J. Lusch


University of Arizona - Department of Accounting

James Stekelberg


University of Arizona - Department of Accounting

March 26, 2014


Abstract:     
We examine whether investor valuation of both cash and GAAP tax avoidance is contingent upon the level of uncertainty in the tax outcomes of the strategies employed by the firm. Additionally, we test whether the valuation of tax avoidance and tax uncertainty changes from the pre- to post-FIN 48 periods with new disclosures related to uncertain tax positions. Our results suggest that investors generally positively value tax avoidance; however, higher tax uncertainty moderates this relationship. Further, in the post-FIN 48 period we find that information regarding uncertain tax positions is informative to investors and is used for valuation beyond the information previously available about tax avoidance and tax uncertainty in the financial statements. The results of our study suggest that tax avoidance and the uncertainty of tax outcomes are not independent and should be considered jointly rather than in isolation.

Number of Pages in PDF File: 54

Keywords: corporate tax avoidance, tax risk, uncertain tax positions, firm valuation

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Date posted: January 3, 2014 ; Last revised: March 27, 2014

Suggested Citation

Drake, Katharine D. and Lusch, Stephen J. and Stekelberg, James, Investor Valuation of Tax Avoidance and the Uncertainty of Tax Outcomes: Evidence from the Pre- and Post-FIN 48 Periods (March 26, 2014). Available at SSRN: http://ssrn.com/abstract=2374016 or http://dx.doi.org/10.2139/ssrn.2374016

Contact Information

Katharine D. Drake
University of Arizona - Department of Accounting ( email )
Tucson, AZ 85721
United States
Stephen J. Lusch
University of Arizona - Department of Accounting ( email )
Tucson, AZ 85721
United States
James Stekelberg (Contact Author)
University of Arizona - Department of Accounting ( email )
Tucson, AZ 85721
United States
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