Customer-Supplier Relationships and Corporate Tax Avoidance
University of Toronto - Rotman School of Management
Edward L. Maydew
University of North Carolina at Chapel Hill
City University of Hong Kong
Cornell University - Samuel Curtis Johnson Graduate School of Management
September 12, 2016
Journal of Financial Economics (JFE), Forthcoming
We investigate whether firms in close customer-supplier relationships are better able to identify and implement tax avoidance strategies via supply chains. Consistent with our prediction, we find that both principal customers and their dependent suppliers avoid more taxes than other firms. Further analysis suggests that principal customers and dependent suppliers likely engage in tax strategies involving shifting profits to tax haven subsidiaries. Moreover, tax benefits appear to explain both principal customer firms’ and dependent supplier firms’ organizational decisions. Overall, our study provides evidence of the importance of tax avoidance as a source of gains from these relationships.
Number of Pages in PDF File: 46
Keywords: Tax avoidance, customers, suppliers, industrial organization, supply chain
JEL Classification: H25, H26, L14
Date posted: May 27, 2014 ; Last revised: September 15, 2016
© 2016 Social Science Electronic Publishing, Inc. All Rights Reserved.
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