Do Investors Differentially Value Tax Avoidance of Income Mobile Firms?

42 Pages Posted: 10 Jul 2012

See all articles by Lisa De Simone

Lisa De Simone

Stanford Graduate School of Business

Bridget Stomberg

Indiana University - Kelley School of Business

Date Written: July 9, 2012

Abstract

We provide evidence that tax avoidance is positively associated with firm value, and that the association is greater for income mobile firms. We classify firms with the ability to tax-efficiently structure global operations as "income mobile." The tax minimization strategies available to these firms are, on average, more long-term and sustainable than those available to other firms. As such, we predict and find that tax avoidance is more positively associated with firm value for income mobile firms. These findings suggest that investors recognize and value long-term, sustainable tax avoidance. We also investigate whether this association weakens after 2006, a period characterized by increased worldwide scrutiny and enhanced financial statement disclosures of tax avoidance. We find that income mobile tax avoidance is less positively valued after 2006. This suggests that investors recognize the increased risk associated with income mobile tax planning in recent years.

Suggested Citation

De Simone, Lisa and Stomberg, Bridget, Do Investors Differentially Value Tax Avoidance of Income Mobile Firms? (July 9, 2012). Available at SSRN: https://ssrn.com/abstract=2102903 or http://dx.doi.org/10.2139/ssrn.2102903

Lisa De Simone (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-723-3874 (Phone)
650-724-3083 (Fax)

HOME PAGE: http://www.gsb.stanford.edu/faculty-research/faculty/lisa-de-simone

Bridget Stomberg

Indiana University - Kelley School of Business ( email )

1309 East Tenth Street
Indianapolis, IN 47405-1701
United States

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