Is Tax Avoidance Related to Firm Risk?

Posted: 27 Sep 2012 Last revised: 4 Feb 2016

David A. Guenther

University of Oregon - Department of Accounting

Steven R. Matsunaga

University of Oregon

Brian M. Williams

Indiana University - Kelley School of Business - Department of Accounting

Date Written: January 2016

Abstract

We test whether tax avoidance strategies are associated with greater firm risk. We find that low tax rates tend to be more persistent than high tax rates and that measures of tax avoidance commonly used in the literature are generally not associated with either future tax rate volatility or future overall firm risk. Our evidence suggests that, on average, corporate tax avoidance is accomplished using strategies that are persistent and do not increase firm risk. We also find that the volatility of cash tax rates is associated with future stock volatility, suggesting that tax rate volatility and overall firm risk are related.

Keywords: effective tax rates; tax avoidance; firm risk

JEL Classification: M41

Suggested Citation

Guenther, David A. and Matsunaga, Steven R. and Williams, Brian M., Is Tax Avoidance Related to Firm Risk? (January 2016). Accounting Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2153187 or http://dx.doi.org/10.2139/ssrn.2153187

David A. Guenther

University of Oregon - Department of Accounting ( email )

Lundquist College of Business
1208 University of Oregon
Eugene, OR 97403
United States
541-346-5384 (Phone)

Steven R. Matsunaga (Contact Author)

University of Oregon ( email )

1280 University of Oregon
Eugene, OR 97403
United States

Brian M. Williams

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

Paper statistics

Abstract Views
4,790