Is Tax Avoidance Related to Firm Risk?
Posted: 27 Sep 2012 Last revised: 4 Feb 2016
Date Written: January 2016
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: Suggested Citation