Are Reputational Costs a Determinant of Tax Avoidance?

Posted: 14 Feb 2013 Last revised: 2 Nov 2016

See all articles by Chelsea Rae Austin

Chelsea Rae Austin

University of South Carolina

Ryan J. Wilson

University of Oregon

Date Written: January 9, 2015

Abstract

We expect firms with the greatest exposure to reputational damage among consumers will engage in lower levels of tax avoidance to minimize unwanted scrutiny that could impair the firms’ reputation. We identify a set of firms with valuable consumer reputation using Harris Interactive’s EquiTrend survey, which surveys consumers about their perceptions of valuable and prominent brands. We find mixed evidence in support of our hypothesis that firms with valuable brands will engage in less tax avoidance. Specifically, we find firms with valuable consumer brands exhibit higher effective tax rates and industry adjusted cash effective tax rates than a set of matched control firms. We also find firms with valuable consumer brands are less likely to report effective tax rates below salient cutoff points (30, 25, 20 and 10 percent). However, we find no evidence firms with valuable brands are less likely to operate in a tax haven.

Keywords: Tax Avoidance, Reputation, Brand Equity

Suggested Citation

Austin, Chelsea Rae and Wilson, Ryan J., Are Reputational Costs a Determinant of Tax Avoidance? (January 9, 2015). 2013 American Taxation Association Midyear Meeting: Tax Avoidance in an International Setting, Available at SSRN: https://ssrn.com/abstract=2216879 or http://dx.doi.org/10.2139/ssrn.2216879

Chelsea Rae Austin (Contact Author)

University of South Carolina ( email )

The Francis M. Hipp Building
1705 College Street
Columbia, SC 29208
United States

Ryan J. Wilson

University of Oregon ( email )

1280 University of Oregon
Eugene, OR 97403
United States

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