The Effectiveness and Valuation of Political Tax Minimization

45 Pages Posted: 1 Aug 2013

See all articles by Matthew D. Hill

Matthew D. Hill

Arkansas State University

Thomas R. Kubick

University of Nebraska-Lincoln

G. Brandon Lockhart

Clemson University - Department of Finance

Huishan Wan

University of Iowa - Department of Accounting

Date Written: March 18, 2013

Abstract

We find evidence suggesting that corporate lobbying for tax purposes over the period 1999-2009 is one method by which firms managed corporate taxes. Furthermore, tax management strategies employed by these politically active firms were valued by shareholders. Firms lobbying on tax issues have lower book effective taxes and greater discretionary permanent differences in GAAP and IRS taxable income. Investors place a premium on lobbying activities for tax purposes unless the firm already has a low effective tax rate or very high book-tax differences. We conclude that lobbying political officials is one method by which firms manage risks attendant an aggressive tax strategy.

Keywords: Tax avoidance, tax aggressiveness, book-tax differences, corporate lobbying

JEL Classification: G38, H26

Suggested Citation

Hill, Matthew D. and Kubick, Thomas R. and Lockhart, G. Brandon and Wan, Huishan, The Effectiveness and Valuation of Political Tax Minimization (March 18, 2013). Journal of Banking and Finance, Vol. 37, 2013, Available at SSRN: https://ssrn.com/abstract=2303930

Matthew D. Hill

Arkansas State University ( email )

2713 Pawnee
P.O. Box 1750
Jonesboro, AR 72467-115
United States

Thomas R. Kubick (Contact Author)

University of Nebraska-Lincoln ( email )

307 College of Business Administration
Lincoln, NE 68588-0488
United States

G. Brandon Lockhart

Clemson University - Department of Finance ( email )

Clemson, SC 29634
United States

Huishan Wan

University of Iowa - Department of Accounting ( email )

108 Pappajohn Business Building
Iowa City, IA 52242-1000
United States

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