Corporate Tax Avoidance: Data Truncation and Loss Firms

49 Pages Posted: 24 Sep 2013 Last revised: 8 Jun 2018

See all articles by Erin Henry

Erin Henry

University of Memphis

Richard C. Sansing

Tuck School of Business at Dartmouth

Date Written: May 29, 2018


Loss firms are an economically significant and growing segment of the population of publicly traded corporations. Relatively little is known about the tax positions of loss firms because they are typically dropped from tax avoidance studies. We develop a new measure of corporate cash tax avoidance that is meaningful for all observations and reflects the extent to which a firm is tax-favored. We examine the extent to which inferences about corporate tax avoidance over the past twenty-seven years change when we examine the full population of firms, as opposed to a profitable and/or taxable subsample. In contrast to prior research findings, our results suggest that on average firms are tax-disfavored, by which we mean cash taxes paid exceed the product of the firm’s pre-tax book income and the statutory tax rate. In addition, many industries that appear to be tax-favored in profitable subsamples are tax-disfavored when examining the entire population. We also find that the extent to which firms are tax-disfavored is increasing over time and domestic firms are more tax-disfavored than multinationals.

Keywords: Cash effective tax rate, truncation bias, tax avoidance, scaling

JEL Classification: H25, M41

Suggested Citation

Henry, Erin and Sansing, Richard C., Corporate Tax Avoidance: Data Truncation and Loss Firms (May 29, 2018). Review of Accounting Studies, Forthcoming. Available at SSRN: or

Erin Henry

University of Memphis ( email )

Memphis, TN
United States
9012403746 (Phone)

Richard C. Sansing (Contact Author)

Tuck School of Business at Dartmouth ( email )

100 Tuck Hall
Hanover, NH 03755
United States
603-646-0392 (Phone)
603-646-1308 (Fax)

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