Real Effects of Tax Uncertainty: Evidence from Firm Capital Investments
59 Pages Posted: 3 Nov 2014 Last revised: 7 Aug 2019
Date Written: August 6, 2019
This paper examines whether tax uncertainty alters key firm investment decisions, namely the timing of large investments and the level of capital expenditures. We exploit the staggered implementation of a discrete policy change (Schedule UTP) expected to increase tax uncertainty, finding that, on average, firms facing relatively higher tax uncertainty delayed large capital investments and had lower annual capital expenditures. Further, this result is consistent with more general cross-sectional associations between firm-level proxies for tax uncertainty and these investment outcomes. Consistent with managers sidelining cash to buffer against additional tax uncertainty, this association is more pronounced among financially constrained firms.
Keywords: capital investment, intermittent investment, tax uncertainty, corporate saving, Schedule UTP, FIN 48
JEL Classification: D81, G11, H25
Suggested Citation: Suggested Citation