Real Effects of Tax Uncertainty: Evidence from Firm Capital Investments

50 Pages Posted: 3 Nov 2014 Last revised: 15 Feb 2018

See all articles by Martin Jacob

Martin Jacob

WHU - Otto Beisheim School of Management

Kelly Wentland

George Mason University - Department of Accounting

Scott Wentland

Bureau of Economic Analysis (BEA)

Date Written: February 13, 2018

Abstract

This paper examines whether there is evidence that tax uncertainty related to current and prior tax positions influences key firm decisions, namely firm decisions regarding capital investments. We find that, on average, firms facing greater tax uncertainty are more likely to delay large capital investments and that the annual capital expenditures made by these firms are lower than that of firms facing less tax uncertainty. As part of our identification strategy, we exploit the staggered implementation of a discrete policy change (Schedule UTP) expected to increase uncertainty attached to current and prior tax positions, and we employ cross-sectional tests to address alternative explanations for our primary results, such as general firm risk, agency issues, and reverse causality.

Keywords: capital investment, intermittent investment, tax uncertainty, corporate saving, Schedule UTP, FIN 48

JEL Classification: D81, G11, H25

Suggested Citation

Jacob, Martin and Wentland, Kelly and Wentland, Scott, Real Effects of Tax Uncertainty: Evidence from Firm Capital Investments (February 13, 2018). Available at SSRN: https://ssrn.com/abstract=2518243 or http://dx.doi.org/10.2139/ssrn.2518243

Martin Jacob

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
D-56179 Vallendar, 56179
Germany

HOME PAGE: http://www.whu.edu/steuer

Kelly Wentland (Contact Author)

George Mason University - Department of Accounting

Fairfax, VA
United States

Scott Wentland

Bureau of Economic Analysis (BEA) ( email )

1441 L Street NW
Washington, DC 20910
United States

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