Real Effects of Tax Uncertainty: Evidence from Firm Capital Investments
50 Pages Posted: 3 Nov 2014 Last revised: 15 Feb 2018
Date Written: February 13, 2018
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: Suggested Citation