Real Effects of Tax Uncertainty: Evidence from Firm Capital Investments

67 Pages Posted: 3 Nov 2014 Last revised: 11 Apr 2019

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: April 09, 2019

Abstract

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 firms 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

Jacob, Martin and Wentland, Kelly and Wentland, Scott, Real Effects of Tax Uncertainty: Evidence from Firm Capital Investments (April 09, 2019). 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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