The Effect of High Quality Information Technology on Corporate Tax Avoidance and Tax Risk

Posted: 26 Jul 2015 Last revised: 30 Aug 2018

See all articles by Russ Hamilton

Russ Hamilton

Southern Methodist University (SMU)

James Stekelberg

Colorado State University, Fort Collins - Department of Accounting

Date Written: May 2, 2016

Abstract

We examine the effect of high quality information technology (IT) on corporate tax outcomes. Using a measure of IT quality constructed from rankings in InformationWeek magazine, we find that firms with high quality IT are able to achieve both lower and less volatile cash effective tax rates than are other firms. These results suggest that firms with high quality IT are able to avoid more taxes while simultaneously incurring less tax risk compared to firms with lesser IT systems. We also perform mediation analyses to investigate the channels through which high quality IT enables effective tax planning. Results of these tests suggest that the most important driver of our findings is timely, reliable information facilitated by high quality IT. Our study contributes to both the IT and tax literatures by identifying and quantifying the returns to investments in IT in terms of more favorable corporate tax outcomes.

Keywords: Information Technology; Business Value of IT; Tax Avoidance; Tax Risk

Suggested Citation

Hamilton, Russ and Stekelberg, James, The Effect of High Quality Information Technology on Corporate Tax Avoidance and Tax Risk (May 2, 2016). Journal of Information Systems 31 (2), 83-106. Available at SSRN: https://ssrn.com/abstract=2635873 or http://dx.doi.org/10.2139/ssrn.2635873

Russ Hamilton

Southern Methodist University (SMU) ( email )

6212 Bishop Blvd.
Dallas, TX 75275
United States

James Stekelberg (Contact Author)

Colorado State University, Fort Collins - Department of Accounting ( email )

256 Rockwell Hall
Fort Collins, CO 80523
United States

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