Corporate Governance, Tax Avoidance, and Financial Constraints

Financial Management, Forthcoming

42 Pages Posted: 28 Dec 2017  

Onur Bayar

University of Texas at San Antonio, College of Business

Fariz Huseynov

North Dakota State University - College of Business

Sabuhi Sardarli

Kansas State University - Department of Finance

Date Written: December 20, 2017

Abstract

We examine how corporate governance affects the relationship between corporate tax avoidance and financial constraints. Conditional on having poor governance, tax avoidance is associated with greater financial constraints and a greater likelihood of financial distress. In firms with strong governance, however, we find that tax avoidance does not have a negative impact on financial constraints. Our results suggest that tax avoidance is a less useful source of financing for constrained firms when they are plagued with potential agency problems and opaque information environments. Stronger governance mechanisms can help firms mitigate the negative consequences of tax avoidance.

Keywords: Tax Avoidance, Financial Constraints, Corporate Governance, Agency Problems

JEL Classification: G30, G33, H25, H26

Suggested Citation

Bayar, Onur and Huseynov, Fariz and Sardarli, Sabuhi, Corporate Governance, Tax Avoidance, and Financial Constraints (December 20, 2017). Financial Management, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3093464

Onur Bayar (Contact Author)

University of Texas at San Antonio, College of Business ( email )

The University of Texas at San Antonio
One UTSA Circle
San Antonio, TX 78249
United States
210-458-6837 (Phone)
210-458-6320 (Fax)

Fariz Huseynov

North Dakota State University - College of Business ( email )

Department of Acctg, Finance & Information Systems
Fargo, ND 58108
United States
+17012315074 (Phone)

Sabuhi Sardarli

Kansas State University - Department of Finance ( email )

Manhattan, KS 66506
United States

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