Asset Redeployability and Corporate Tax Avoidance
36 Pages Posted: 19 Feb 2019
Date Written: December 17, 2018
We find that firms with more asset redeployability, which is defined as the extent to which the assets have greater alternative uses outside the firm, have higher cash effective tax rates. Firms with more redeployable assets also reduce their engagement in other aggressive forms of tax avoidance including long-term tax planning or tax shelters. The negative effect of asset redeployability on tax avoidance is more pronounced for firms with greater financial constraints or with stronger internal and external corporate governance. Overall, our findings suggest that redeploying assets affect firm liquidation values and external financing frictions, which in turn induces precautionary motives of tax avoidance.
Keywords: Asset redeployability; tax avoidance; financial constraints
JEL Classification: G12, G14, G31, G32
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