Legal Environment and Corporate Tax Avoidance: Evidence from State Tax Codes

57 Pages Posted: 19 Jun 2019

See all articles by Mark (Shuai) Ma

Mark (Shuai) Ma

University of Pittsburgh - Accounting Group

Wayne B. Thomas

University of Oklahoma

Date Written: June 13, 2019

Abstract

This study examines the effect of legal environment on corporate state income tax avoidance. We find that the extent of penalties on corporate officers reduces state tax avoidance. However, we find no evidence that the extent of penalties on shareholders reduces state tax avoidance. Thus, the legal environment faced by managers has a greater deterrent effect on tax avoidance than does the legal environment faced by shareholders. Only when managerial ownership is high do we find evidence that shareholder penalties affect corporate tax avoidance behavior. Our study contributes to the literature on agency problems related to corporate tax reporting.

Keywords: Agency Costs, Legal Environment, Legal Penalties, Tax Avoidance

Suggested Citation

Ma, Mark (Shuai) and Thomas, Wayne B., Legal Environment and Corporate Tax Avoidance: Evidence from State Tax Codes (June 13, 2019). Available at SSRN: https://ssrn.com/abstract=3403842 or http://dx.doi.org/10.2139/ssrn.3403842

Mark (Shuai) Ma (Contact Author)

University of Pittsburgh - Accounting Group ( email )

United States

Wayne B. Thomas

University of Oklahoma ( email )

Michael F. Price College of Business,
307 W Brooks, Rm 212B
Norman, OK 73019
United States
405-325-5789 (Phone)
405-325-7348 (Fax)

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