Tax Knowledge Diffusion via Strategic Alliances

TRR 266 Accounting for Transparency Working Paper Series No. 17 (2020)

49 Pages Posted: 13 Feb 2020 Last revised: 12 May 2020

See all articles by Jens Mueller

Jens Mueller

Paderborn University

Arndt Weinrich

Paderborn University

Date Written: February 5, 2020

Abstract

This study examines strategic alliances as channels for tax knowledge diffusion between firms. Although strategic alliances are primarily expected to foster their main business purposes, we focus on whether tax knowledge diffuses as a second-order effect of peer-to-peer cooperation. To tease out diffusion of tax knowledge, we investigate changes in the tax planning behavior of high-tax firms in strategic alliances with low-tax firms in comparison to high-tax firms in strategic alliances with other high-tax firms. Our results suggest an economically meaningful decrease in cash effective tax rates of high-tax firms in strategic alliances with low-tax firms relative to high-tax firms in high-tax strategic alliances. Additionally, we find that the adjustment occurs within two years of a strategic alliance’s initiation. We apply textual analysis to control for the strategic alliances’ main business purposes and find that these activities do not drive our results. Thus, we identify tax knowledge diffusion as a second-order effect and conjecture that strategic alliances are not intended to establish tax planning investments. Finally, we test whether partner characteristics intensify or mitigate the identified effects. Overall, our results provide robust evidence for tax knowledge diffusion via strategic alliances.

Keywords: Corporate Tax Planning/Avoidance, Knowledge Diffusion, Network, Strategic Alliance

JEL Classification: C31, G34, H26

Suggested Citation

Mueller, Jens and Weinrich, Arndt, Tax Knowledge Diffusion via Strategic Alliances (February 5, 2020). TRR 266 Accounting for Transparency Working Paper Series No. 17 (2020). Available at SSRN: https://ssrn.com/abstract=3532367 or http://dx.doi.org/10.2139/ssrn.3532367

Jens Mueller

Paderborn University ( email )

Warburger Str. 100
Paderborn, 33098
Germany

Arndt Weinrich (Contact Author)

Paderborn University ( email )

Warburger Str. 100
Paderborn, 33098
Germany

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