Intertemporal Income Shifting for Investment Reasons: Evidence From Private Firms

51 Pages Posted: 18 May 2020 Last revised: 5 Jul 2023

See all articles by Cinthia Valle Ruiz

Cinthia Valle Ruiz

Catholic University of Lille - IESEG School of Management

Domenico Campa

International University of Monaco (IUM)

Maria‐del‐Mar Camacho‐Miñano

Universidad Complutense de Madrid (UCM) - Faculty of Economics and Business Administration

Date Written: June 15, 2023

Abstract

This paper examines the intertemporal income shifting behavior of private firms, as well as the level and efficiency of aggressive intertemporal income shifters’ investments in the wake of corporate tax cuts. Earlier research has focused mainly on public firms. However, research into private firms is especially relevant since these companies tend to finance future growth through internal financing. Using a sample of 2,650 firm-year observations of private Spanish firms, our results thus show that private companies engaged in intertemporal income shifting to gain additional tax savings in the presence of corporate tax cuts. This was particularly observed in the presence of significant investment opportunities and timing pressures to shift income. Additionally, we provide evidence that aggressive intertemporal income shifters invested more in labor capital after tax reforms than other firms and that such investments were efficient.

Keywords: Corporate tax cuts; intertemporal income shifting; internal financing dependence; investment efficiency; private firms.

JEL Classification: M41, M48, H21, H32

Suggested Citation

Valle Ruiz, Cinthia and Campa, Domenico and Camacho-Miñano, María-del-Mar, Intertemporal Income Shifting for Investment Reasons: Evidence From Private Firms (June 15, 2023). Available at SSRN: https://ssrn.com/abstract=3581685 or http://dx.doi.org/10.2139/ssrn.3581685

Cinthia Valle Ruiz (Contact Author)

Catholic University of Lille - IESEG School of Management ( email )

Socle de la Grande Arche
1 Parvis de la Defense
Puteaux, Paris 92800
France

Domenico Campa

International University of Monaco (IUM) ( email )

16, rue Huber Clerissi
Building Stella
Monaco, Monaco MC-98000
Monaco
+37797986997 (Phone)

María-del-Mar Camacho-Miñano

Universidad Complutense de Madrid (UCM) - Faculty of Economics and Business Administration ( email )

School of Business Administration
Somosaguas Campus
Madrid, Madrid 28223
Spain

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