Tax Avoidance, Tax Risk, and the Volatility of Stock Returns

65 Pages Posted: 22 Jun 2020

See all articles by Alain A. Krapl

Alain A. Krapl

Northern Kentucky University - Department of Economics and Finance

Robert Salyer

affiliation not provided to SSRN

Reilly S. White

University of New Mexico - Anderson School of Management

Date Written: May 28, 2020

Abstract

We explore the effects of tax avoidance and tax risk on stock return volatilities of U.S. firms. We find that firms with very low and very high levels of tax avoidance and firms with high levels of tax risk have more volatile stock returns. We observe that tax avoidance primarily affects stock return volatility through changes in investors’ cash flow expectations; in contrast, tax risk seems to affect stock returns through cash flow and discount rate channels. Furthermore, we find that changes in expected cash flows and discount rates are less offsetting for firms with extreme levels of tax avoidance and high levels of tax risk.

Keywords: Corporate tax avoidance, tax risk, volatility of stock returns, variance decomposition, volatility of cash flow news, volatility of discount rate news

JEL Classification: M41, G12, G15, F23

Suggested Citation

Krapl, Alain A. and Salyer, Robert and White, Reilly S., Tax Avoidance, Tax Risk, and the Volatility of Stock Returns (May 28, 2020). Available at SSRN: https://ssrn.com/abstract=3613038 or http://dx.doi.org/10.2139/ssrn.3613038

Alain A. Krapl (Contact Author)

Northern Kentucky University - Department of Economics and Finance ( email )

Haile/US Bank College of Business
Nunn Drive
Highland Heights, KY 41099
United States

Robert Salyer

affiliation not provided to SSRN

Reilly S. White

University of New Mexico - Anderson School of Management ( email )

1 University of New Mexico
Albuquerque, NM 87131-1221
United States

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