Enterprise Risk Management and Corporate Tax Planning

Journal of Risk and Insurance, Forthcoming

53 Pages Posted: 23 Dec 2020 Last revised: 28 Mar 2024

See all articles by Evan Eastman

Evan Eastman

Florida State University

Anne Ehinger

Florida State University

Jianren Xu

University of North Texas

Date Written: March 27, 2024

Abstract

This study examines the impact of enterprise risk management (ERM) programs on corporate tax planning. ERM is a holistic approach to managing an enterprise’s entire portfolio of risks (COSO 2004, 2017). We hand-collect data on ERM adoption for a sample of S&P 500 firms from 1993 to 2016. We empirically document that firms with ERM programs have lower cash effective tax rates (ETRs) than firms without ERM. Additionally, we find that the relation between ERM and tax avoidance is stronger among firms with more business segments. Finally, our results suggest ERM adoption offsets increases in opacity and tax uncertainty typically associated with tax avoidance strategies. Overall, we provide evidence that ERM allows firms to exploit tax avoidance opportunities through enhanced coordination and communication.

Keywords: Enterprise Risk Management (ERM), Tax Avoidance, Opacity, Tax Uncertainty

JEL Classification: G32, H25, M41

Suggested Citation

Eastman, Evan and Ehinger, Anne and Xu, Jianren, Enterprise Risk Management and Corporate Tax Planning (March 27, 2024). Journal of Risk and Insurance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3717865 or http://dx.doi.org/10.2139/ssrn.3717865

Evan Eastman

Florida State University ( email )

College of Business
Tallahassee, FL 32306
United States

Anne Ehinger (Contact Author)

Florida State University ( email )

Tallahasse, FL 32306
United States

Jianren Xu

University of North Texas ( email )

1155 Union Circle #305340
Denton, TX 76203
United States

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