Please use this identifier to cite or link to this item: http://hdl.handle.net/10125/59257

The Interaction of Incentive and Opportunity in Corporate Tax Avoidance: Evidence from Financially Constrained Firms

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Title:The Interaction of Incentive and Opportunity in Corporate Tax Avoidance: Evidence from Financially Constrained Firms
Authors:Wu, Kaishu
Keywords:Incentive
financial constraints
tax avoidance
tax planning opportunity (TPO)
tax risk
Date Issued:13 Aug 2018
Abstract:I hypothesize and find that the variation in corporate tax avoidance is jointly determined by firms’ incentive and opportunities to avoid taxes. Specifically, results based on a variety of identification strategies demonstrate that the positive relation between financial constraints (my proxy for an incentive to avoid taxes) and tax avoidance is significantly stronger for firms with high tax planning opportunities (TPO), where TPO is the distance between a firm’s actual and predicted ETRs. I further show that firms with TPOs based on high permanent (temporary) book-tax differences exhibit more permanent (temporary) book-tax differences under financial constraints. From a risk perspective, I find no evidence that financially constrained firms with low TPO exhibit more tax risk but some evidence that those with high TPO do so. In general, the findings in this paper provide evidence consistent with an incentive-opportunity interaction story to help explain differences in corporate tax avoidance.
URI:http://hdl.handle.net/10125/59257
Appears in Collections: 08 Taxation


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