Strategic Deviation and Corporate Tax Avoidance: A Risk Management Perspective
Abstract
:1. Introduction
2. Literature and Hypotheses Development
2.1. Strategic Deviation and Tax Avoidance
2.2. Strategic Deviation and Tax Avoidance: The Moderating Effect of Financial Constraints
2.3. Strategic Deviation and Tax Avoidance: The Moderating Role of Institutional Ownership
2.4. Strategic Deviation and Tax Avoidance: The Moderating Effect of Product Market Competition
2.5. Strategic Deviation and Tax Avoidance: The Moderating Effect of Auditor-Provided Tax Services (APTS)
3. Methodology
3.1. Sample
3.2. Variable Measurements
3.2.1. Independent Variable: Strategic Deviation (STR_DEV)
3.2.2. Dependent Variable: Tax Avoidance (AVOID)
3.3. Empirical Model
4. Results
4.1. Descriptive Statistics
4.2. Regression Results
4.3. Addressing Endogeneity
4.4. Strategic Deviation and Tax Avoidance: Cross-Sectional Tests
4.5. Robustness Tests
4.6. Strategic Deviation, Tax Avoidance and Firm Value
5. Conclusions
Author Contributions
Funding
Data Availability Statement
Acknowledgments
Conflicts of Interest
Appendix A. Variable Definitions
Dependent variables | GETR | Total tax expense (TXT) divided by pre-tax book (PI) income less special items (SI). We truncate GETR to the range (0, 1). For ease of interpretation, we multiply GETR by −1 and use the transformed variables (AVOIDGETR) in the correlation and regression analysis. |
CETR | Cash effective tax rate, measured as cash income taxes paid (TXPD), divided by pre-tax book income (PI) less special items (SPI). We truncate CETR to the range (0, 1). For ease of interpretation, we multiply CETR by −1 and use the transformed variables (AVOIDCETR) in the correlation and regression analysis. | |
CUR_ETR | Current effective tax rate measured as total income tax expense (TXT) less deferred tax expense (TXDI) divided by pre-tax book income (PI) less special items (SPI). We restrict CUR_ETR to fall in the interval (0, 1). For ease of interpretation, we multiply CUR_ETR by −1 and use the transformed variables (AVOIDCUR_ETR) in the correlation and regression analysis. | |
CASH_RATIO | Cash ratio, measured as income taxes paid scaled by sum of net operating cash flow, income taxes paid minus extraordinary items and discontinued operations. We multiply CASH_RATIO by −1 and use the transformed variable (AVOIDCASH_RATIO). | |
CETR_LONG | Long-run CASH ETR (CETR_LONG), measured as the sum of cash taxes paid over five years scaled by sum of pre-tax income less special items over the five years period. We multiply CETR_LONG by −1 and use the transformed variable (AVOIDCETR_LONG). | |
Independent variable | STR_DEV | Strategic deviation, measured as the extent to which a firm’s strategy deviates from industry average. See Section 3.2.1. for detailed estimation procedure. |
Control variables | SIZE | Natural log of the total assets (AT) of the firm at the beginning of year. |
FOR_INC | A dummy variable that takes a value of 1 if a firm has foreign income in a given year (PIFO > 0), 0 otherwise. | |
LEV | Leverage, measured as long-term debt (DLTT) divided by lagged total assets (AT). | |
MTB | Market-to-book ratio at the beginning of year, measured as market value of assets divided by book value of assets. | |
ROA | Profitability of the firm measured as operating income before depreciation divided by lagged total assets. | |
INTAN | Intangible assets (INTAN) divided by lagged assets (AT). | |
R&D | Research and development, measured as research and development expenses (RD) divided by lagged assets (AT). Missing values are set to zero. | |
CASH | Cash holding, defined as cash and marketable securities (CHE) divided by lagged total assets (AT). | |
NOL_D | A dummy variable, coded as 1 if the loss carry forward is positive at the beginning of the year t, and 0 otherwise. | |
∆NOL | Change in loss carry forward divided by lagged total assets. | |
TANG | Property, plant, and equipment (PPE) divided by lagged total assets (AT). | |
EQUITY_INC | Equity income in earnings (ESUB) divided by lagged total assets (AT). | |
Cross-sectional variables | FC_SA | FC_SA (Hadlock and Pierce 2010) is derived using the formula: −0.737 × SIZE + 0.043 × SIZE2 − 0.040 × AGE; where SIZE is the natural log of book assets (in millions) and AGE is measured as the number of years since the firm was first covered by the Center for Research in Securities Prices (CRSP). |
FLUID | Product market threat proxied by the Fluidity score obtained from Hoberg-Phillips Data Library (Hoberg et al. 2014). | |
IOWN | Percentage of common shares held by institutional investors retrieved from Thomson Reuter’s F13 File. | |
APTS | Auditor provided tax services, measured as tax fees/Total fees. Tax fee data only became available since 2001. We dropped APTS==0 because we are interested in finding whether deviant firms procuring tax services from incumbent auditors are more or less likely to avoid tax. |
1 | Many other tax avoidance-related costs include, but not limited to, increases in the cost of bank loans (Hasan et al. 2014; Isin 2018), lower corporate transparency (Balakrishnan et al. 2019; Frank et al. 2009; Hanlon 2005), increases in stock price crash risk (Kim et al. 2011), insider trading profitability (Chung et al. 2019) and investment inefficiency (Khurana et al. 2018). |
2 | However, Ye et al. (2021) find that firms pursuing a deviant strategy have more firm-specific information impounded into their stock prices and hence such firms have less synchronous stock price movement. This occurs because strategically deviant firms issue more managerial earnings forecasts and have a higher level of block ownership than the non-deviant firms. |
3 | Bayar et al. (2018), however, find that tax avoidance is a less useful source of financing for constrained firms. |
4 | In addition, the disciplinary perspective and cost efficiency explain why product market competition increases the efficiency of tax planning, and thus may reduce tax avoidance. In line with the disciplinary argument, product market competition acts as an external governance mechanism to monitor management behaviour. This, in turn, reduces managers’ opportunistic tax avoidance behaviour. In supporting this claim, Desai et al. (2007) find that with a strong corporate governance system, an increase in tax rates leads to an increase in tax revenue. Furthermore, when the competition is high, managers try to be cost-efficient and, as a result, tend to manage taxes efficiently. Supporting this assertion, Wang (2019) finds that firms operating in a competitive environment exhibit greater efficiency in managing taxes. |
5 | We replace missing R&D and advertising expenses with zero consistent with prior research. |
6 | In an unreported t-test, we find that deviant firms have higher SA_Index (mean = −2.97) compared to their less-deviant counterparts (mean = −3.11) (the difference is statically significant at p < 0.01) suggesting that deviant firms are financially more constrained than their less deviant counterparts. We also regress SA_Index on STR_DEV and other control variables and find the coefficient on STR_DEV positive and significant (coefficient 0.013, p < 0.01) (untabulated). |
7 | We performed a t-test to compare the difference in mean IOWN between high and low strategic deviation groups. Untabulated result shows a significant difference in mean IOWN between more deviant group (mean IOWN of 40%) vs. less deviant group (mean IOWN of 45%) (the difference is significant at p < 0.01), providing univariate support that strategically deviant firms are subject to less external monitoring. |
8 | See http://hobergphillips.tuck.dartmouth.edu/ (accessed on 22 November 2022). |
9 | Unreported t-test shows that firms pursuing deviant strategies operate in a low competitive market (mean FLUID value of 6.53) than their less-deviant counterparts (mean FLUID value of 7.07) with the difference being significant at p < 0.01. |
10 | We drop observations with APTS = 0 because firms with APTS = 0 in the Audit Analytics may have no tax services purchased from any sources or may have procured tax services from other sources than their incumbent auditors. Our unreported t-test result shows that deviant firms procure marginally less APTS than their non-deviant counterparts (mean APTS of 0.07 vs. 0.08) (difference in mean, however, is significant t = 9.17, p < 0.01). |
11 | Belnap et al. (2023) in their review paper suggest that the explanatory power of agency cost proxies is lower than that of operational proxies in explaining the variances of tax avoidance. They also highlight some concerns around measurements of tax avoidance widely used in the prior literature. |
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Code | Industry | Observations | % Observation |
---|---|---|---|
1–14 | Agriculture and mining | 2775 | 6.91% |
15–17 | Building construction | 402 | 1.00% |
20–21 | Food and kindred products | 1567 | 3.90% |
22–23 | Textile mill products and apparels | 625 | 1.56% |
24–27 | Lumber, furniture, paper, printing | 1560 | 3.88% |
28–30 | Chemical, petroleum, rubber, allied products | 6119 | 15.23% |
31–34 | Metal | 1965 | 4.89% |
35–39 | Machinery, electrical, computer equipment | 11,169 | 27.81% |
40–48 | Railroad and other transportation | 973 | 2.42% |
50–52 | Wholesale goods, building materials | 2105 | 5.24% |
53–59 | Store merchandise, auto dealers, home furniture stores | 2201 | 5.48% |
70–79 | Business services | 6412 | 15.96% |
80–99 | Other | 2295 | 5.71% |
Total | 40,168 | 100.00% |
Variables | N | Mean | S.D. | 0.25 | Median | 0.75 | |
---|---|---|---|---|---|---|---|
Tax avoidance measures | GETR | 40,168 | 0.266 | 0.169 | 0.378 | 0.31 | 0.136 |
CETR | 30,212 | 0.250 | 0.170 | 0.353 | 0.249 | 0.120 | |
CUR_ETR | 36,719 | 0.246 | 0.178 | 0.368 | 0.267 | 0.084 | |
CASH_RATIO | 29,460 | 0.203 | 0.169 | 0.285 | 0.179 | 0.075 | |
CETR_LONG | 21,698 | 0.270 | 0.141 | 0.350 | 0.276 | 0.182 | |
Independent variable | STR_DEV | 40,168 | 2.185 | 1.631 | 1.250 | 1.803 | 2.556 |
Control variables | SIZE | 40,168 | 5.713 | 2.131 | 4.151 | 5.611 | 7.179 |
FORINC | 40,168 | 0.309 | 0.462 | 0.000 | 0.000 | 1.000 | |
LEV | 40,168 | 0.188 | 0.179 | 0.014 | 0.154 | 0.307 | |
MTB | 40,168 | 3.474 | 3.992 | 1.384 | 2.256 | 3.853 | |
ROA | 40,168 | −0.003 | 0.236 | 0.011 | 0.050 | 0.089 | |
INTAN | 40,168 | 0.132 | 0.176 | 0.000 | 0.051 | 0.203 | |
R&D | 40,168 | 0.055 | 0.116 | 0.000 | 0.005 | 0.061 | |
CASH | 40,168 | 0.208 | 0.233 | 0.033 | 0.113 | 0.302 | |
NOL_D | 40,168 | 0.545 | 0.498 | 0.000 | 1.000 | 1.000 | |
ΔNOL | 40,168 | 0.070 | 0.302 | 0.000 | 0.000 | 0.008 | |
TANG | 40,168 | 0.265 | 0.235 | 0.085 | 0.189 | 0.372 | |
EQINC | 40,168 | 0.001 | 0.004 | 0.000 | 0.000 | 0.000 | |
Cross-sectional variables | SA_INDEX | 30,938 | −3.270 | 0.700 | −3.754 | −3.315 | −2.820 |
IOWN | 21,731 | 0.482 | 0.304 | 0.213 | 0.465 | 0.740 | |
FLUID | 31,870 | 6.560 | 3.718 | 3.937 | 5.765 | 8.293 | |
APTS | 14,094 | 0.136 | 0.127 | 0.041 | 0.099 | 0.195 |
[1] | [2] | [3] | [4] | [5] | [6] | [7] | [8] | [9] | [10] | [11] | [12] | [13] | [14] | [15] | [16] | |
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
AVOIDGETR [1] | 1.000 | |||||||||||||||
AVOIDCETR [2] | 0.477 | 1.000 | ||||||||||||||
AVOIDCUR_ETR [3] | 0.639 | 0.662 | 1.000 | |||||||||||||
STR_DEV [4] | 0.037 | 0.029 | 0.054 | 1.000 | ||||||||||||
SIZE [5] | −0.006 | −0.003 | 0.024 | −0.040 | 1.000 | |||||||||||
FORINC [6] | 0.041 | 0.007 | −0.011 | −0.107 | 0.390 | 1.000 | ||||||||||
LEV [7] | 0.018 | 0.052 | 0.108 | 0.098 | 0.305 | 0.052 | 1.000 | |||||||||
MTB [8] | 0.117 | 0.125 | 0.067 | 0.140 | 0.023 | 0.051 | 0.064 | 1.000 | ||||||||
ROA [9] | −0.281 | −0.204 | −0.251 | −0.138 | 0.165 | 0.104 | −0.080 | −0.056 | 1.000 | |||||||
INTAN [10] | 0.029 | 0.021 | 0.019 | −0.060 | 0.305 | 0.207 | 0.214 | 0.026 | −0.027 | 1.000 | ||||||
R&D [11] | 0.252 | 0.182 | 0.148 | −0.080 | −0.196 | 0.042 | −0.227 | 0.214 | −0.430 | −0.077 | 1.000 | |||||
CASH [12] | 0.189 | 0.141 | 0.078 | −0.023 | −0.247 | −0.046 | −0.463 | 0.191 | −0.115 | −0.227 | 0.441 | 1.000 | ||||
NOL_D [13] | 0.287 | 0.299 | 0.309 | −0.005 | 0.249 | 0.268 | 0.099 | 0.092 | −0.194 | 0.265 | 0.149 | 0.086 | 1.000 | |||
ΔNOL [14] | 0.204 | 0.133 | 0.160 | 0.097 | −0.124 | −0.073 | −0.026 | 0.161 | −0.520 | −0.004 | 0.296 | 0.173 | 0.115 | 1.000 | ||
TANG [15] | −0.023 | 0.069 | 0.136 | 0.038 | 0.123 | −0.148 | 0.287 | −0.109 | 0.027 | −0.354 | −0.252 | −0.374 | −0.141 | −0.050 | 1.000 | |
EQINC [16] | 0.015 | 0.010 | 0.022 | 0.022 | 0.169 | 0.065 | 0.056 | −0.002 | 0.057 | −0.010 | −0.070 | −0.095 | 0.005 | −0.032 | 0.052 | 1.000 |
AVOIDGETR | AVOIDCETR | AVOIDCUR_ETR | |
---|---|---|---|
(1) | (2) | (3) | |
OLS | OLS | OLS | |
STR_DEV | 0.004 *** | 0.003 *** | 0.004 *** |
[0.001] | [0.001] | [0.001] | |
SIZE | −0.007 *** | −0.009 *** | −0.010 *** |
[0.001] | [0.001] | [0.001] | |
FORINC | −0.013 *** | −0.010 *** | −0.025 *** |
[0.003] | [0.003] | [0.003] | |
LEV | 0.037 *** | 0.064 *** | 0.080 *** |
[0.008] | [0.010] | [0.008] | |
MTB | 0.002 *** | 0.003 *** | 0.000 |
[0.000] | [0.000] | [0.000] | |
ROA | −0.108 *** | −0.070 *** | −0.107 *** |
[0.006] | [0.009] | [0.006] | |
INTAN | 0.048 *** | 0.061 *** | 0.060 *** |
[0.010] | [0.011] | [0.010] | |
R&D | 0.061 *** | 0.196 *** | 0.054 *** |
[0.014] | [0.023] | [0.013] | |
CASH | 0.155 *** | 0.121 *** | 0.140 *** |
[0.008] | [0.010] | [0.008] | |
NOL_D | 0.069 *** | 0.079 *** | 0.094 *** |
[0.003] | [0.003] | [0.003] | |
ΔNOL | 0.031 *** | −0.002 | 0.026 *** |
[0.003] | [0.006] | [0.003] | |
TANG | 0.074 *** | 0.145 *** | 0.164 *** |
[0.011] | [0.012] | [0.011] | |
EQINC | 1.190 *** | 1.257 *** | 1.061 *** |
[0.266] | [0.304] | [0.274] | |
Industry | Yes | Yes | Yes |
Year | Yes | Yes | Yes |
Constant | −0.454 *** | −0.364 *** | −0.421 *** |
[0.029] | [0.026] | [0.021] | |
Observations | 40,168 | 30,212 | 36,719 |
Adj. R2 | 0.38 | 0.20 | 0.35 |
Panel A: Fixed-effect estimates | |||||||||||||||
AVOIDGETR | AVOIDCETR | AVOIDCUR_ETR | |||||||||||||
(1) | (2) | (3) | |||||||||||||
FFE | FFE | FFE | |||||||||||||
STR_DEV | 0.002 ** | −0.000 | 0.002 *** | ||||||||||||
[0.001] | [0.001] | [0.001] | |||||||||||||
SIZE | −0.021 *** | −0.023 *** | −0.025 *** | ||||||||||||
[0.002] | [0.003] | [0.002] | |||||||||||||
FORINC | −0.000 | 0.010 ** | 0.001 | ||||||||||||
[0.003] | [0.004] | [0.004] | |||||||||||||
LEV | 0.033 *** | 0.009 | 0.044 *** | ||||||||||||
[0.009] | [0.012] | [0.010] | |||||||||||||
MTB | 0.000 * | 0.002 *** | −0.000 | ||||||||||||
[0.000] | [0.000] | [0.000] | |||||||||||||
ROA | −0.053 *** | 0.003 | −0.030 *** | ||||||||||||
[0.006] | [0.010] | [0.006] | |||||||||||||
INTAN | 0.068 *** | 0.050 *** | 0.052 *** | ||||||||||||
[0.013] | [0.017] | [0.014] | |||||||||||||
R&D | −0.034 ** | −0.006 | −0.031 ** | ||||||||||||
[0.016] | [0.031] | [0.013] | |||||||||||||
CASH | 0.076 *** | 0.062 *** | 0.054 *** | ||||||||||||
[0.011] | [0.014] | [0.011] | |||||||||||||
NOL_D | 0.058 *** | 0.067 *** | 0.079 *** | ||||||||||||
[0.004] | [0.004] | [0.004] | |||||||||||||
ΔNOL | 0.014 *** | −0.012 ** | 0.010 *** | ||||||||||||
[0.003] | [0.006] | [0.002] | |||||||||||||
TANG | 0.027 | 0.063 *** | 0.072 *** | ||||||||||||
[0.017] | [0.020] | [0.017] | |||||||||||||
EQINC | 0.754 *** | 1.744 *** | 1.095 *** | ||||||||||||
[0.279] | [0.412] | [0.322] | |||||||||||||
Industry | No | No | No | ||||||||||||
Year | Yes | Yes | Yes | ||||||||||||
Firm | Yes | Yes | Yes | ||||||||||||
Constant | −0.333 *** | −0.232 *** | −0.278 *** | ||||||||||||
[0.015] | [0.021] | [0.017] | |||||||||||||
Observations | 40,168 | 30,212 | 36,719 | ||||||||||||
Adj. R2 | 0.06 | 0.05 | 0.08 | ||||||||||||
Panel B: Entropy-balancing test Covariate matching | |||||||||||||||
Before = Without weighting | After = With weighting | ||||||||||||||
Mean | Variance | Skewness | Mean | Variance | Skewness | Mean | Variance | Skewness | Mean | Variance | Skewness | ||||
SIZE | 5.569 | 4.623 | 0.222 | 5.836 | 4.438 | 0.239 | 5.569 | 4.623 | 0.222 | 5.569 | 4.623 | 0.222 | |||
FORINC | 0.247 | 0.186 | 1.172 | 0.362 | 0.231 | 0.576 | 0.247 | 0.186 | 1.172 | 0.247 | 0.186 | 1.171 | |||
LEV | 0.202 | 0.038 | 0.851 | 0.176 | 0.026 | 0.708 | 0.202 | 0.038 | 0.851 | 0.202 | 0.038 | 0.852 | |||
MTB | 3.590 | 20.280 | 3.283 | 3.375 | 12.170 | 3.445 | 3.590 | 20.280 | 3.283 | 3.590 | 20.280 | 3.283 | |||
ROA | −0.016 | 0.069 | −3.973 | 0.007 | 0.044 | −4.276 | −0.016 | 0.069 | −3.973 | −0.016 | 0.069 | −3.973 | |||
INTAN | 0.120 | 0.029 | 1.688 | 0.143 | 0.033 | 1.390 | 0.120 | 0.029 | 1.688 | 0.120 | 0.029 | 1.687 | |||
R&D | 0.045 | 0.014 | 4.196 | 0.063 | 0.013 | 3.624 | 0.045 | 0.014 | 4.196 | 0.045 | 0.014 | 4.195 | |||
CASH | 0.199 | 0.053 | 1.551 | 0.215 | 0.055 | 1.349 | 0.199 | 0.053 | 1.551 | 0.199 | 0.053 | 1.551 | |||
NOL_D | 0.521 | 0.250 | −0.085 | 0.565 | 0.246 | −0.263 | 0.521 | 0.250 | −0.085 | 0.521 | 0.250 | −0.085 | |||
ΔNOL | 0.081 | 0.109 | 4.454 | 0.061 | 0.076 | 5.007 | 0.081 | 0.109 | 4.454 | 0.081 | 0.109 | 4.454 | |||
TANG | 0.280 | 0.057 | 0.992 | 0.252 | 0.053 | 1.338 | 0.280 | 0.057 | 0.992 | 0.280 | 0.057 | 0.992 | |||
EQINC | 0.001 | 0.000 | 3.803 | 0.001 | 0.000 | 3.832 | 0.001 | 0.000 | 3.803 | 0.001 | 0.000 | 3.803 | |||
Regression results | |||||||||||||||
(1) | (2) | (3) | |||||||||||||
Variables | AVOIDGETR | AVOIDCETR | AVOIDCUR_ETR | ||||||||||||
STR_DEV | 0.005 *** | 0.004 *** | 0.005 *** | ||||||||||||
[0.001] | [0.001] | [0.001] | |||||||||||||
SIZE | −0.008 *** | −0.009 *** | −0.010 *** | ||||||||||||
[0.001] | [0.001] | [0.001] | |||||||||||||
FORINC | −0.013 *** | −0.011 *** | −0.025 *** | ||||||||||||
[0.003] | [0.003] | [0.003] | |||||||||||||
LEV | 0.036 *** | 0.063 *** | 0.076 *** | ||||||||||||
[0.010] | [0.014] | [0.011] | |||||||||||||
MTB | 0.002 *** | 0.002 *** | 0.000 | ||||||||||||
[0.000] | [0.000] | [0.000] | |||||||||||||
ROA | −0.106 *** | −0.068 *** | −0.102 *** | ||||||||||||
[0.006] | [0.008] | [0.007] | |||||||||||||
INTAN | 0.042 *** | 0.053 *** | 0.059 *** | ||||||||||||
[0.010] | [0.012] | [0.011] | |||||||||||||
R&D | 0.039 *** | 0.173 *** | 0.044 *** | ||||||||||||
[0.015] | [0.024] | [0.014] | |||||||||||||
CASH | 0.149 *** | 0.104 *** | 0.134 *** | ||||||||||||
[0.009] | [0.011] | [0.009] | |||||||||||||
NOL_D | 0.070 *** | 0.080 *** | 0.096 *** | ||||||||||||
[0.004] | [0.004] | [0.004] | |||||||||||||
ΔNOL | 0.031 *** | 0.006 | 0.027 *** | ||||||||||||
[0.003] | [0.006] | [0.003] | |||||||||||||
TANG | 0.072 *** | 0.136 *** | 0.159 *** | ||||||||||||
[0.012] | [0.014] | [0.012] | |||||||||||||
EQINC | 1.349 *** | 1.473 *** | 1.249 *** | ||||||||||||
[0.356] | [0.365] | [0.322] | |||||||||||||
Industry | Yes | Yes | Yes | ||||||||||||
Year | Yes | Yes | Yes | ||||||||||||
Constant | −0.456 *** | −0.331 *** | −0.423 *** | ||||||||||||
[0.029] | [0.033] | [0.022] | |||||||||||||
Observations | 40,168 | 30,212 | 36,719 | ||||||||||||
Adj. R-squared | 0.35 | 0.20 | 0.37 | ||||||||||||
Panel C: Granger causality test | |||||||||||||||
(1) | (2) | (3) | (4) | (5) | (6) | ||||||||||
AVOIDGETR | STR_DEV | AVOIDCASH_ETR | STR_DEV | AVOIDCUR_ETR | STR_DEV | ||||||||||
STR_DEVt−1 | 0.002 *** | 0.546 *** | 0.001 | 0.608 *** | 0.002 *** | 0.535 *** | |||||||||
[0.001] | [0.019] | [0.001] | [0.026] | [0.001] | [0.021] | ||||||||||
STR_DEVt−2 | 0.001 | 0.182 *** | 0.002 * | 0.201 *** | 0.001 | 0.191 *** | |||||||||
[0.001] | [0.015] | [0.001] | [0.021] | [0.001] | [0.017] | ||||||||||
AVOIDt−1 | 0.372 *** | 0.012 | 0.279 *** | 0.070 | 0.402 *** | −0.055 | |||||||||
[0.009] | [0.068] | [0.010] | [0.043] | [0.010] | [0.066] | ||||||||||
AVOIDt−2 | 0.231 *** | −0.004 | 0.171 *** | −0.003 | 0.208 *** | −0.014 | |||||||||
[0.008] | [0.059] | [0.009] | [0.042] | [0.009] | [0.059] | ||||||||||
SIZE | −0.001 *** | −0.018 *** | −0.001 | −0.003 | −0.003 *** | −0.017 *** | |||||||||
[0.000] | [0.004] | [0.001] | [0.004] | [0.001] | [0.004] | ||||||||||
FORINC | −0.001 | −0.017 | 0.003 | −0.058 *** | −0.005 ** | −0.017 | |||||||||
[0.002] | [0.013] | [0.003] | [0.015] | [0.002] | [0.014] | ||||||||||
LEV | 0.017 *** | 0.121 ** | 0.011 | −0.002 | 0.033 *** | 0.096 | |||||||||
[0.005] | [0.055] | [0.008] | [0.061] | [0.005] | [0.060] | ||||||||||
MTB | 0.000 ** | 0.022 *** | 0.002 *** | 0.021 *** | 0.000 | 0.021 *** | |||||||||
[0.000] | [0.003] | [0.000] | [0.005] | [0.000] | [0.004] | ||||||||||
ROA | −0.068 *** | −0.356 *** | −0.051 *** | −0.285 * | −0.058 *** | −0.348 *** | |||||||||
[0.005] | [0.090] | [0.010] | [0.163] | [0.005] | [0.101] | ||||||||||
INTAN | 0.019 *** | −0.242 *** | 0.039 *** | −0.212 *** | 0.022 *** | −0.238 *** | |||||||||
[0.006] | [0.055] | [0.009] | [0.053] | [0.006] | [0.058] | ||||||||||
R&D | 0.033 *** | −0.394 ** | 0.077 *** | −0.458 *** | 0.033 *** | −0.341 * | |||||||||
[0.010] | [0.160] | [0.024] | [0.156] | [0.009] | [0.177] | ||||||||||
CASH | 0.047 *** | 0.020 | 0.048 *** | −0.013 | 0.044 *** | 0.049 | |||||||||
[0.005] | [0.049] | [0.009] | [0.052] | [0.005] | [0.053] | ||||||||||
NOL_D | 0.023 *** | 0.004 | 0.026 *** | −0.003 | 0.031 *** | 0.005 | |||||||||
[0.002] | [0.013] | [0.003] | [0.016] | [0.002] | [0.015] | ||||||||||
ΔNOL | 0.008 ** | 0.075 | 0.000 | −0.061 | 0.008 *** | 0.070 | |||||||||
[0.003] | [0.060] | [0.008] | [0.108] | [0.003] | [0.065] | ||||||||||
TANG | 0.030 *** | −0.245 *** | 0.070 *** | −0.130 *** | 0.060 *** | −0.204 *** | |||||||||
[0.006] | [0.059] | [0.010] | [0.050] | [0.007] | [0.063] | ||||||||||
EQINC | 0.799 *** | 1.849 | 0.726 *** | 3.594 * | 0.715 *** | 0.716 | |||||||||
[0.170] | [1.722] | [0.268] | [2.093] | [0.196] | [1.590] | ||||||||||
Industry | Yes | Yes | Yes | Yes | Yes | Yes | |||||||||
Year | Yes | Yes | Yes | Yes | Yes | Yes | |||||||||
Constant | −0.126 *** | 0.812 *** | −0.208 *** | 0.565 *** | −0.135 *** | 0.811 *** | |||||||||
[0.015] | [0.180] | [0.019] | [0.084] | [0.015] | [0.168] | ||||||||||
Observations | 29,029 | 29,029 | 19,995 | 19,995 | 24,618 | 24,618 | |||||||||
Adj. R2 | 0.52 | 0.61 | 0.32 | 0.37 | 0.55 | 0.62 | |||||||||
The coefficients on STR_DEVt−1 and STR_DEVt−2 are jointly indifferent from zero F = 24.14, p < 0.01 | The coefficients on GETRt−1 and GETRt−2 are jointly indifferent from zero F = 0.02, p = 0.88 | The coefficients on STR_DEVt−1 and STR_DEVt−2 are jointly indifferent from zero F = 10.62, p < 0.01 | The coefficients on CASH_ETRt−1 and CASH_ETRt−2 are jointly indifferent from zero F = 1.81, p = 0.18 | The coefficients on STR_DEVt−1 and STR_DEVt−2 are jointly indifferent from zero F = 14.69, p < 0.01 | The coefficients on CUR_ETRt−1 and CUR_ETRt−2 are jointly indifferent from zero F = 1.77, p = 0.18 | ||||||||||
Panel D: 2SLS test | |||||||||||||||
1st stage | 2nd_stage | ||||||||||||||
Variables | DV = STR_DEV | DV = AVOIDGETR | |||||||||||||
STR_DEV_IND | 0.631 *** | - | |||||||||||||
[0.019] | |||||||||||||||
STR_DEV | - | 0.006 ** | |||||||||||||
[0.003] | |||||||||||||||
SIZE | −0.083 *** | −0.007 *** | |||||||||||||
[0.005] | [0.001] | ||||||||||||||
FORINC | −0.074 *** | −0.013 *** | |||||||||||||
[0.018] | [0.002] | ||||||||||||||
LEV | 0.451 *** | 0.036 *** | |||||||||||||
[0.050] | [0.005] | ||||||||||||||
MTB | 0.059 *** | 0.002 *** | |||||||||||||
[0.002] | [0.000] | ||||||||||||||
ROA | −1.194 *** | −0.106 *** | |||||||||||||
[0.047] | [0.006] | ||||||||||||||
INTAN | −0.328 *** | 0.049 *** | |||||||||||||
[0.058] | [0.006] | ||||||||||||||
R&D | −1.169 *** | 0.064 *** | |||||||||||||
[0.097] | [0.010] | ||||||||||||||
CASH | 0.505 *** | 0.154 *** | |||||||||||||
[0.049] | [0.005] | ||||||||||||||
NOL_D | 0.119 *** | 0.069 *** | |||||||||||||
[0.017] | [0.002] | ||||||||||||||
ΔNOL | 0.273 *** | 0.030 *** | |||||||||||||
[0.030] | [0.003] | ||||||||||||||
TANG | −0.546 *** | 0.075 *** | |||||||||||||
[0.056] | [0.006] | ||||||||||||||
EQINC | 7.118 *** | 1.178 *** | |||||||||||||
[1.813] | [0.179] | ||||||||||||||
Industry effects | Yes | Yes | |||||||||||||
Year effects | Yes | Yes | |||||||||||||
Constant | 2.828 *** | −0.463 *** | |||||||||||||
[0.164] | [0.020] | ||||||||||||||
Observations | 40,142 | 40,142 | |||||||||||||
Adj R2 | - | 0.34 | |||||||||||||
Kleibergen–Paap rk LM statistic: p-value | 0.000 | ||||||||||||||
Weak identification test: | |||||||||||||||
Cragg–Donald Wald F-stat. | 1094.47 | ||||||||||||||
Stock–Yogo critical value | 16.38 |
(1) | (2) | (3) | (4) | |
---|---|---|---|---|
Variables | AVOIDGETR | AVOIDGETR | AVOIDGETR | AVOIDGETR |
STR_DEV | 0.001 | 0.001 | 0.002 | 0.000 |
[0.001] | [0.001] | [0.001] | [0.001] | |
SA | 0.009 * | |||
[0.005] | ||||
STR_DEV*SA | 0.008 *** | |||
[0.002] | ||||
IOWN | 0.011 ** | |||
[0.005] | ||||
STR_DEV*IOWN | 0.005 *** | |||
[0.002] | ||||
FLUID | 0.011 *** | |||
[0.004] | ||||
STR_DEV*FLUID | 0.002 * | |||
[0.001] | ||||
APTS | −0.038 * | |||
[0.020] | ||||
STR_DEV*APTS | 0.013 * | |||
[0.008] | ||||
SIZE | −0.001 | 0.001 | −0.007 *** | −0.002 * |
[0.001] | [0.001] | [0.001] | [0.001] | |
FORINC | −0.004 | −0.006 * | −0.004 | −0.014 *** |
[0.003] | [0.003] | [0.003] | [0.004] | |
LEV | 0.025 *** | 0.020 * | 0.042 *** | 0.038 *** |
[0.009] | [0.011] | [0.009] | [0.012] | |
MTB | 0.003 *** | 0.002 *** | 0.002 *** | 0.001 *** |
[0.000] | [0.000] | [0.000] | [0.000] | |
ROA | −0.195 *** | −0.149 *** | −0.116 *** | −0.102 *** |
[0.013] | [0.013] | [0.007] | [0.010] | |
INTAN | 0.017 | 0.040 *** | 0.014 | 0.033 ** |
[0.011] | [0.012] | [0.009] | [0.014] | |
R&D | 0.224 *** | 0.177 *** | 0.082 *** | 0.036 |
[0.029] | [0.025] | [0.015] | [0.025] | |
CASH | 0.101 *** | 0.131 *** | 0.132 *** | 0.135 *** |
[0.010] | [0.011] | [0.008] | [0.014] | |
NOL_D | 0.055 *** | 0.052 *** | 0.065 *** | 0.041 *** |
[0.003] | [0.004] | [0.003] | [0.004] | |
ΔNOL | 0.053 *** | 0.037 *** | 0.033 *** | 0.032 *** |
[0.009] | [0.008] | [0.003] | [0.005] | |
TANG | 0.062 *** | 0.067 *** | 0.061 *** | 0.038 ** |
[0.012] | [0.014] | [0.010] | [0.019] | |
EQINC | 1.347 *** | 1.225 *** | 1.147 *** | 0.947 ** |
[0.301] | [0.349] | [0.309] | [0.413] | |
Industry | Yes | Yes | Yes | Yes |
Year | Yes | Yes | Yes | Yes |
Constant | −0.468 *** | −0.476 *** | −0.355 *** | −0.335 *** |
[0.030] | [0.032] | [0.008] | [0.042] | |
Observations | 30,938 | 21,731 | 31,870 | 14,094 |
Adjusted R2 | 0.19 | 0.24 | 0.33 | 0.31 |
(1) | (2) | (3) | |
---|---|---|---|
AVOIDCASH_RATIO | AVOIDCETR_LONG | AVOIDGETR | |
STR_DEV | 0.002 ** | 0.002 ** | - |
[0.001] | [0.001] | ||
STR_DEV_ALT | - | - | 0.004 *** |
[0.001] | |||
SIZE | −0.004 *** | 0.000 | −0.008 *** |
[0.001] | [0.001] | [0.001] | |
FORINC | −0.003 | −0.010 *** | −0.014 *** |
[0.003] | [0.002] | [0.003] | |
LEV | 0.085 *** | 0.041 *** | 0.038 *** |
[0.008] | [0.007] | [0.008] | |
MTB | −0.000 | 0.002 *** | 0.002 *** |
[0.000] | [0.000] | [0.000] | |
ROA | −0.139 *** | 0.004 | −0.096 *** |
[0.010] | [0.013] | [0.006] | |
INTAN | 0.116 *** | 0.094 *** | 0.040 *** |
[0.010] | [0.007] | [0.010] | |
R&D | 0.148 *** | 0.299 *** | 0.037 *** |
[0.022] | [0.021] | [0.012] | |
CASH | 0.164 *** | 0.130 *** | 0.149 *** |
[0.010] | [0.008] | [0.008] | |
NOL_D | 0.073 *** | 0.045 *** | 0.068 *** |
[0.003] | [0.002] | [0.003] | |
ΔNOL | −0.022 *** | 0.009 | 0.030 *** |
[0.006] | [0.010] | [0.002] | |
TANG | 0.256 *** | 0.182 *** | 0.070 *** |
[0.010] | [0.008] | [0.011] | |
EQINC | 0.080 | 0.726 *** | 1.190 *** |
[0.274] | [0.210] | [0.289] | |
Industry | Yes | Yes | Yes |
Year | Yes | Yes | Yes |
Constant | −0.427 *** | −0.443 *** | −0.451 *** |
[0.027] | [0.023] | [0.029] | |
Observations | 29,460 | 21,698 | 44,126 |
Adj. R2 | 0.25 | 0.20 | 0.37 |
DV = TobinQt+1 | (1) | (2) | (3) | (4) |
---|---|---|---|---|
AVOIDGETR | AVOIDGETR | AVOIDCASH_RATIO | AVOIDCASH_RATIO | |
STR_DEV | −0.047 *** | −0.085 *** | −0.062 *** | −0.079 *** |
[0.009] | [0.021] | [0.011] | [0.015] | |
AVOID | 0.394 *** | 0.363 *** | 0.187 *** | 0.378 *** |
[0.050] | [0.135] | [0.052] | [0.113] | |
STR_DEV*AVOID | - | −0.123 * | - | −0.091 * |
[0.064] | [0.049] | |||
MVE | 0.065 *** | 0.093 *** | 0.068 *** | 0.068 *** |
[0.007] | [0.013] | [0.007] | [0.007] | |
SDRET | 0.966 *** | 0.543 *** | 1.474 *** | 1.471 *** |
[0.155] | [0.208] | [0.194] | [0.194] | |
LEV | −2.221 *** | −2.344 *** | −2.150 *** | −2.146 *** |
[0.080] | [0.084] | [0.086] | [0.085] | |
MTB | 0.241 *** | 0.206 *** | 0.228 *** | 0.229 *** |
[0.009] | [0.007] | [0.010] | [0.010] | |
ROA | −0.752 *** | −0.211 *** | 0.172 | 0.163 |
[0.134] | [0.044] | [0.217] | [0.217] | |
INTAN | −0.114 | −0.359 *** | −0.145 ** | −0.144 ** |
[0.082] | [0.073] | [0.063] | [0.063] | |
CAPX | 0.403 *** | 0.355 * | 0.318 ** | 0.321 ** |
[0.143] | [0.203] | [0.161] | [0.160] | |
Industry | Yes | Yes | Yes | Yes |
Year | Yes | Yes | Yes | Yes |
Constant | 1.661 *** | 1.717 *** | 1.534 *** | 1.565 *** |
[0.303] | [0.163] | [0.243] | [0.242] | |
Observations | 43,238 | 43,238 | 33,567 | 33,567 |
Adj. R2 | 0.41 | 0.43 | 0.40 | 0.40 |
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© 2024 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https://creativecommons.org/licenses/by/4.0/).
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Habib, A.; Ranasinghe, D.; Perera, A. Strategic Deviation and Corporate Tax Avoidance: A Risk Management Perspective. J. Risk Financial Manag. 2024, 17, 144. https://doi.org/10.3390/jrfm17040144
Habib A, Ranasinghe D, Perera A. Strategic Deviation and Corporate Tax Avoidance: A Risk Management Perspective. Journal of Risk and Financial Management. 2024; 17(4):144. https://doi.org/10.3390/jrfm17040144
Chicago/Turabian StyleHabib, Ahsan, Dinithi Ranasinghe, and Ahesha Perera. 2024. "Strategic Deviation and Corporate Tax Avoidance: A Risk Management Perspective" Journal of Risk and Financial Management 17, no. 4: 144. https://doi.org/10.3390/jrfm17040144